U.S. Onshore Drilling Boom

Brian Hicks

Written By Brian Hicks

Posted June 30, 2010

Rife with comical absurdity, “Drill Baby Drill” mentality assumes that we’re smart enough to drill for oil offshore.  

But the BP disaster in April did a heck of a job disproving that…

All BP had to do was heed the warnings over blow-out preventers (BOPs) — which ultimately failed and contributed to the fireball over the Gulf of Mexico — and BP most likely wouldn’t be in the mess it finds itself in today…

But that’s what happens when people don’t listen

BP’s blowout protector was a 325 ton, $15 million beast that sat at the bottom of the Gulf, controlling pressure or shutting down flow if something went wrong.  

Had it been working properly, it would’ve kept gas from running up too quickly into the rig, which is exactly what happened and what sparked the explosion of Deepwater Horizon.

But had BP listened to warnings, the Gulf wouldn’t be full of oil.

You see for more than a decade, offshore rig operators were told to have other systems in place should the BOP fail.  

Yet, no one listened… and no one enforced these safety precautions, it seems.

And you’d think that after 1,443 drilling accidents in offshore operations — leading to more than 40 deaths, more than 300 injuries, and 356 oil spills between 2001 and 2007 — some one would have enforced something.  

It was really only a matter of time before another accident happened.

But you can’t totally blame the BOP in this situation.  

Human stupidity — er, error — was largely to blame as well.

According to Newsweek:

A Congressional investigation would find that the BOP had a dead battery in its control pod and leaks in the hydraulic system. The biggest problem, however, came when the rig hit the resevoir and began pumping oil. Under standard operating procedures, the string is securely contained in the blowout preventer, which keeps it steady. But at one point, when the rubber pads were tight around the pipe, a technician in the rig accidentally bumped a joystick that moved the pipe upward about 15 feet. This both damaged the pipe and the rubber.

As engineer Mike Williams disclosed in his 60 Minutes interview, the pieces of rubbed-off rubber from the hugging mechanism began to flow upward with some oil, which concerned some people in the rig. But unfortunatly, there was no way to follow up on those fears. Earlier in the trip, the battery which that powered the communication system between the BOP and the rig died, and workers were unable to moniter any problems that might occur. (According to the Congressional report,  BP officials on site looking to save time and money and encouraged workers on the rig to press on without changing the battery.)

And drilling continued anyway… until the rig hit a stream of oil and methane gas and the BOP was unable to regulate force.

Even more infuriating, a Deepwater Horizon worker recently told BBC News that he and others identified a leak in a control pod (the brains of the BOP) weeks before the accident.  

And if that’s true… and BP moved forward in the face of danger anyway… BP could be “complicit in gross negligence.” 

Paradise spiraled into Hell

In a split second, BP’s rig blew sky high… Eleven people were killed. And oil gushed everywhere… and has continued to spill into Gulf waters for more than two months.

Animals are washing up on land. Beaches are ruined. Jobs are being lost. Entire industries are being washed away… BP still doesn’t know its back end from its elbow.

Every one’s saying it’ll be another six months until the spill is stopped…

But while the BP spill is making headlines as the greatest environmental criss in U.S. history, one industry — the onshore drilling business — is taking center stage.

And it’s likely to continue, even if offshore drilling is allowed in the future.

Deep-sea drilling is now public enemy #1 in almost every corner of the country

From Washington to Wasilla… Wall Street to Main Street… Everywhere you turn, politicians, pundits, and average Joes can’t distance himself far enough from deep-sea drilling.

Ohio Republican and House Minority Leader John Boeher now says:

… [T]his tragedy should remind us that America needs a real, comprehensive energy plan… which includes more of everything: more clean and renewable sources of energy such as nuclear power, wind, and solar energy, more alternative fuels, more conservation, and more environmentally responsible development of America’s energy resources.

Brit Hume recently said:

… [I]t’s not a matter of if they’ll be a disaster of some kind resulting of this kind of offshore drilling, it’s only a matter of when. This verifies that argument and becomes a powerful factor in the debate over what to do next. I don’t see any way around the political reality that this will set back the cause of offshore drilling in the United States…

Even Gov. Schwarzenegger of California, who had supported deep-sea drilling off his state’s coast, has now recently changed his mind and come out against it…

And so has President Obama — who, in late March, gave the OK to more offshore oil projects in Alaska, the Gulf, and along the Eastern Seaboard — is now backpedaling and freezing all new underwater drilling permits…

A CBS public opinion poll shows that support for increased offshore drilling has dropped more than 35% nationally since August 2008…

Here’s what you need to own as the calls for more onshore drilling increase

With destruction in the Gulf and a unrealistic call to end off shore drilling, we’ll see more calls for onshore drilling. And any company involved will skyrocket… especially in the oil-rich Bakken area — one of the largest continuous oil accumulations ever assessed in the United States.  

Even if the moratorium is gone, investors are likely to come back to on shore drilling stocks… which makes Oasis Petroleum (OAS) even more attractive.

This company has 292,000 net acres under lease prospective in the Bakken and Three Forks areas.

And it already had proved reserves of 13.3 million barrels of oil equivalent (BOE) a day by close of 2009 — and average daily production of 3,295 BOE per day in the first quarter of 2010.

Onshore drilling is where smart investors will look to put their money as the Gulf continues to lap oily waves onto its beaches… and beyond.

Stay Ahead of the Curve,

Ian L. Cooper
Energy and Capital

P.S. As long as the BP drama unfolds, OAS is likely to pop with other onshore drillers. Be on the lookout for a buy shortly in Pure Asset Trader — the team with a 62-for-65 closed position track record.

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