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A Big New American Oil Rush Is Beginning

By Matt Badiali, editor, S&A Resource Report
Monday, February 8, 2010

Many years ago, the famous oil geologist Parke Dickey summed up successful oil exploration like this:
 
"You can find oil in a new place with old ideas and you can find oil with new ideas in an old place. But you can't find oil with old ideas in an old place."
 
For the past generation or so, the shallow Gulf of Mexico has been something Dickey would call an "old place."
 
People have been sucking oil out of the Gulf region since January 10, 1901, when the mega Spindletop oil field was discovered. At the time, it was the largest oil field ever discovered in the U.S. and a worldwide sensation.
 
The Spindletop discovery kicked off an 80-year golden age of Gulf Coast discoveries. In 1934, the first true offshore well went in about a mile off the coast of Louisiana. And in October 1947, Kerr-McGee struck in 18 feet of water, about 10 miles off the coast of Louisiana, well out of land sight. By the end of the 1970s, more than 12,500 offshore platforms produced oil and gas on the continental shelf of the Gulf of Mexico. The deepest water depth was just 1,000 feet – within about 20 miles of the coast.
 
We're still finding oil fields in the deep water, many miles off the coast. But excitement about the shallow shelf of the Gulf of Mexico peaked in 1982, when 283 rigs operated along our coast. That number plummeted 77% over the next four years. By 1986, just 65 rigs were still turning in the shallow water. The dropoff occurred when exploration efforts began coming up empty and the price of oil crashed. Today, there are only about 36 rigs in use.
 
If you want to understand Gulf region oil exploration, you must understand oil companies don't drill through what they can't see through. And the salt layers that blanket the Gulf of Mexico's shallow shelf have blocked conventional seismic technology.
 
Explorers have found plenty oil and gas above the salt layer, which occurs around 12,000 feet deep. Louisiana's huge 3 trillion-cubic-foot Tiger Shoal field and 2.5 trillion-cubic-foot Mound Point field both occurred at that depth.
 
But once the companies tapped all those shallow fields, they couldn't see any deeper and moved on. They all but ignore the shallow Gulf waters today. They've moved on to the hot, deepwater plays, with their promise of multimillion-barrel finds.
 
But as Dickey reminds us, old oil regions can still hold lots of oil; we just need new ideas to find it.
 
Today, we have those "new ideas." Seismic technology has improved dramatically. The ability to see through salt helped blow the lid off Brazil's billions of barrels of oil. Plus, deep drilling capability has exploded. Companies are routinely drilling over 25,000 feet into the deep-water trends of the Gulf of Mexico and finding oil and gas.
 
I think the shallow shelf of the Gulf of Mexico is about to get a whole lot more popular among the exploration companies. It's going to be a big story to follow for the next decade.
 
But the bigger one is this: There's all sorts of oil out there... even in "old places" like the Gulf of Mexico. It's just going to require extraordinary technology to find and extract it. This makes oil-service stocks – the companies that develop, use, and sell this technology – a great place for long-term money.
 
Good investing,
 
Matt Badiali




In The Daily Crux
Market Notes
Short China bets are working... inverse China fund at four-month high.
 
Silver badly oversold... lowest low since early September 2009, sharp rally likely.
 
Euro BLOWOUT continues... euro ETF at lowest low since summer 2009, short Euro ETF soaring.
 
Earnings today... CVS Caremark, Electronic Arts, Hasbro, Lincoln National.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%