Wednesday, February 10, 2010
Q: I currently fish almost daily off the cost of Alabama and can see at least 15 or 20 rigs out there just from shore near the mouth of Mobile bay... I would say the number is more in the high hundreds especially if you go to the LA coast area and the Tex. coast area. – O.M.
A: Thanks for the "boots on the ground" perspective, O.M. For those of you who missed Monday's essay, A Big New American Oil Rush Is Beginning, O.M. is keeping an eye out for drill rigs operating in the Gulf of Mexico.
I think this area is going to be a huge piece of the energy picture over the next decade. Fortunes will be made. And we're still very early in the story...
Here's what I told you Monday:
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.
So, O.M., what you're probably seeing are producing rigs... not drilling rigs. Those rigs are pumping the oil and gas we discovered back in the '60s, '70s, and '80s, not exploring for new discoveries.
You can get the historical data on drilling-rig counts here. For the weekly change in rig count, click here. And for exactly where the rigs are working, click here. These sites will show you that almost no one is looking for new oil in the shallow shelf.
You see, in 1985, oil prices fell from near $30 per barrel to just $11 per barrel in just 18 months. Shallow shelf exploration fell apart and never recovered.
One small oil and gas explorer recently put together a geological jigsaw puzzle and made a huge find about 30,000 feet below the coast of Louisiana. If this discovery follows the same patterns as the previous discoveries in the Gulf of Mexico, we'll look back on this well as the birth of a brand new era in the oil industry.
I predict that within a year or two, we'll see companies drilling this same kind of well from Alabama to the Mexican border.
There are a couple ways you can make money here...
You can figure out which companies own the shallow-shelf acreage. That will take some research, but it's possible. You can also figure out which drilling companies can drill those wells. It takes a special kind of rig to work in shallow water and drill to 30,000 feet. There aren't many out there, so the companies who own them will see high demand and high rates.
If you put in the time today, you could see triple-digit gains as this play gets rolling over the next few years.
Gold stocks rebounding... big gold stock fund up 4.5% yesterday.
Euro currency badly oversold... expect a "snapback" rally.
Amazing price strength... natural gas trust San Juan Basin resists commodity selloff to remain near 52-week high.