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The Commodity Investor Q&A

By Matt Badiali, editor, S&A Resource Report
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.
 
Until now...
 
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.
 
Good investing,
 
Matt




In The Daily Crux Recent Articles
Market Notes
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.
 
Earnings today... Boston Scientific, Prudential, Sprint Nextel, Allstate, New York Times.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1224.71 +0.3% +11.4%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.19 -0.6% +7.2%
Euro 1.34 +1.4% -11.0%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
Change
52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%