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The World's Best Investment on High Oil Prices

By Matt Badiali, editor, S&A Resource Report
Wednesday, October 24, 2007

In 1996, four of the largest oil companies in the world – Amoco, Mobil, Shell, and Texaco – pooled their resources to tackle the greatest challenge in oil exploration of their day: drilling the Perdido Fold Belt.
Perdido's vast potential tantalized the oil companies, but it lay buried in the Gulf of Mexico beneath 7,000 feet of water and 14,000 feet of marine sediment – far deeper than anyone had drilled oil before.
The first wildcat well found oil at Perdido. But it wasn't until March 2001, when drillers tapped a second well in waters 217 miles due south of Galveston, that the area proved to hold the same oil-bearing rocks as those in Louisiana and Texas. In rapid succession, oil companies announced two significant deepwater Gulf discoveries: Chevron disclosed its 400 million-barrel Trident field in 2001, and a year later, Shell, Chevron, and BP unveiled Great White.
Finding these massive oil deposits underneath all that water and sediment wasn't possible until the mid-'90s. Only rapid advancements in computing allowed explorers to image oil through a mile of water and thick salt layers.
And once the oil companies mastered the seismic difficulties and began finding oil, the drilling companies had to follow suit. Drillers had to learn on the fly how to overcome extreme pressures, how to keep the drill hole open in deep-ocean sediments, and how to recover tools lost in a hole more than three miles deep.
In 2006, Transocean's Deepwater Horizon drilled the Kaskida well to 32,500 feet total depth in 5,860 feet of water. The well hit more than 600 feet of "pay" – oil-bearing sands – twice the amount in Chevron's highly publicized Jack well.
Exploration and drilling technologies rocketed ahead to capitalize on these discoveries. (And investors in drill ships have been well rewarded: The world's biggest deepwater drill ship operator, Transocean, has gained more than 200% in the last three years.) But now that the companies have found and drilled oil in deep water, they need to pump it out... And that creates a completely different set of problems.
Before a well can produce oil and gas, it needs to be "completed." This process includes placing a pressure control system, or "Christmas tree," on the wellhead. Then, the well connects to the production platform with piping and control cables. All these tasks require specialized divers and remote-controlled submersibles. Service companies are just ramping up to meet the challenges of deep water... and some are fantastic investments right now.
The soaring oil price (and oil companies' inflating bank accounts) ensures producers will be anxious to tap the deepwater fields – and that there will be plenty of money out there for companies that can help them do it.
The best investments now are service companies ready to meet the growing demand from regions that are just now exploring their deepwater assets – places in West Africa, Mexico, Brazil, and Southeast Asia. So companies with international fleets will fare better than companies that are locked into a single geographic region. It takes a little work to find undervalued stocks that meet these criteria, but the payoff will be well worth the effort.
Good investing,
Matt Badiali

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Market Watch
Symbol Price
S&P 500 1223.12 -0.1% +10.6%
Oil 38.22 -0.2% -0.3%
Gold 139.11 +0.8% +22.3%
Silver 29.51 +3.2% +62.6%
US-Dollar 79.17 -1.3% +4.3%
Euro 1.33 -0.8% -10.4%
Volatility 18.02 +0.1% -15.2%
Gold Stocks 590.99 +1.6% +25.5%
10-Year Yield 2.94 -2.7% -15.5%

World ETFs
Symbol Price
USA 122.76 -0.1% +10.6%
Canada 30.56 +0.2% +18.0%
Russia 21.98 +0.2% +17.2%
India 37.92 +0.2% +19.4%
Israel 16.76 +0.4% +10.4%
Japan 10.69 +0.5% +7.0%
Singapore 13.71 -0.2% +18.1%
Taiwan 14.92 +1.0% +20.2%
S. Korea 57.19 -0.2% +21.5%
S. Africa 72.26 +0.5% +29.7%
China 43.84 -1.3% -3.3%
Lat.America 53.21 +0.1% +9.2%

Sector ETFs
Symbol Price
Oil Service 137.74 +0.1% +20.2%
Big Pharma 63.99 -0.2% -3.2%
Internet 72.58 +0.7% +25.0%
Semis 16.18 -0.3% +26.4%
Utilities 31.19 -0.3% +1.8%
Defense 18.47 -0.3% +8.9%
Nanotech 10.08 +0.5% +1.3%
Alt. Energy 10.24 +1.6% -2.0%
Water 18.62 +0.7% +13.8%
Insurance 16.08 -0.4% +19.0%
Biotech 20.56 +0.1% +26.6%
Retail 19.59 -0.6% +26.6%
Software 24.65 -0.6% +22.7%
Big Tech 53.85 0.0% +22.1%
Construction 13.20 +0.8% +14.8%
Media 13.73 +0.7% +24.7%
Consumer Svcs 67.38 0.0% +23.4%
Financials 55.01 -0.1% +5.7%
Health Care 63.90 -0.6% +1.2%
Industrials 63.51 -0.1% +19.3%
Basic Mat 74.64 +0.4% +27.8%
Real Estate 55.35 +0.1% +21.8%
Transportation 91.39 -0.4% +23.9%
Telecom 22.65 +0.3% +16.8%