After more than 150 years of drilling for oil, there’s still one region of this earth whose potential we have yet to fully explore: the depths of the ocean. These ultra-deepwater regions have for many years been beyond our technological capabilities, but today the technology exists, and we can drill deeper and further offshore. So far, three principal regions have emerged as the most promising for ultra-deepwater exploration: the Gulf of Mexico, Brazil, and West Africa. Let’s take a look at these regions and unearth three oil stocks that are well positioned to take advantage of this new horizon.
There’s oil in those trenches
The reason these three areas seemed to be linked recently is that, well, they used to be physically linked. These fields have a very similar geology because they’re the remnants of when the Americas and Africa were a single continent hundreds of millions of years ago. All of these regions have the potential to hold several billion barrels of oil and could be a major source of new oil for the world.
Source: Baker Hughes investor presentation.
Now that the technology exists to tap these deep and complex fields, production in these regions is starting to take off. Most recently, a consortium of companies including Anadarko Petroleum Corporation (NYSE:APC) that operate in the Jubilee field off the Ghana coast just announced that production from that field is now at 110,000 barrels per day. Also, production from Brazil’s Lula field just started last week, and production from that field is expected to increase to 120,000 barrels of oil per day.
This is just the beginning, though. Of all 227 semisubmersibles and drillships currently drilling around the world, 56% of them operate in these regions. And there are a multitude of companies vying for a piece of each. The problem with offshore is that several players can be involved in a single well, and companies can have holdings across all of these regions. As a primer for investing in the golden triangle of offshore oil, here are three oil stocks to keep a lookout for.
An oil monopoly to invest in
Several of the household names in oil are trying to get a piece of the pie in each of these regions, but they’re hampered by two things: Either they need to outbid each other for prospective fields in the Gulf of Mexico, or they have to play by the rules of the national oil company in a respective country, which may not be in line with a company’s plans.
But there is one company that straddles the fence of NOC and investment opportunity and could be a major player in this surging oil trend: Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR). The state-run oil company of Brazil is required to have a 30% operator stake in every well drilled in offshore Brazil. This could be a huge benefit for a region that some estimate to have as many as 50 billion barrels of recoverable oil. Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) doesn’t seem to be wasting any time taking advantage of its leader position for offshore exploration, either. The company plans to spend $237 billion in the next four years to make this happen. If the company can deliver on these lofty production goals both on time and within budget — two major issues that have plagued the company in the past — its position in Brazil offshore could mean promising times ahead for this stock.
Prepping for the surge
For all of this activity in offshore exploration to happen, there will need to be a sizable increase in the amount of ultra-deepwater-capable rigs.
