Offshore Oil Investing

Offshore Oil Investing : The Buried Treasure That Can Make You Rich
A Taipan Publishing Group Strategy Report
by Irwin Greenstein, Senior Research Analyst, Taipan Publishing Group

The world’s most powerful companies are spending billions to recover one particular buried treasure.

This buried treasure isn’t gold doubloons, silver chalices or jewel-encrusted swords.

The Offshore Oil Investment Payoff

Breakthroughs in technology and an insatiable demand for oil and natural gas are pushing Big Oil out to countries where blood runs in the streets, rebels prefer the bow and arrow and the aristocratic elite live in villas protected by gun towers.

The payoff to this formidable treasure hunt is up to 1.3 trillion barrels of crude -- enough oil to keep the entire world in oil for the next 50 years.

Like most undersea treasures, offshore oil is perilous to recover. But with big oil enjoying the highest profits in history, the majors are going after it with a vengeance.

Chevron, Petrobas, Total, BP, Amerada Hess and other cash-rich oil giants are unleashing the latest technologies in exploration, drilling and transportation in an offshore free-for-all.

Offshore Oil Investing: Gets Cheaper by the Day

Until recently, the hurdles to pumping offshore oil made it too expensive to recover. There were undersea air pockets coming to the surface, extreme temperatures causing wax buildup in the oil retrieval lines, and inability to efficiently construct deep-sea oil pipelines were all significant barriers to success.

But with each day that oil prices notch up, the economics of offshore oil become more compelling. Offshore oil becomes cheaper in direct proportion to the rising price of crude.

Offshore Oil Investing: The Great Oil Shortage of 2020

Most oilfields are way past their prime production cycles, making them less economically viable to pump. Worldwide oil field output is dropping 10% annually. Oil fields outside the Persian Gulf are getting hit the hardest, with depletion levels of at least 20% a year. In the continental U.S., crude production has fallen by about 35% since peaking in 1970.

The International Energy Agency (IEA) forecasts that global production of crude must increase from 80 million barrels per day (bpd) to 115 million bpd by 2020 if demand is to be met.

The only option available to Big Oil is to explore in regions that have been largely ignored.

Offshore Oil Investing: North Sea Oil Is History

It’s impossible to consider, but the big days of the North Sea oil and gas region are history. The great Dutch gas boom of the 1960s, the oil boom of the 1970s and early 1980s, the British and Norwegian gas booms of the late 1980s and 1990s have all run their course.

The Netherlands’ gas output peaked in 1977. The U.K.’s oil and gas capacity peaked in 2000. In 2006, the U.K. and Norway were the world’s fastest-declining major oil producers.

Everything points to the advantages of finding oil offshore in places once unheard of. The fall of European offshore oil dictates that exploration shift to exotic new locales.

It’s the only way that the gap between existing supply and growing demand can possibly be met.

Despite dwindling reserves in Europe and the U.S., daily offshore oil and gas production is forecast to grow from 43

million barrels of oil equivalent (boe) to 53 million boe by 2010 -- an increase of 23.2%

During that same period, the oil industry is expected to increase expenditures 28.5% from $193 billion in 2006 to $248 billion by 2010, according to The World Offshore Oil and Gas Production & Spend Forecast.

Where is all that money going?

As you can see in this graph, the next wave of offshore exploration is now taking place in Africa, the Middle East and the Americas -- mostly Latin America.

Offshore Oil Investing: Offshore Discoveries Go Unnoticed

But new offshore discoveries in Brazil, Africa and Southeast Asia are quietly going unnoticed to the average investor, opening up new opportunities to investors in-the-know.

Vietnam, Ghana and Angola are now home to some major offshore oil finds. The Bohai Sea, Equatorial Guinea and Exmouth Sub-Basin are places that countless investors never heard of -- let alone identified as potential profit makers.

The same goes for offshore discoveries in Malaysia, Gambia, Burma and Indonesia.

For most individual investors, these places are simply off the map -- period.

Offshore Oil Investing: Technology Drives Offshore Exploration

The growth stems from technological innovations in offshore exploration -- breakthroughs in hardware, software and metallurgy that make offshore production cheaper, safer and more accurate.

Offshore oil rigs of the near-future will be able to reach 25,000 feet. To put that into perspective, the total height of the

Empire State Building is 1,454 feet.

To go that far down, these oil rig behemoths rely on computerized controls to make sure there are no slip-ups. The widespread adoption of digital technologies means that deep-water rigs will be able to pump a record 115,000 barrels per day to realize an ROI of three short years.

Offshore Oil Investing: A $55 Billion Market

This is the beginning of an upheaval in offshore oil. Escalating oil prices, surging demand and higher margins make offshore oil the best buried treasure an investor can find.

An estimated $55 billion is slated to be invested in offshore exploration, development and operations over the next 20 years.

This massive cash infusion is creating new cost-cutting technologies faster than ever. Today, the biggest challenges faced by technology developers in offshore drilling is getting products into the market fast enough.

The growing sophistication of offshore production technology is revolutionizing oil and gas activity, setting the pace for extraordinary growth as companies are allowed to move into deeper water where the prospects for major discoveries are far superior.

Offshore Oil Investing: The Biggest Offshore Breakthroughs

Technology is making huge strides in providing ways to cost-effectively extract offshore oil and gas…

• Seismic technology has pushed the envelope of recovering oil in places once considered completely unfeasible. Deposits are being discovered in deeper and areas. Three-dimensional seismic imaging is now the norm, but 4-D imaging also calculates time as a dimension, showing how subsurface characteristics change over time.

• Scanner services provide 3-D renderings of a geological formation for a better understanding of reservoir rocks and fluids, reducing the uncertainties of reservoir exploration.

• New technologies for geomechanics reveal rock stresses and long-term formation integrity for more reliable and profitable drilling.

• Slimhole drilling reduces the environmental impact of a site. It provides a more economic method for drilling exploratory wells in new areas.

• CO2 sand fracturing uses a mixture of sand propants and liquid CO2 to rupture formations. This creates and enlarges cracks through so oil and natural gas can flow more freely.

• Improvements in horizontal drilling techniques gives increased access to potential reserves. Drilling begins vertically, but the drill bit can be turned so that it can bore down at an angle of up to 90 degrees. Horizontal drilling saves companies an enormous amount of money by eliminating the cost of additional offshore drilling platforms.

• Technological developments in well testing increase the exploration and development of smaller accumulations of undersea oil.

• Maps of promising deposits are now made via remote-sensing satellites that indicate a possible discovery -- without the cost and risk of towing in an exploratory platform.

• Coiled tubing technologies replace rigid, jointed drill pipe with a long, flexible coiled pipe string. The benefits are enormous. Coiled tubing technologies cuts the cost of drilling, while also reducing the drilling footprint. That means less mud drilling, faster rig set up, and shorter time to connect drill pipe.

Thanks to developments like these technologies, natural gas and oil deposits are tapped at deeper and deeper underwater sites. Over the past 15 years, offshore oil has changed from a technological frontier to an accomplished industry.

Offshore Oil Investing: Keep Your Eye on the Young Turks

Nearly every aspect of offshore drilling is becoming cheaper, more reliable and more environmentally sound. Drillers can now unlock oil and natural gas reserves that have remained off-limits for years.

What do these developments mean to you?

There are two ways you can possibly play the offshore treasure hunt.

Oil exploration companies and state-owned operators (as in China, Russia and Venezuela) continue to look good. But our primary recommendation is to watch small companies involved in offshore technologies. These young Turks are forging the future of offshore exploration, and are the best bet in profiting from this offshore oil breakthrough. Without them, there is nothing but the deep blue sea.

Originally published February 15 , 2008.

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Copyright 2007-2008, The Taipan Publishing Group, Taipan Daily and Chart of the Day, 808 St. Paul St., Baltimore, MD 21202. All rights reserved. No part of this report may be reproduced or placed on any electronic medium without written permission from the publisher. Information contained herein is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed.

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