Deep sea diving for oil
Beat Ernie - Wed 20 Sep, 2006
...At the end of August, oil giant, British Petroleum discovered potentially huge and previously unknown oil reservoirs during test drilling in deep water in the Gulf of Mexico. If successfully accessed, this find (the Kaskida Oilfield) would increase the reserves of the participating companies (BP, Anadarko Petroleum Corp and Devon Energy Corp amongst others) significantly...
I’m no big movie fan, to be honest. I've probably seen the inside of a cinema less than a dozen times. However, every once in a while, I do let myself get carried away in the depths and fantasies of the big screen.
For one, I remember with vivid memory and admiration for its great cinematic choreography, one of the most successful movies of the late 1980's. I’m talking about what started out as a fairly low-budget French film, called "Le Grand Bleu", but which ended up as a box office smash with the translated title, The Big Blue. You may remember it – it was directed by the respected Luc Besson and starred Jean Reno and Rosanna Arquette.
The storyline is simple: Two young guys from the Mediterranean have been avid divers for as long as they can remember. Whilst one becomes a celebrated star early on, the other is in conflict with his outsider status. Here the rivalry begins between the two. The outsider leaves the country and seeks his future in diving, far away from home. Chance brings them together for a dramatic test of skill and motivation for ever- deeper depths...
Deep sea diving for oil: An interesting parallel with man's quest for oil...
The duel is about the world Championship title in free-diving, i.e. reaching great depths, unassisted by breathing devices. Fascinating images show the viewer the underwater world, and the thin line between record breaking and breaking one's body. The competition, driven by ever-greater attempts to break each other's record, ends in the tragic death of both of the divers.
One dies during the record breaking attempt, the other, strongly traumatized by the loss of his colleague, dies whilst looking for him on a night dive...
One of the film’s messages is that man is ready to risk everything, including his life, in order to reach ever-greater ranges, heights and depths.
Reading various economic news over the last few days, I am reminded of the movie and the Olympic motto, "citius, altius, fortius" (faster, higher, stronger).
The analogy is striking. What has happened?
Deep sea diving for oil: A new potentially huge oil field has been found
At the end of August, oil giant, British Petroleum (ISIN GB0007980591) discovered potentially huge and previously unknown oil reservoirs during test drilling in deep water in the Gulf of Mexico.
If successfully accessed, this find (the Kaskida Oilfield) would increase the reserves of the participating companies (BP, Anadarko Petroleum Corp [ISIN US0325111070] and Devon Energy Corp [ISIN US25179M1036] amongst others) significantly.
Of course, that’s if the field can be explored economically. The drilling site is approx. 250 miles south west of New Orleans at a depth of 8 kilometres below the sea ground level (26,600 feet) - given the depth of the sea at this spot of 5860 feet, the full drilling depth is an astonishing 32,500 feet.
Many oilfields of the established and commercially used oil producing countries are considered to be nearing their peak use, after which it becomes increasingly expensive to get the remaining oil out.
The USA, the largest oil consumer in the world, and the rest of the world, is facing shortages. Long-running price increases seen in commodities reflect this mutually shared outlook. The fewer the remaining resources, the more important the discovery of new resources becomes. The high dependency of oil in the industrialized nations makes these discoveries a "must have".
Deep sea diving for oil: The deeper the better
One way of battling these needs is seen in the trend for ever-increasing depths of the drillings. Oil companies invest serious money into the motto: "The deeper, the better". Geologists expect the fairly unexplored rocks below the sea ground to hold substantial reserves.
Only a high oil price justifies the exploration of these hard-to-reach oil fields. Incredible amounts of technology and equipment are needed, from cameras to drill-heads that withstand the pressure of the depth.
A few days ago, we got the next major news from the Gulf of Mexico - 175 southwest off the coast of Louisiana.
Chevron Corp (ISIN US1667641005), participating with 50 percent at the prestigious "Jack No. 2" project steered the drill heads into a full drilling depth of 27,000 feet below sea ground level - and the sea is already 2 kilometres deep.
The pressure at this depth is lethal to man without protective gear and puts enormous strain on the equipment. Chevron found more than 6,000 barrels a day during its test drilling with partner companies. Based on internal calculations, this output is expected to reach 60,000 barrel a day. The field may hold up to 3 to 15 billion (!) barrels of oil and liquefied gas.
Deep sea diving for oil: A stock we’ll to take a closer look at?
In order to fully access this oil would require investments of billions of dollars for drilling sites and pipelines, and would obviously require years to be built. Experts expect no oil to be delivered from "Jack No. 2" oil before 2012. Nonetheless, the discovery of this 770 square kilometre large oil field may be one of the most important discoveries ever, extending the oil reserves of the US by 50 percent!
Chevron Corp. is on this project with two partners, each participating with 25 percent on Jack No. 2. One is the state-run Norwegian oil company Statoil ASA (ISIN NO0010096985). The other partner is the American Devon Energy Corp. (ISIN US25179M1036) with a market cap of more than $30 billion, a heavyweight player in the oil industry.
Whether these are stocks to invest in right now with the oil price under pressure, is debatable. But certainly with an expected 2006 P/E ratio of 10 and 9 for 2007, Devon may be worth a closer look.
Regards,
Beat Erni
for The Daily Reckoning
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