Big new American oil rush is beginning

9. February. 2010
Growth Stock Wire

Many years ago, the famous oil geologist Parke Dickey summed up successful oil exploration like this:

"You can find oil in a new place with old ideas and you can find oil with new ideas in an old place. But you can't find oil with old ideas in an old place."

For the past generation or so, the shallow Gulf of Mexico has been something Dickey would call an "old place."

People have been sucking oil out of the Gulf region since January 10, 1901, when the mega Spindletop oil field was discovered. At the time, it was the largest oil field ever discovered in the U.S. and a worldwide sensation.

The Spindletop discovery kicked off an 80-year golden age of Gulf Coast discoveries. In 1934, the first true offshore well went in about a mile off the coast of Louisiana. And in October 1947, Kerr-McGee struck in 18 feet of water, about 10 miles off the coast of Louisiana, well out of land sight. By the end of the 1970s, more than 12,500 offshore platforms produced oil and gas on the continental shelf of the Gulf of Mexico. The deepest water depth was just 1,000 feet – within about 20 miles of the coast.

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.

If you want to understand Gulf region oil exploration, you must understand oil companies don't drill through what they can't see through. And the salt layers that blanket the Gulf of Mexico's shallow shelf have blocked conventional seismic technology.

Explorers have found plenty oil and gas above the salt layer, which occurs around 12,000 feet deep. Louisiana's huge three trillion-cubic-foot Tiger Shoal field and 2.5 trillion-cubic-foot Mound Point field both occurred at that depth.

But once the companies tapped all those shallow fields, they couldn't see any deeper and moved on. They all but ignore the shallow Gulf waters today. They've moved on to the hot, deepwater plays, with their promise of multimillion-barrel finds.

But as Dickey reminds us, old oil regions can still hold lots of oil; we just need new ideas to find it.

Today, we have those "new ideas." Seismic technology has improved dramatically. The ability to see through salt helped blow the lid off Brazil's billions of barrels of oil. Plus, deep drilling capability has exploded. Companies are routinely drilling over 25,000 feet into the deep-water trends of the Gulf of Mexico and finding oil and gas.

I think the shallow shelf of the Gulf of Mexico is about to get a whole lot more popular among the exploration companies. It's going to be a big story to follow for the next decade.

But the bigger one is this: There's all sorts of oil out there... even in "old places" like the Gulf of Mexico. It's just going to require extraordinary technology to find and extract it. This makes oil-service stocks – the companies that develop, use, and sell this technology – a great place for long-term money.