Evolving Technology: Profiting from New Age Oil Explorers

Oil barrels
Reddit

Many thought there was oil at Spindletop Hill, Texas, in the 19th century. However, drillers had to drill through ‘salt’ to get to the oil. This meant drilling through hundreds of feet of sand. Because of this, wells and hope collapsed at Spindletop.

That is, until the Hamill brothers came to Spindletop, along with their state of the art drilling rig. The Hamill brothers had a good reputation for being innovative. They helped find the first Texan oil field, which produced 1,450 barrels of oil in 1886.

The Hamill brothers quickly got stuck into drilling. Like previous drillers, they soon hit sand. Back then, drillers used water to hold up the well walls. But at Spindletop, the sand was too fine…and water was useless.

The Hamill brothers had to improvise, using only material they had on hand — water, dirt and cows. They struck on the idea of using mud instead of water. And they created it by getting the cattle to stomp around in a nearby water pit.

As the story goes, the mud worked, oil was struck and Spindletop became the biggest ‘gusher’ that the world has ever seen.

To me, the Hamill Brothers were as successful as Bill Gates or Steve Jobs. Sure Bill Gates founded Microsoft. And Steve Jobs revolutionised what we call technology today. However, without the Hamill brothers help, the energy revolution may have come decades later.

Yes, good old dirty mud was the technological innovation that changed the energy world forever.

These days, drilling tech has made it possible to drill deeper, longer and more challenging wells. Modern day tech is also a lot more attractive than mud.

I’ll give you an example…

Let’s talk about 3D seismic mapping — my favourite tech for oilers. 3D seismic replaces the old 2D seismic and helps geologists better understand what the world looks like below the ground. As a result, exploration teams can better select future well locations.

3D seismic doesn’t remove all exploration risk. But it does generally improve the success rate.

The Middle East has seen few significant hydrocarbon discoveries in the last couple of decades. However, Oman and Saudi Arabia have dominated these discoveries.

In Oman, the Ghaba Salt Basin has proved roughly 25 trillion cubic feet of gas reserves. This is a huge discovery. The reserves are located below the existing oil fields of the Ghaba area, discovered in the 1970s.

It was only possible to find this rich hydrocarbon reservoir by using newly-acquired 2D and 3D seismic data. And this is just one of many discoveries in the Middle East…

Thanks to tech, massive discoveries are being made everywhere…first in the frontiers of the US…then in the Middle East…then the discovery of the oil sands…and now fracking in the US.

But what most people DON’T know is that another major breakthrough in crude oil extraction has taken place. If you’ve not heard of it, it’s probably because the world was focussing on the global financial crisis at the time.

You see, while the financial meltdown of 2008/09 was blowing up the world, Petrobras S.A. [SA:PETR4] announced its maiden production from the Lula oil field, offshore Brazil. Lula is the world’s largest deep water oil and gas discovery!

When I say deep water, I really do mean deep. Petrobas discovered Lula oil at 27,000 feet (5,200 metres) BELOW the ground. That’s as far as some planes fly UP. The drilling of the first 15 wells cost over US$1 billion. The first well alone cost US$240 million.

If it costs so much, why do it?

Because if you find a big resource, it’s immensely profitable.

For example, Lula production wells average 25,000 barrels of oil per day. Even at an oil price of US$81 dollars per barrel, at the current rate, each well brings in US$748.3 million in revenue per year.

The point is, technology is reducing exploration risk. It’s also making drilling ultra-deep targets possible.

Not all deep water wells cost over US$100 million to drill…just as not all deep water targets are drilled to 27,000 feet!

Diggers and Drillers has recommended a cashed up oiler about to drill a deep water target. Its well should cost the company roughly US$60 million — that’s if it wanted to go at the target all by itself. This target lies in the middle of two major oil and gas fields.

I believe that it’s possible to reduce (not eliminate) your risk when investing in oil and gas stocks.

If you can find a company with the right asset mix, management, strategy and balance sheet…oilers can make you a small fortune. As I showed you with the Tullow Oil [LON:TLW] and Hardman stories yesterday, all you need is a risk appetite and a little patience.

There’s always a time to walk away from a drilling disaster. This is why it’s important not to become emotionally attached to your investments.

In Diggers and Drillers, I help my readers find the best resource stocks on the ASX. Recently, I’ve analysed four oil companies that I believe will be the next BIG names in the market. I call these companies the ‘awesome foursome’.

What I like about these companies is that they have the ‘right asset mix’.

For example, one company has drilling prospects in both Africa and Asia. This company has close to $100 million in the bank…ready to drill these targets very soon. This means, if one of these fails to find oil or gas, it has plenty of other targets to explore. The good news is that, success in any one of these could make the share price pop.

The point is…each wildcatter has a lot going for it — they all have what I call, the ‘right asset mix’. And this means that, whilst there’s still an element of speculation, there are HUGE potential rewards on offer for LESS risk.

Cheers,
Jason Stevenson
Resources Analyst, Diggers and Drillers

Join The Daily Reckoning on Google+

Daily Reckoning Administrator

Daily Reckoning Administrator

Daily Reckoning Administrator

Latest posts by Daily Reckoning Administrator (see all)

Reddit

Leave a Reply

Be the First to Comment!

Notify of
avatar
wpDiscuz
Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@dailyreckoning.com.au