Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Man Takes First Steps Towards Colonising Mars - Nasa Perseverance Rover in Jezero Crater - 25th Feb 21
Musk, Bezos And Cook Are Rushing To Lock In New Lithium Supply - 25th Feb 21
US Debt and Yield Curve (Spread between 2 year and 10 year US bonds) - 24th Feb 21
Should You Buy a Landrover Discovery Sport in 2021? - 24th Feb 21
US Housing Market 2021 and the Inflation Mega-trend - QE4EVER! - 24th Feb 21
M&A Most Commonly Used Software - 24th Feb 21
Is More Stock Market Correction Needed? - 24th Feb 21
VUZE XR Camera 180 3D VR Example Footage Video Image quality - 24th Feb 21
How to Protect Your Positions From A Stock Market Sell-Off Using Options - 24th Feb 21
Why Isn’t Retail Demand for Silver Pushing Up Prices? - 24th Feb 21
2 Stocks That Could Win Big In The Trillion Dollar Battery War - 24th Feb 21
US Economic Trends - GDP, Inflation and Unemployment Impact on House Prices 2021 - 23rd Feb 21
Why the Sky Is Not Falling in Precious Metals - 23rd Feb 21
7 Things Every Businessman Should Know - 23rd Feb 21
For Stocks, has the “Rational Bubble” Popped? - 23rd Feb 21
Will Biden Overheat the Economy and Gold? - 23rd Feb 21
Precious Metals Under Seige? - 23rd Feb 21
US House Prices Trend Forecast Review - 23rd Feb 21
Lithium Prices Soar As Tesla, Apple And Google Fight For Supply - 23rd Feb 21
Stock Markets Discounting Post Covid Economic Boom - 22nd Feb 21
Economics Is Why Vaccination Is So Hard - 22nd Feb 21
Pivotal Session In Stocks Bull Bear Battle - 22nd Feb 21
Gold’s Downtrend: Is This Just the Beginning? - 22nd Feb 21
The Most Exciting Commodities Play Of 2021? - 22nd Feb 21
How to Test NEW and Used GPU, and Benchmark to Make sure it is Working Properly - 22nd Feb 21
US House Prices Vaccinations Indicator - 21st Feb 21
S&P 500 Correction – No Need to Hold Onto Your Hat - 21st Feb 21
Gold Setting Up Major Bottom So Could We See A Breakout Rally Begin Soon? - 21st Feb 21
Owning Real Assets Amid Surreal Financial Markets - 21st Feb 21
Great Investment Ideas For 2021 - 21st Feb 21
US House Prices Momentum Analysis - 20th Feb 21
The Most Important Chart in Housing Right Now - 20th Feb 21
Gold Is the Ultimate Reserve Asset - 20th Feb 21
Is That the S&P 500 And Gold Correction Finally? - 20th Feb 21
Technical Analysis of EUR/USD - 20th Feb 21
The Stock Market Big Picture - 19th Feb 21
Could Silver "Do a Palladium"? - 19th Feb 21
Three More Reasons We Love To Trade Options! - 19th Feb 21
Here’s What’s Eating Away at Gold - 19th Feb 21
Stock Market March Melt-Up Madness - 19th Feb 21
Land Rover Discovery Sport Extreme Ice and Snow vs Windscreen Wipers Test - 19th Feb 21
Real Reason Why Black and Asian BAME are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 19th Feb 21
New BNPL Regulations Leave Zilch Leading the Way - 19th Feb 21
Work From Home Inflationary House Prices BOOM! - 18th Feb 21
Why This "Excellent" Stock Market Indicator Should Be on Your Radar Screen Now - 18th Feb 21
The Commodity Cycle - 18th Feb 21
Silver Backwardation and Other Evidence of a Silver Supply Squeeze - 18th Feb 21
Why I’m Avoiding These “Bottle Rocket” Stocks Like GameStop - 18th Feb 21
S&P 500 Correction Delayed Again While Silver Runs - 18th Feb 21
Silver Prices Are About to Explode as Stars are Lining up Like Never Before! - 18th Feb 21
Cannabis, Alternative Agra, Mushrooms, and Cryptos – Everything ALT is HOT - 18th Feb 21
Crypto Mining Craze, How We Mined 6 Bitcoins with a PS4 Gaming Console - 18th Feb 21
Stock Market Trend Forecasts Analysis Review - 17th Feb 21
Vaccine Nationalism Is a Multilateral, Neocolonial Failure - 17th Feb 21
First year of a Stocks bull market, or End of a Bubble? - 17th Feb 21
5 Reasons Why People Prefer to Trade Options Over Stocks - 17th Feb 21
The Gold & Gold Stock Corrections Are Normal - 17th Feb 21
WARNING Oculus Quest 2 Update v25 BROKE My VR Headset! - 17th Feb 21
UK Covid-19 Parks PACKED During Lockdown Despite "Stay at Home" Message - Endcliffe Park Sheffield - 17th Feb 21
How to Invest in ETFs in the UK - 17th Feb 21
Real Reason Why Black and Asian Ethnic minorities are NOT Getting Vaccinated - NHS Covid-19 Vaccinations - 16th Feb 21
THE INFLATION MEGA-TREND QE4EVER! - 16th Feb 21
Gold / Silver: What This "Large Non-Confirmation" May Mean - 16th Feb 21
Major Optimism for Platinum, Silver, and Copper - 16th Feb 21
S&P 500 Correction Looming, Just as in Gold – Or Not? - 16th Feb 21
Stock Market Last pull-back before intermediate top? - 16th Feb 21
GAMESTOP MANIA BUBBLE BURSTS! Investing Newbs Pump and Dump Roller coaster Ride - 16th Feb 21
Thinking About Starting to Trade This Year? Here Are Some Things to Keep in Mind - 16th Feb 21
US House Prices Real Estate Trend Forecast Review - 15th Feb 21
Will Tesla Charge Gold With Energy? - 15th Feb 21
Feeling the Growing Heat and Tensions in Stocks? - 15th Feb 21
Morgan Stanley Warns Gasoline Industry Is About to Become Totally Worthless - 15th Feb 21
Debts Lift Gold - Precious Metal Prices Will Rise on a Deluge of Red Ink - 15th Feb 21
Platinum Begins Big Breakout Rally - 15th Feb 21
How to Change Car Battery Without Losing Power, Memory, Radio Code Settings - 15th Feb 21
Five reasons why a financial advisor can make a big difference to your small business - 15th Feb 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Crude Oil Bull Market Uncovers Two New Investment Opportunities

Commodities / Oil Companies Mar 15, 2008 - 05:00 AM GMT

By: Elliot_H_Gue

Commodities

Best Financial Markets Analysis ArticleThere are few countries or regions of the world that are seeing real growth in oil production. The simple fact is that the large onshore fields that have met the world's oil demand for decades are now mature and already seeing declining production.

To offset declines from these easy-to-produce oil and gas fields, producers will increasingly target smaller, more-complex fields, as well as fields that are harder and more expensive to reach.


In other words, the world isn't necessarily running out of oil, but we're already seeing the end of easy oil. In addition, the era of cheap oil is over. To make the production of hard oil economically viable, prices will need to remain elevated.

But with oil production growth declining from many traditional producing regions, companies with the capacity to actually grow production are in the catbird's seat. Two areas of real production growth are deepwater and unconventional reservoirs. A perfect example of the former is Brazil's deepwater Tupi oilfield.

Tupi is located offshore of Rio de Janeiro; the field is roughly 800 kilometers long and 200 kilometers wide. That country's national oil company (NOC), Petrobras , believes that the field contains as much as 7 billion to 8 billion barrels of oil.

Energy Stocks Are Booming – Get on Board Now

Look at the numbers and decide for yourself: over the last year we're up 29% in our safe conservative portfolio, 61% in our core long-range investments and 90% in our aggressive portfolio!

And I'm convinced this energy boom will last for many years, handing you the chance for life-changing profits.

One of Petrobras' major partners in the Tupi project has been even more optimistic, projecting Tupi's total reserves at as high as 30 billion barrels of oil. But, in either case, Tupi is certainly the largest oilfield discovered anywhere in the world since the early 1990s.

The field could ultimately yield 1 million to 1.5 million barrels per day of oil production, a significant amount when you consider that Brazil currently produces just more than 2 million barrels of oil per day. Check out the chart below.


Source: Petrobras

This chart shows expected liquids production--mainly oil--for Petrobras out to 2012. Petrobras made these estimates last year before factoring in Tupi; the company could see growth beyond these levels once Tupi is included. However, it's clear that even without Tupi, Brazil's oil production was set to see strong growth in the coming years. Most of that growth is coming courtesy of deepwater developments; Brazil's onshore production is relatively limited.

Companies levered to promising developments like Tupi are among my favorite plays in the energy patch. Of course, although Tupi is a major find and the investment implications are significant, the field fits well with the end-of-easy-oil thesis I outlined above.

Specifically, Tupi is located in waters between roughly 6,500 and 10,000 feet in depth. That means that only the most advanced ultra-deepwater drilling rigs are capable of handling wells in this field. Petrobras has some rigs it contracted years ago at day-rates that would be considered low today. However, a company looking to contract an ultra-deepwater rig in a few years' time would likely pay north of $600,000 per day to lease that rig.

On top of that, the Tupi field is also geologically complex. The test wells that have been dug in this field are more than 20,000 feet long and are directional (non-vertical) wells. And producers had to drill through a mile-long layer of salt to access the reservoir. Salt layers are notoriously difficult to drill.

And the cost of leasing a rig and drilling a well is just one problem. Petrobras is building a series of floating offshore production platforms to process production from Tupi and other deepwater oilfields; these platforms can cost more than $1 billion and take considerable time to build.

Producing deepwater fields also requires subsea equipment and a network of subsea pipelines to move oil and gas produced from deepwater wells to floating platforms. Engineering and construction firms that install this entire offshore infrastructure are seeing multi-billion contract awards related to deepwater fields.

As you can imagine, no producer would bother going after a field like Tupi if there were giant, cheap, easy-to-produce onshore oilfields that could still see growing production.

Domestic Oil

As I noted earlier, finding growing sources of oil production anywhere in the world is difficult. Rarer still are reservoirs showing significant growth located within the US and Canada.

One hot emerging play is the Bakken Shale play centered over North Dakota and eastern Montana. This play is really nothing new; it was extensively described by geologists in the early '50s. Producers have known that oil exists in this area for many years. The problem was accessing that oil efficiently.

The Bakken is an unconventional oil reservoir, much like the unconventional gas plays I described in the last issue of The Energy Letter . (See TEL , Feb. 29, 2008, Natural Gas: A Key Shift is Underway .) As I've explained before in this e-zine, oil and gas don't exist underground in massive caverns or lakes but are trapped in the pores, cracks and crevices of rock. Oil flows through this rock to wells powered by natural underground pressures. However, if those pores and fractures aren't well connected, the field lacks permeability, and there's no way for the oil to flow through the rock to a well.

Producing such fields requires the use of two key enabling technologies: horizontal drilling and fracturing. Horizontal drilling allows producers to expose their wells to more productive zones in a field. And fracturing involves pumping a liquid or gel into the reservoir under tremendous pressure; this actually creates artificial fractures and cracks through which oil can flow.

In the Bakken, producers were able to apply these newer technologies to produce a field once thought unproductive. Check out the chart below.


Source: Energy Information Administration

The chart shows that Montana's oil production looked to be tailing off sharply in the late '90s. But when producers began targeting a particularly productive field within the Bakken, production soared to new highs.

These are still relatively small production numbers in the context of the US' more than 20 million barrels of daily oil production. But the numbers don't look small for the handful of producers that have built large acreage positions in the Bakken and are drilling those plays. One of my favorites in The Energy Strategist has a 175,000-acre position in the region, accumulated quietly over the past few years.

That company is looking for oil production growth exceeding 30 percent per year for the next few years. And, so far, these fields have been exceeding estimates.

And this is only the beginning. A number of unconventional oil and gas plays in the US could prove to be huge winners for companies that are well placed with acreage positions.

By Elliott H. Gue
The Energy Letter

© 2008 Elliott H. Gue
Elliott H. Gue is editor of The Energy Letter , a bi-weekly e-letter as well as editor of The Energy Strategist , a premium bi-weekly newsletter on the energy markets. Mr. Gue is also associate editor for Personal Finance , where he contributes his knowledge of the energy markets.

Mr. Gue has a Master's of Finance degree from the University of London and a Bachelor of Science degree in Economics and Management from the University of London , graduating in the top 3 percent of his class. Mr. Gue was the first American student to ever complete a full degree at that university.

Elliott H. Gue Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules