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Trading Lessons

How to Invest in Crude Oil's Final Frontier

Commodities / Crude Oil May 28, 2013 - 05:52 PM GMT

By: Money_Morning

Commodities

Tony Daltorio writes: Investors searching for how to invest in oil in 2013 should be focused on these latest developments from the Arctic.

In fact, countries are racing to get a piece of what could be the final frontier for oil...

As ice melts in the Arctic region, oil and gas trapped beneath the water becomes more accessible.


Money Morning Global Energy Strategist Dr. Kent Moors recently explained to Money Morning members about the search for Arctic oil and gas.

He spoke about the years-in-the-making U.S. Geological Survey's Circum-Arctic Resource Appraisal. The study found that 84% of the total undiscovered oil and gas left on the planet is located above the Arctic Circle, mainly offshore and in three huge basins that lie under shallow seas.

This set off a mad scramble between the nations with territories in that region of the globe. The countries involved include: the United States, Canada, Russia, Norway, Sweden, Finland, Iceland and Denmark (Greenland).

The once sleepy Arctic Council, comprised of the nations named above, was originally designed to promote cooperation among countries with interests in the Arctic. But because of the tremendous interest in the energy riches that lie in the Arctic region, the Council was recently forced to give six countries 'observer' status including energy-hungry China and India.

Clearly, Arctic oil has the attention of both energy companies and political leadership around the world - and should also be on the radar of investors looking for how to invest in oil in 2013.

How to Invest in the New Oil "Gold Rush"

The initial push into the Arctic was like gold rushes in the past.

In 2008, BP PLC paid an exorbitant $1.2 billion for licenses to explore only about 6,000 square kilometers in Canada's Beaufort Sea. This area is believed to contain roughly 5 billion barrels of oil equivalent.

The mad bidding period is over, but nevertheless exploration continues apace.

Research firm Chatham House last year, in a report, estimated that investments by energy firms into the Arctic could total over $100 billion over the next decade.

That's a lot of money, even for oil companies.

Companies are doing this because studies from the International Energy Agency and Statistics Norway show that a barrel of oil drilled from the Arctic will cost between $35 and $40, which is competitive with oil drilled in deep water.

And for those wanting to know how to invest in Arctic oil, there are a firms that are already pushing into the region, including Russia's Rosneft, Norway's Statoil ASA ADR (NYSE: STO) and Royal Dutch Shell PLC ADR (NYSE: RDS.A).

But just a few companies have snagged these most promising regions...

How to Invest in the Most Promising Arctic Region

Perhaps the most promising area of the Arctic is in Statoil's home turf. There is an expanse of the Arctic Ocean called the Barents Sea that is mostly ice-free.

The Norwegian area of the Barents (shared with Russia) is estimated to hold at least 6 billion barrels of oil equivalent.

Jarand Rystad of energy consultantcy Rystad Energy told Bloomberg that the Barents Sea prospects are "enormously exciting."

There will be at least 12 wells drilled there this year, which is equal to the combined total of wells drilled there in the past two years. Total cost should be around $1.8 billion, according to energy consulting firm Wood Mackenzie.

As expected, Statoil is heavily involved there. But so is Italy's Eni SpA ADR (NYSE: E), France's Total SA ADR (NYSE: TOT) and Rosneft.

Statoil discovered the Skrugard and Havis fields in the Barents, which are thought to contain between 400 and 600 million barrels of oil. Oil is expected to start flowing from those fields in 2018. The company is also hoping to strike it rich with its Apollo well in the frontier Hoop region of the Barents.

The Russian region of the Barents is largely unexplored. Rosneft is teaming with Statoil, Eni and Total there to search for oil.

Anyone who wants the full story on how to invest in Arctic Oil has to invest the environmental concerns. Drilling in the Norway's Barents is now a cinch - but years ago, it was hard to access due to volatile environmental conditions.

That's why many other regions aren't yet delivering profits. Companies trying to drill in the deeper waters of Canada's Beaufort Sea face a short window each year in which to drill thanks to the constantly moving floes of thick ice. Logistics in these remote regions of the globe are also a nightmare.

Oil companies like Shell and ConocoPhillips (NYSE: COP) have had to reevaluate their Arctic oil plans due to concerns over regulations.

Final environmental regulations are not in place as yet. But it makes sense environmentally to move cautiously in the Arctic. The cold waters there do not contain the billions of oil-eating microbes that proved so useful in the BP Gulf of Mexico oil spill.

But, eventually they'll catch up to the Barents. Reuters reported that Statoil senior vice-president for exploration in Norway, Gro Haatvedt, said in an interview about drilling in the Havis and Skrugard fields, "We're absolutely certain we'll strike [oil]."

Twenty years ago, that thought would have been considered laughable.

For more on how to invest in oil in 2013, read Dr. Kent Moors' analysis: Are the Russians on the Verge of a Major Arctic Oil Coup?

Source :http://moneymorning.com/2013/05/23/how-to-invest-in-oils-final-frontier-the-arctic/

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