Thursday, September 20, 2007

Keep It Simple

Getting Crude in All the Wrong Places

you may just conclude that our energy situation appears to be far more precarious than you'd previously thought.

As a result, I've repeatedly urged my Foolish friends to make certain that their portfolios contain a reasonable blend of energy names. I don't think you need to get too fancy here, perhaps beginning with the two big enchiladas in the production and oilfield service sectors, ExxonMobil (NYSE: XOM) and Schlumberger (NYSE: SLB). Beyond that, it might make sense to fill in with other solid names in the sector, such as natural gas growth story and Motley Fool Inside Value recommendation Chesapeake (NYSE: CHK) or deepwater drilling king Transocean (NYSE: RIG).
I prefer ConocoPhillips and ChevronTexaco over ExxonMobil just because they are cheaper. For the same reason I prefer Halliburton over Schlumberger. Of course Transocean is my favorite: indeed Transocean is the deepwater drilling king. Merger with GlobalSantaFe approved today.


Anaconda said...


Official publication of the New Orleans Geological Society, Inc., March 2006

International Herald Tribune
Frontiers Expanded in Deep-Water Oil Hunt,
Jad Mouawad(NYT), Novermber 8, 2006

Devon Energy Gets into Deep Water,
Daniel Fisher, February 24, 2003

The articles for reference are definitely not "hot of the presses," but that's kind of the point. The deepwater, deep-drilling sector was considered the highwire act of the energy sector, as Paul Siegle, Vice President for Deep-Water Exploration, Chevron, said, "a lot of people have lost their shirts," back in 2006.

One can always lose their shirt in the oil business, but the days of stumbling in the dark depths hoping for a strike are fast receding into a new dawn for investor driven oil exploration.

The deep-drilling sector has matured in the last several years: Technology has progressed, crude oil strikes at great depth have been made, and oil is above $100 a barrel for the foreseeable future (deep-drilling is still profitable down to around $70 a barrel).

Deepwater, Deep-drilling is the frontier of the oil industry.

Already, some one third of all oil comes from off-shore oil wells and 15% is from deep off-shore oil wells.

For private oil companies big enough to play, deepwater, deep-drilling has a favorable political, technical, and investment open-field not seen since the heyday of the late 50's and early 60's. Paydirt is being realized in openwater.

Politics has been the biggest barrier to private capital oil companies. But deep-water exploration has run against the trend because of good old fashioned American "know how."

Technical expertise and ability has smartly accumulated.

Even national oil companies are teeming up with private companies that deliver on promises of "drill bits in the water."

Devon Energy has been heavily invested, and managed to stay on the highwire successfully. Devon recently sold its interests in Equatorial Guinea for 2.2 billion dollars to the national oil company. This leaves them plenty of cash on hand for future deepwater prospecting.

Chevron is a large-cap stock, but has been extremely aggressive in deep-water oil exploration and more important: Has been successful.

The environmental record (hate to bring it up -- politics, again) of deepwater, deep-drilling is excellent, all those hurricanes in the Gulf several years ago, and almost no oil spilled. Out of all the mess of Katrina, one group came out smelling like a rose: The oil industry.

The oil industry should be able to make a pitch for access to the Carolina basin, which has indicators that make an oil man drool with anticipation.

(Perhaps, in this instance, big oil has laid the proper ground work to get the green light from the politicos, those Chevron "Human Energy" ads don't hurt, time will tell.)

With the preference in the deepwater, deep-drilling oil sector for joint-ventures to spread the risk, opportunites exist for smaller companies to get in on the "Sooners" action. Growth can be achieved for smart aggressive companies.

The reality of deepwater oil is the life breath of the "wildcat" spirit. You need to be bigger than in the days of Model T's bouncing across the dusty plains of Texas and across the big valley of California, but that spirit is still alive and surely it will be rewarded.

To the winner,
go the spoils.

Anaconda said...


U.S. Geological Survey
Marine and Coastal Geology Program

The Carolina Trough sits off the Carolina coast like a mirage, but it is very real: Virgin, unexplored, with points sitting wayup firm and high.

Don't be distracted by the talk about methane hydrates -- this is about crude oil...lots of it.

The Carolina Trough is about the size of the state of South Carolina. Methane hydrate is what attracted the attention of the U.S. Geological Survey, but, here, it is argued that the methane hydrate, while it may someday be an energy source of value, is today, a signature of potentially huge crude oil deposits.

As all oil men know methane and crude oil go hand-in-hand. There are accumulations of methane hydrate in this basin which signal that natural gas is percolating out of the sedimentary deposits and is being locked up in "ice" as it hits the sea water.

The sedimentary deposits are, indeed, immense; the survey has estimated the accumulated thickness of sediment of, perhaps, more than 9 miles thick. "Salt diapirs [an anticlinal fold in which a mobile core has broken through brittle overlying rocks], reefs, and faults, in addition to hydrate gas, may provide greater potential for conventional oil and gas traps than is present in other east coast basins."

The oil industry has the track record of environmental stewardship and safety in the Gulf of Mexico to make a push to lease exploration rights in this long known basin, yet, so far denied el Dorado of the East coast.

Each basin may have it's own pool of oil. And how many basins are there off the coasts of the continents?

The ubiquitousness of methane hydrates in the sea floor suggests methane is constantly seeping out and not just in isolated areas, but in a general fashion. Of course, this phenomenon has been argued to point to the presence of abiotic oil. That is beside the point: Evidence exists for successful oil exploration.

The oil industry's track record of responsibility should be rewarded.

Anaconda said...

On that train all graphite and glitter
Under sea by rail
Ninety minutes from New York to Paris

What a beautiful world this will be
What a glorious time to be free

-- Steely Dan --


Chevron brought in the Knotty Head discovery in Green Canyon, block 512, 170 miles Southeast of New Orleans at a total depth of 34,189 feet deep, in 3,500 feet of water and 30,689 under the floor of the Gulf. Analysis indicates high quality crude oil in good reservoir sands.

Chevron brought in Bigfoot Prospect 225 miles South of New Orleans in 5,000 feet of water 20,127 under the floor of the Gulf.

And of course the famous Jack 2 discovery in 7,000 feet of water, over 20,000 feet below the floor of the seabed.

And for land based drilling a subsiderary of ExxonMobile drilled a well 37,016 feet deep on Sakhalin Island off the East Siberian coast.

Slapping on too much mustard? Yes, but the point must be made that deepwater deep-drilling is proceeding apace.

What does the future hold?

Crude oil will be reached at almost any depth of water and any depth of bore-hole. This leads to some very interesting possibilities.

At present, Exclusive Economic Zones stretch 200 miles off-shore, where coastal governments have control, but farther out is the highseas. The future of deepwater exploration can be where oil companies would bring in discoveries of oil without having to pay royalties at the wellhead to anybody.

No royalties?

Yes, free and clear. As long as that Socialist, Law of the Sea Treaty (LOST) never sees the light of day in the U.S. Senate. Think of it as LOST, as in lost windfall profit potential. Because without paying royalties, profit potential goes up, what, 30%? And deep oil, abiotic oil, spells huge profits for the strongest, fittest, companies able to find and bring oil in from the high seas to market.

Beyond the reach of royalty seeking governments.

That's called the frontier of freedom!

And where would this be possible? Way off the West coast of Africa is one potential area. Already, there is talk of a Golden Triangle between the Gulf of Mexico, the coast of Brazil and Western Africa. There are other potential areas in the Indian Ocean beyond 200 miles.

Technology is advancing to the point where a floating, anchored, mobile, processing facility, at the well head or centered in a field of wellheads, would gather the oil, and process it for purposes of transport to on-load super-tankers that sidle-up, then go directly to port for refinery off-loading.

Think that's too sci-fy?

Sandwell, Offshore and Artic Engineering is already able to provide those services. What will technological advance bring if the market demands it?

High definition deep image-resolution technology is the key to finding this high seas oil.

The technolgy must be able to see deeper than sedimentary deposits. It must be able to see into steeple buckling, or folding tectonic geologic structures that are present in basins shielded by methane hydrate formations.

The great challenge for oil geologists will be locating crude oil deposits with minimal sedimentary structure guide posts.

Also, earthquakes maybe another locating device. April 12, 2008 (AP) Jeff Bernard, Swarm of Earthquakes Detected Off Oregon. This swarm is in a basin 40 miles away from the Juan de Fuca tectonic boundary, it is unknown what is causing the quakes, but it's considered unusual because it's not happening where it would be expected.

If abiotic oil theory is accurate, quakes may result from movement of hydrocarbon fluid or gas. Perhaps, folks have experience with increased wellhead pressure after earthquakes in South Texas? There is a theory compatible with general seismic theory, that suggests along with tectonic plate slippage, fluid and gas movements are responsible for earthquakes away from the tectonic boundary.

Such as we had off Oregon's coast and in South Texas two weeks ago.

The future is very bright for deepwater, deep-drilling in the high seas. Expensive? Yes. Risky? Without question. But with no royalties, that provides a lot of incentive for exploration.

The big dog gets the bone.

Anaconda said...


No royalties, great. No leasing expense, again great. No environmental or governmental hurdles of any kind, super. Just go out and drill for oil, sounds too good to be true. There must be a catch -- there is -- finding the crude oil.

The oil industry has the technology to go beyond the continental shelf.

The question that's on everybody's lips: Is there crude oil beyond the continental shelf? That's the billion dollar question. No, let's say, trillion dollar question.

Science and technology go hand-in-hand. And the way it advances is from the known to the unknown.

What do we know?

Back in the old days there were doubts that oil existed off-shore at all. Of course, that doubt has been erased many times over. First, it was shallow water, and conventional drilling depths. Then it was distance off-shore, and deeper water, and finally both deepwater and deep-drilling have been conquored. It seems not a location on the continental shelf is beyond technology and oil geology. Continental shelfs are loaded with sedimentary deposits. All very conventional and within the "fossil" theory framework.

But now we come to the edge. The continental shelf's edge that is.

Oil has been found beyond the edge. In the Gulf of Mexico, off the coast of Brazil and in the Nigerian Delta oil has been found, but still tied to sedimentary deposits. How so? The edge of the continental shelf has sluffed-off, or collasped onto the area at the base of the continental shelf.

It's the contention, here, that this "landslide" area would not transfer sedimentary material in a process that would preserve oil bearing deposits, others disagree.

In the case of the Brazil play, the "landslide" area is "only" 24 million years old. Seemingly well after the oil deposition age. And in a process that would release the oil present as it sluffed-off the face and settled at the base. So where does the oil come from? The conventional "fossil" theory maintains the oil somehow survives the sluffing event. Abiotic theory suggests the collasped material reformed an oil trapping structure and then oil subsequently pushed up from below into the newly formed reservoir.

If conventional "fossil" theory is correct then deep water finds would be limited to areas not far from the edge of continental shelfs. And therefore would not expand the oil bearing region much beyond the continental shelf.
(Although, a number of big finds could be had, and already apparently have been made.)

On the other hand, abiotic theory, suggests oil is not limited to this "landslide" area along the rim of the continental shelf.

Are there clues that suggest oil exists beyond the extensional base, out onto the deep ocean "plain?"

Yes, the abundance of methane hydrates beyond the extentional base is a clue. Earthquakes not associated with a tectonic edge, possibly signaling fluid and gas movement below the sea floor, is a clue. And the hydrocarbons emitting from the mid-ocean ridge vents, is also a clue.

What geologic structures would signal the presence of oil?

At the water depths in question, water itself exerts tremendous pressure, much like an overburden on land, and, therefore, only a thin trapping "membrane" would be required. A layer of solid methane hydrate could do the trick. Are there "bowl" structures out on the deep ocean plain? Think of a bowl with serran wrap over the top holding the liquid oil underneath. Or possibly cryro-genic underwater "mud" volcanoes that sit atop sub-ocean floor "reservoirs." Because of the water pressure acting as a cap, geologic structures could be thinner and still maintain the pressure needed to retain oil in a reservoir.

Are these speculative senarios? Absoutely. Is there enough "science" to make it plausible, therefore, worth investigating? How motivated was Shell in the 1970's, to start looking for deep oil in the first place? What would be the risk versus reward? What are the choices? Not look at all? And know you are limited to the continental shelfs and extensions. Or explore with the potential of finding a practically unlimited horizon. Isn't that worth the dime?

And if oil is found, prove abiotic oil, once and for all.

Big questions to answer.

And as they say, "That's way above my pay scale."

But at least it's food for thought.