A Safer Way to Invest in the Growth of the Gulf of Mexico
It's been three years since our nation experienced the tragedy of BP's Macondo well disaster. Not only was the disaster's toll on our environment high, but it also took a toll on the region's economy. Further, despite persistently high oil prices, oil production out of the Gulf has been in a state of decline since the disaster began to unfold. However, recent trends point to a reverse of that production decline and some are even forecasting oil production nearly doubling from current levels later this decade.
This is thanks in part to a number of major developments currently under way in the Gulf. The industry has 50 deepwater rigs active in the Gulf which already exceeds the 44 pre-Macondo rigs. Producers expect to have another nine rigs in the Gulf by the end of 2014. Overall, producers have a large inventory of discoveries that are in the appraisal stage with the top 30 discoveries holding an estimated 5 billion barrels of oil equivalent that is believed to be recoverable.
This has the industry projecting production in the Gulf increasing to more than 2 million barrels of oil per day by the end of the decade. As you can see from the chart below, production should steadily increase, with upside potential as high as two-and-a-half million barrels a day possible by 2020.
So far this year we've seen major discoveries from the likes of ConocoPhillips , Chevron and Anadarko . The Shenandoah discovery by ConocoPhillips and Anadarko encountered an incredible 1,000 feet of net pay, which is the portion that is commercially viable. That's more than double the size of ConocoPhillips' Coronado discovery which is partnered with Chevron. These discoveries are what's driving the industry's increased pace of investment and why it would appear that the Gulf's oil production is likely headed to new heights.
However, if there's one thing that the Macondo disaster taught us, it's that there's great risk to these drillers operating in the deepwater. BP has been forced to payout billions and sell a number of assets to pay for the damage. It's share price still hasn't fully recovered. This is one reason why some investors might want to shy away from investing in a company engaged in drilling in Gulf. If that's you, I have good news as there are safer options available to profit from this trend.
All that oil and associated gas needs to get out of the Gulf and into market centers. That's where midstream operator Enterprise Products Partners steps in and takes over. The company's assets -- as you can see in the map below -- are perfectly placed to benefit from this future growth.
In addition to the assets it already has in place, Enterprise is building new assets to link into its system which not only provide a critical service to producers but yields profitable growth for Enterprise. For example, the company's Lucius project includes a repurposing of the underutilized Phoenix Gas Pipeline for oil and extending it to reach new some of the new oil discoveries. The project will have a capacity of 115,000 barrels of oil per day and is scheduled to be complete next July. It's just one of the many ways Enterprise is positioning itself to take advantage of the growth in the Gulf.
With a total of $7.5 billion of new projects in the pipeline Enterprise has a lot of growth outside of the Gulf. This will drive the cash flow necessary to grow its already generous 4.4% distribution. The company is a great, safe way to invest not only in the growth of the Gulf but in the boom we're seeing in domestic oil and gas production.
The growing production of natural gas and oil hydraulic fracturing, horizontal drilling and the Gulf is flooding the North American market and has resulted in low prices for natural gas. Enterprise Products Partners, with its superior integrated asset base, can profit from the massive bottlenecks in takeaway capacity by taking on large-scale projects. To help investors decide whether Enterprise Products Partners is a buy or a sell today, click here now to check out The Motley Fool's brand-new premium research report on the company.
The article A Safer Way to Invest in the Growth of the Gulf of Mexico originally appeared on Fool.com.Motley Fool contributor Matt DiLallo owns shares of Enterprise Products Partners L.P. and ConocoPhillips. The Motley Fool recommends Chevron and Enterprise Products Partners L.P. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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