3 Ways to Play the Gulf's 15 Billion Barrels
When you're as big as Chevron sometimes you have to dig deep to find large amounts of oil. Well, Chevron's in luck, because it has a good opportunity for more discoveries on its hands.
Gulf of Mexico
The Gulf offers companies the opportunity to make those large finds. Chevron recently found more recoverable oil and gas 190 miles off of Louisiana and 31,866 feet deep (including water depth) in the Coronado prospect. The prospect is in the Lower Tertiary Trend, which has the potential to house 15 billion barrels of oil.
Chevron plans on exploring the Lower Trend further with seven exploratory wells planned for 2013-2015. As it keeps on drilling it will be able to find new prospects that house recoverable oil, allowing it to keep growing production. By 2017 Chevron wants to be producing 3.3 million boe/d, versus 2.6 million boe/d in 2012. The Gulf is going to help Chevron get here, and beyond 2017 it should still offer Chevron plenty of growth.
In 2014 three major projects are going to come online; the Jack/St. Malo, Big Foot, and Tubular Bells. Jack/St. Malo will start producing 177,000 boe/d (96% crude), Big Foot will produce 79,000 boe/d (95% crude), and Tubular Bells will hit a peak production of 40,000-45,000 boe/d (one would assume 90%+ crude) next year.
Combined, this is an additional 301,000 boe/d of output, which would increase Chevron's production by ~11.5%. For an oil major that is great growth, and Chevron can use the additional cash flow to drill exploratory wells to see where to drill next. Chevron will also be able to get a better read on the true potential of the Gulf.
Chevron isn't the only company that knows of the Gulf's potential; Anadarko Petroleum is spending 15% of its 2013 capex in the area.
2013 and beyond
Anadarko has one project up and running in the Gulf, the Caesar/Tonga, which started production in the first quarter of 2012. By the end of 2013 Anadarko wants to bring a fourth well online in the project. Anadarko sees 200-400 million barrels of recoverable oil equivalent in the play.
Anadarko Petroleum was able to shave $1 billion of its costs by leveraging its existing infrastructure in the area, which allows Anadarko to invest that cash in other growth projects. As more drilling commences in the Gulf expect other oil companies to piggyback off of their existing infrastructure projects to reduce costs.
Beyond 2013 Anadarko has the Lucius project, which will be brought online in 2014. Anadarko sees reserves at 300 million boe or higher at Lucius. There is a good chance that this will be revised upwards, just like in Anadarko's Shenandoah Basin play. Anadarko's Shenandoah-2 appraisal well increased Anadarko's reserve estimates for the basin from ~300 million boe to 600-900 million boe.
After 2014 Anadarko has the Heidelberg project, which will start pumping out its 200-400 million boe in reserves starting in 2016. Additional projects coming online will provide investors with growth for several years.
ExxonMobil found the Julia play back in 2007, but had to sue the U.S. government because it decided to cancel its lease. ExxonMobil was accused of not proceeding fast enough with development, but was able to prove that the play was technically challenged and would take time to finish.
ExxonMobil sees 6 billion barrels of oil in the play, which will be completed and producing in 2016. ExxonMobil owns a 50% stake in the project and sees production starting at 34,000 boe/d. ExxonMobil has a friend in the area, as the project is going to be connected to a production facility owned by Chevron. As the field is developed expect that to go significantly higher.
The Gulf of Mexico has a long way to go until it's fully developed. With 15 billion barrels of oil equivalent in reserves, the Lower Trend offers bigger E&P players production growth hopes.
The Energy Information Agency at the end of 2010 saw the Gulf of Mexico's reserves at 4.7 billion barrels of crude and 5.3 billion barrels of oil equivalent, which shows just how far the Gulf has come in two years.
As the Lower Trend is explored further, expect both the EIA's and industry estimates to be revised above 15 billion barrels of oil as production heads higher. The companies leading the charge stand to make a lot of money.
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The article 3 Ways to Play the Gulf's 15 Billion Barrels originally appeared on Fool.com.Callum Turcan has no position in any stocks mentioned. The Motley Fool recommends Chevron. 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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