Drilling companies are excited at the potential for new, productive deep-water sites
The message at the Deutsche Bank 2013 Leverage Finance Conference was simple – ultra-deep water drilling is going to get hot, fast! Leading offshore drilling group, Pacific Drilling, delivered a presentation on the oil production possibilities that may emerge from several well-researched oil and gas reservoirs across the globe. The need for capital is immediate, and the timeframe in which new oil rigs must be built to accommodate these new drilling sites is tight. Oil rig builders need financing to build these massive units, and the Leverage Finance Conference is one place to seek this influx of cash.
A profitability forecast is key when oil industry companies are seeking investment dollars
Russia. Brazil. Mexico. These three nations alone stand to deliver more than 100 billion barrels of oil from offshore reserves that have been mapped and analyzed over the past few years. The only reason why they haven’t been tapped yet? Political issues, nationalism, general incompetence – basic stubbornness has kept much of the oil and gas locked up tightly below the seafloor. Now, these nations are beginning to see that these important stores of gas and oil must be extracted – and that companies around the globe will pay handily for access to the leases.
One indicator that these nations are starting to see the potential? Brazil just auctioned off the rights to an oil rich area just off the coast that analysts say has the potential to produce 8 – 12 billion barrels of oil. This would be the single largest oil discovery in the last 40 years. The drilling site will be a challenge – the oil reserves sit under 6,500 feet of water and are another 5,000 feet below the seafloor. To date, only four companies have shown interest in assuming the drilling operations, and none of them US-based companies. This is mainly due to the strict drilling regulations that the Brazilian government has imposed on the project.
Another positive note regarding the oil potential for these three nations lies in the legislative efforts being put forth by the president of Mexico, Enrique Nieto. Nieto is seeking to modify the existing law that states that only Mexican companies may own the mineral rights on Mexican soil. He is hoping to have the new ruling in place by 2014, opening up the door for highly-proficient multinational organizations to come to Mexico and dramatically increase oil output.
Lastly, Russia is now moving closer to opening oil fields in the Arctic toward the end of 2013, and has brought on companies like ExxonMobil and Eni of Italy to help the decades long process of developing these fields. Saudi Arabia has recently passed Russia as the world’s number two oil producer and the Siberian oil fields are under a significant decline. Both of these reasons have helped spur the Russian government to forgo nationalism and saddle up with partner companies who will help develop Russian oilfields in the most economical and effective way.
The Pacific Drilling presentation at last month’s conference should help investors understand the incredible amount of oil and gas that is currently locked beneath several offshore locations around the globe. The proliferation of highly proficient drilling companies, combined with an easing of governmental regulations, will no doubt foster an environment of collaborative drilling operations off the coasts of our oil-rich nations.