Watch stocks you care about
The single, easiest way to keep track of all the stocks that matter...
Your own personalized stock watchlist!
It's a 100% FREE Motley Fool service...
If you were searching for ultradeep oil and gas deposits in the Gulf of Mexico, which target would you choose to drill: the one about 250 miles offshore in 4,132 feet of water, or the one 10 miles offshore in 20 feet of water?
BP chose the former, and with the help of firms like Transocean (NYSE: RIG ) and Halliburton (NYSE: HAL ) successfully drilled the Tiber prospect last fall. McMoRan Exploration (NYSE: MMR ) has chosen door No. 2, and also come up with an apparent winner. It turns out that there's no right or wrong answer to our question, but it might surprise you that both drilling operations pushed the industry's technical limits.
McMoRan's Davy Jones prospect, drilled in partnership with Plains Exploration & Production (NYSE: PXP ) and Energy XXI (Nasdaq: EXXI ) , has been drilled to a depth of more than 28,000 feet from the Gulf of Mexico Shelf, and identified 135 net feet of "pay" -- i.e. oil- and gas-bearing sandstone -- in the Wilcox trend. If you think that's a simple feat, consider that ExxonMobil (NYSE: XOM ) abandoned one of these ultradeep Shelf stunts in 2007, after drilling more than 90% of the way to target depth, and having spent around $180 million. These wells are not for the faint of heart.
Interestingly, the Wilcox is the same trend that firms like Anadarko Petroleum are targeting in the deepwater. McMoRan geologists theorized that they could hit the same structure much closer to shore, and they were right.
Here's the basic trade-off: McMoRan saves a lot of money on its drilling rig by using a jackup instead of a half-million-dollar-a-day drillship. On the other hand, the company has to drill through several thousand feet more rock than its deepwater counterparts, which invites mechanical issues. Attempts at resolving these matters can get very expensive, or even worse, fail entirely.
Today's discovery is clearly great for the partners involved, but it's also good for Rowan Companies (NYSE: RDC ) , whose jackup did the drilling. You don't have to buy the explorers to bank on a revival in Shelf exploration. Rowan is the "picks and shovels" play.