3 Glistening Oil Stocks From the "Golden Triangle"

After more than 150 years of drilling for oil, there's still one region of this earth whose potential we have yet to fully explore: the depths of the ocean. These ultra-deepwater regions have for many years been beyond our technological capabilities, but today the technology exists, and we can drill deeper and further offshore. So far, three principal regions have emerged as the most promising for ultra-deepwater exploration: the Gulf of Mexico, Brazil, and West Africa. Let's take a look at these regions and unearth three oil stocks that are well positioned to take advantage of this new horizon.

There's oil in those trenches
The reason these three areas seemed to be linked recently is that, well, they used to be physically linked. These fields have a very similar geology because they're the remnants of when the Americas and Africa were a single continent hundreds of millions of years ago. All of these regions have the potential to hold several billion barrels of oil and could be a major source of new oil for the world. 

Source: Baker Hughes investor presentation.

Now that the technology exists to tap these deep and complex fields, production in these regions is starting to take off. Most recently, a consortium of companies including Anadarko Petroleum (NYSE: APC  ) that operate in the Jubilee field off the Ghana coast just announced that production from that field is now at 110,000 barrels per day. Also, production from Brazil's Lula field just started last week, and production from that field is expected to increase to 120,000 barrels of oil per day.

This is just the beginning, though. Of all 227 semisubmersibles and drillships currently drilling around the world, 56% of them operate in these regions. And there are a multitude of companies vying for a piece of each. The problem with offshore is that several players can be involved in a single well, and companies can have holdings across all of these regions. As a primer for investing in the golden triangle of offshore oil, here are three oil stocks to keep a lookout for.

An oil monopoly to invest in
Several of the household names in oil are trying to get a piece of the pie in each of these regions, but they're hampered by two things: Either they need to outbid each other for prospective fields in the Gulf of Mexico, or they have to play by the rules of the national oil company in a respective country, which may not be in line with a company's plans. 

But there is one company that straddles the fence of NOC and investment opportunity and could be a major player in this surging oil trend: Petrobras (NYSE: PBR  ) . The state-run oil company of Brazil is required to have a 30% operator stake in every well drilled in offshore Brazil. This could be a huge benefit for a region that some estimate to have as many as 50 billion barrels of recoverable oil. Petrobras doesn't seem to be wasting any time taking advantage of its leader position for offshore exploration, either. The company plans to spend $237 billion in the next four years to make this happen. If the company can deliver on these lofty production goals both on time and within budget -- two major issues that have plagued the company in the past -- its position in Brazil offshore could mean promising times ahead for this stock.  

Prepping for the surge
For all of this activity in offshore exploration to happen, there will need to be a sizable increase in the amount of ultra-deepwater-capable rigs. Today, both semisubmersible rigs and drillships -- the two types of rigs capable of accessing these deep formations, have utilization rates well above 80% and 10% higher than every other type of offshore drilling equipment. In addition, with a major uptick in exploration in offshore Brazil expected after the Pre-Salt auction near the end of this year, ultra-deepwater assets will be in high demand. 

Source: Wikimedia Commons.

Of companies out there that are traded on the U.S. exchanges, Seadrill (NYSE: SDRL  ) is setting itself apart from the others, as it plans to build 14 new ultra-deepwater capable rigs between now and 2016. Not only will this move expand its ultra-deepwater fleet by 44%, but it also puts more rigs under construction than three of its main competitors -- ENSCO, Diamond Offshore, and Transocean -- combined. With day rates for these rigs averaging $450,000, an addition of 14 rigs could potentially increase the company's current annual revenue by 50%. 

Getting it right
The biggest Achilles' heel of ultra-deepwater drilling is costs. Not only do the rigs to drill cost $450,000 a day, but nearly every aspect associated with oil and gas exploration also gets more expensive as water depth gets greater. So the margin of error for exploration and production development needs to be minimized as much as possible. A perfect example is Royal Dutch Shell (NYSE: RDS-A  ) , which has so far spent $5 billion on exploration in the Chukchi Sea of Alaska without producing a commercial barrel of oil so far.

That's where Core Laboratories (NYSE: CLB  ) comes into play. The company provides a wide array of services designed to increase recovery rates, optimize hydraulic fracturing techniques, and help target the most lucrative areas of a reservoir. The company is currently working with operators in the Gulf of Mexico to increase ultimate recovery rates from the single digits to 20% through new, enhanced oil recovery techniques that could prove incredibly valuable in all of the golden triangle regions. 

This past quarter was the third straight in which Core Laboratories posted record revenue, net income, and earnings per share. With integrated majors all teaming up to work with Core to implement its innovative technologies and analysis (yes, Petrobras is one of its clients), the chances that this oil stock will post more record-breaking quarters is very possible. 

What a Fool believes
These three oil fields have the potential to be major driving forces in global oil production for years to come, and these three companies are extremely well positioned to take advantage of this coming boom. To keep me honest, I have given an "outperform" rating on all three of the oil stocks in our CAPS community.

It's becoming more and more apparent that the oil stocks to invest in are more than just the ones with good land holdings. The best companies are the ones that are getting the most of those assets. For this reason, The Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. Get up to date on the industry by discovering which three companies are spreading their wings: Check out the special free report "3 Stocks for the American Energy Bonanza." Simply click here to access your report -- it's absolutely free. 


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  • Report this Comment On July 24, 2013, at 11:06 AM, mrplow2000 wrote:

    Would go for Petrobras over Anadarko, but I think there is more potential in Brazil vs GOM. Anadarko looks more expensive but has the best 'spread'. They also potentially have huge amount of gas off East Africa.. another story.

    http://simplistickr.com/PBR

    http://simplistickr.com/APC

    You forgot to mention Tullow, who operate the Jubilee field, and have a lot of other up coming fields in West Africa.

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