Following years of subdued activity in the aftermath of the 2010 BP Deepwater Horizon disaster and the subsequent moratorium, drilling activity in the Gulf of Mexico is finally picking up. Companies including Chevron, Royal Dutch Shell, and Anadarko are all bringing new, high-impact projects online this year.

Most activity is currently concentrated in the Gulf's Miocene geological trend, where companies have been drilling deepwater wells for decades. But the biggest opportunities in the region may lie in what's known as the Lower Tertiary, or Paleocene -- a relatively uncharted geological trend that could hold twice as much oil as North Dakota's prolific Bakken shale.

Bp Thunderhorse

Photo Credit: BP plc

The allure of the Lower Tertiary
Until relatively recently, energy companies had assumed the Lower Tertiary, which is characterized by much older rocks, ultra-deepwater depths, and high bottom-hole pressures, to hold very little quantities of oil. But thanks to a hunch by Texaco geologist Robert Ryan nearly two decades ago, the 25 million year old formation has been catapulted into the big leagues.

Back in 1996, Texaco and its partners, including Royal Dutch Shell, Amoco Corp., and Mobil Corp., which would later merge with Exxon to become ExxonMobil, drilled a well in the Lower Tertiary that broke the world record for the deepest deepwater well ever drilled. What the companies found would set off an exploration rush that is only to set to accelerate in the years ahead.

Experts estimate the Lower Tertiary could contain a whopping 15 billion barrels of recoverable oil, worth $1.5 trillion at current prices. By comparison, the Bakken and Three Forks formations that span parts of Montana, North Dakota, and South Dakota are estimated to hold 7.4 billion barrels of technically recoverable oil, according to calculations by the U.S. Geological Survey last year.

Indeed, the Lower Tertiary is projected to become the single largest source of oil in the Gulf of Mexico over the next 15 years, according to consultancy Wood Mackenzie. Though its development faces challenges including extreme pressures and temperatures and staggeringly high development costs, the sheer size of the trend's resource potential is simply too great to pass up.

Four companies to watch
For those looking to share the high risks and rewards of Lower Tertiary development, there are several options. Amongst the integrated majors, Chevron, Shell, and BP are probably the best positioned, while Anadarko stands out among the midmajors. Currently, there are only two projects actively producing oil from the trend -- Petrobras' Cascade and Shell's Perdido complex. But they will be joined shortly by Chevron's Jack/St. Malo platform, which is slated to come online by year-end.

Shell was the first company to commercially produce Lower Tertiary oil from its Perdido development back in 2010 and is currently working on the Stones prospect, which is slated to start pumping oil in 2016 with a peak production capacity of 50,000 boe/d. Chevron, meanwhile, announced a major discovery last year at its Coronado prospect and is currently appraising two other Lower Tertiary discoveries -- Buckskin and Moccasin -- that have yielded encouraging test results.

Similarly, BP made two massive discoveries in the trend -- Tiber in 2009 and Kaskida in 2006. The two finds together could hold more than 6 billion barrels of oil, though it is unclear how much of that will be ultimately recoverable. Finally, Anadarko announced last year that an appraisal well at its Shenandoah prospect encountered more than 1,000 feet of net oil pay in multiple Lower Tertiary-aged reservoirs, making it one of the company's biggest Gulf of Mexico discoveries ever.

Investor takeaway
With the Lower Tertiary expected to become the single largest source of oil in the Gulf of Mexico over the next decade and a half, companies like Shell, Chevron, BP, and Anadarko stand out as potential winners. While it's impossible to predict which of these companies will see the most success, their expertise in deepwater drilling and strong track record in the Lower Tertiary gives them a leg up on peers.

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Arjun Sreekumar 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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