96: Unconventional Oil Plays - Profiting from Unconventional Investing 09-12-2007 4:07 pm
Keith Kohl2007-11-29
By Keith Kohl

How desperate are oil companies getting?

The answer is simple enough: Just ask Royal Dutch Shell.

After being forced out of the $22 billion Sakhalin project in 2006 over environmental concerns, Shell is knocking on Russia's door once more. This time, however, the oil company is hoping to develop the massive gas fields in the Siberian Arctic.

Apparently they didn't learn the first time around. Let's hope this project goes better. So what would send Shell back to the belly of the beast this time?

I think the 30 trillion cubic meters of gas reserves did the trick. We're talking about more reserves than the combined proved reserves of the mighty state-owned company, Gazprom.

According to Shell, developing those remote reserves would take half a century and cost hundreds of billions of dollars. So much for cheap.

Fortunately for Shell, developing the Siberian Arctic might be just what Russia's future natural gas production needs. You see, production in the country's three major gas fields is declining.

But considering Russia's penchant for controlling its own natural resources, perhaps Shell should be wary of any sudden "environmental concerns."

Unconventional Investing

Since we're hesitant to put our hard-earned money into a country notorious for giving oil companies the boot, the question for us is where to go.

Last time, I wanted to show you the offshore boom going on around the world, and lately I've been hearing a lot about the giant oil field off the shores of Brazil.

But I wholeheartedly agree with one reader's opinion concerning the Tupi field--eight billion barrels is not going to save us.

What it will do, however, is open up some doors for investors like us.

The Tupi field is going to be developed by Brazil's state-run company, Petrobras. Trust me when I say that this is going to take a considerable amount of time and effort. Petrobras reported that the initial production project alone will cost nearly $3 billion. Long-term projects over the next two decades could cost up to $50 billion.

So what does that mean for us?

For starters, Petrobras isn't able to go after other opportunities. They'll have to begin saving up for the Tupi costs. On Tuesday, the state-run oil company was outbid at Brazil's exploration and production block auction.

When some of the more promising blocks were withdrawn from the auction, big oil companies like Shell and Chevron folded their hands.

That meant a lot of smaller and midsized companies were able to win bids.

Like I said on Tuesday, you can expect a lot of offshore drillers to be interested in properties in Brazil and the Gulf of Mexico.

And speaking of the Gulf of Mexico, there's going to be billions of dollars pouring into those waters. A few months ago, the U.S. government announced the sale of drilling rights in the deep waters of the Gulf.

Back in the late 1990s, a number of deepwater oil discoveries caused a rush of companies to buy up properties. Companies ended up buying much more land than they could explore.

Nearly two months ago, the U.S. government received 1,428 bids on 723 tracts off the shores of Louisiana, Mississippi and Alabama. These lease sales could potentially result in the production of up to 1.3 billion barrels of oil and 5.2 trillion cubic feet of natural gas.

But it's not just the exploration companies we can count on to turn a profit. With the mad rush in offshore drilling, service and contract rig companies are going to explode.

In fact, some of them already have.

Until next time,

keith kohl

Keith Kohl

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