Deepwater ‘super basins’ could be windfall for oil stocks – WoodMac VP

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Andrew Latham, vice president of exploration research at Wood Mackenzie

Guyana is among the most interesting deepwater basins in the world, Andrew Latham, vice president of exploration research at Wood Mackenzie, told IBD. He noted that ExxonMobil and Hess make discoveries with almost every well they drill in the region.

“They are basically going to where geology is favorable,” he said. “The focus is on quality, going after very productive reservoirs.”

Once too costly except when oil prices were at their highest levels, deepwater oil projects now can break even at price points similar to many low-cost shale fields.

Oil exploration and production company Hess said unit development costs for its Liza deepwater project off Guyana are about $7 barrel. Compare that with $12 a barrel seen in the Permian’s Delaware Basin.

“The Delaware Basin is a great place to invest your money but Guyana is even better,” CEO John Hess said in May.

Latham is bullish on the potential in Brazil, Gulf of Mexico, Senegal and the eastern edge of the Mediterranean Sea near Egypt and Cyprus.

One of those areas could be the next “super basin,” another windfall for oil stocks on the scale of the Permian.

At the CERAWeek energy conference in March, the chief exploration officer at Italy’s Eni mentioned the Santos basin in Brazil, saying deepwater can be profitable with oil prices at $50 per barrel.

Also at CERAWeek, BHP Billiton’s exploration chief said the company is focusing on the Gulf of Mexico, Western Australia and the Caribbean.

In the Gulf of Mexico alone, an estimated 2.5 billion barrels in ultra-high-pressure fields have been discovered, says William Turner, who analyzes the Gulf for Wood Mackenzie. And there are likely even more discoveries in the Gulf that companies haven’t reported yet.

Companies don’t have approvals yet to use the technology that can tap into them. But once approvals start, oil firms like Total and Chevron will start drilling and report more ultra-deepwater finds, he says.

If oil is at $70 a barrel, Wood Mackenzie estimates more than 69 billion barrels of deepwater oil are profitable worldwide as well as 31 billion barrels of oil equivalent of gas.

Source: Investor’s Business Daily