In that Macondo forgotten even by the birds, where the dust and the heat had become so strong that it was difficult to breathe, secluded by solitude and love and by the solitude of love in a house where it was almost impossible to sleep because of the noise of the red ants, Aureliano, and Amaranta Úrsula were the only happy beings, and the most happy on the face of the earth. - Gabriel Garcia Marquez, Cien Años de Soledad
I thought it was important to put in context the numbers of ultra-deep water exploration in the Gulf of Mexico after a possible market overreaction to the Macondo blowout. The market has left no prisoners, not only taking concern for British Petroleum (NYSE:BP) and Transocean (NYSE:RIG), but also all the contract drillers (Noble (NYSE:NBL), Ensco (NYSE:ESV), Atwood Oceanics (NYSE:ATW), Hercules Offshore (NASDAQ:HERO), Seahawk Drilling (NASDAQ:HAWK)) and some exploration and production companies like ATP Oil and Gas (ATPG) and MacMoran Exploration. I particularly recommend Toby Shute’s articles on the investment implications of this disaster.
This graph from a recent EIA post (US Energy Information Administration) tells a clear story of dependence on deep water and ultra-deep water production as shallow water production reached its peak in the nineties and began its decline. So drill all you want, but the USA is becoming more dependent on more-difficult-to- find and more-costly-to-produce reserves. And I have not even talked about the cost of potential new regulation.
This is one more indication that energy prices may fluctuate but there is only one trend: up. And this is the present. If you want a peek into the future, let me introduce the proven reserves in the Gulf of Mexico (click to enlarge).
PD: You have probably noticed that the natural gas story is different. Subject for another time...
Disclosure: Long ATPG