The Door to Hell, a cavern generously filled with natural gas, was discovered in 1971 by Soviet geologists. This gas rich area is situated near the village of Derweze, Turkmenistan 40°15′10″N 58°26′22″E. While drilling, the ground beneath the rig collapsed, leaving a large hole with a diameter of 70 meters / 250 ft behind. Authorities decided to burn the gas to avoid toxic discharge. The gas is still burning today, even though geologists initially estimated that the fire would use all the fuel in a matter of days.
The chart above, from Scott Grannis latest blog post, compares the real price of crude oil with the total worldwide number of oil and gas drilling rigs operated – including offshore rigs. The drilling activity obviously follow the development in the real price of crude with a lag. This is what Grannis highligts:
“What stands out for the recent period is that while crude prices in real terms are back to the levels of the early 1980s, there are still far fewer rigs operating today than there were back then. Rig counts are still rising, however, so maybe the industry will eventually catch up. But the relatively low level of exploration activity today may help explain why crude prices are still quite high from an historical perspective. This further suggests that crude prices could remain in their current range of $70-80/bbl for quite some time.”
The second graph and full observation from Grannis is located here.
Oil Driller via Wikipedia
If the GOP wins in November, how can you adjust your portfolio to benefit from their conventional policy? Here are a few pointers:
“Big oil companies will be huge winners. American oil imports from the Middle East will accelerate, where the industry earns 80% of its profits. That will bring peak oil sooner, easily taking crude over $100/barrel quickly, and eventually to $150 or $200. Restrictions on both onshore and offshore drilling will get rolled back to their Bush era laissez faire levels, cutting costs and boosting profitability. You want to own Chevron (CVX), ExxonMobile (XOM), Conoco Phillips (COP), and of course, BP (BP). The drilling and service companies, like Transocean (RIG) and Diamond Offshore (DO), should do spectacularly well.”
Additional segments and investment ideas from The Business Insider here.
“Oil traders are showing increasing confidence that U.S. economic growth will rebound next year as they take advantage of the widening gap between current prices of crude and contracts for delivery six months from now.
The price advantage, or contango, to buy and hold crude more than doubled to $5.76 a barrel last month from $2.60 at the end of July, as contracts for October delivery fell 9.4 percent and March dropped 5.3 percent. ConocoPhillips hired the tanker TI Europe for storage in the Gulf of Mexico, according to data on the website of RS Platou A/S, an Oslo-based shipbroker.”
Grab the full observation from BusinessWeek here.
Related: 5 Top Energy Questions Answered – The Street.
“The world’s number two deepwater-driller, Seadrill Ltd (SDRL.OL), reported earnings before interest, taxes, depreciation and amortisation (EBITDA) in the three months to the end of June rose to $493 million from $438 million a year earlier, beating the $471 million average estimate in a Reuters poll of analysts.
The offshore oil drilling sector has long been seen as ripe for consolidation. But the conditions created by the oil spill should accelerate deals, as it becomes tougher for smaller drillers to compete.
Most drillers smaller than the U.S. “big three” — Transocean Ltd (RIGN.VX)(RIG.N), Diamond Offshore Drilling Inc (DO.N) and Noble Corp (NE.N) — could be targets, investment bankers say. “
More from Reuters on SDRL Q2 here and the numbers form the company here.
[image via Seadrill]