Iceberg Alley, located off Canada’s Atlantic Coast, is a dangerous region characterized by sub-zero temperatures, brutal seas and, of course, huge icebergs.
It’s so volatile that there are only a handful of rigs in the world capable of drilling in the harsh environment. And the companies there are forced to use lassos to direct icebergs away from the rigs. So it’s important to realize that oil production in this part of the world isn’t going to start tomorrow.
[ad#Google Adsense 336×280-IA]But that’s okay, because even though Iceberg Alley is freezing cold, it’s also the hottest spot in the world when it comes to recent discoveries.
You may have heard that the biggest oil find since 2010 is taking place there.
And, last week, Iceberg Alley bolstered its résumé with another massive offshore find.
Based on the size and ease of the find, it appears there will be more discoveries in the near future, too.
The Major Players Are Wading In
Just outside of the Flemish Pass region, some 300 miles off the coast of Newfoundland and Labrador, Iceberg Alley is home to a handful of offshore oilfields that have been pumping 250,000 barrels per day for just under a decade. The region was thought to have limited potential and, consequently, there’s been little exploration in the area. Conditions are harsh, and it’s simply easier to explore in more favorable areas such as the Gulf of Mexico.
Until recently, that is.
Oil majors like Chevron (CVX) and Royal Dutch Shell (RDS.A, RDS.B) are donning their winter wear to do some serious exploration in the Bay du Nord area, part of the Flemish Pass region. Shell has already forked over close to a billion dollars for drilling rights to four parcels, and Chevron is drilling its third well about 50 miles south of the area.
Until last week, most analysts and investors had written off the area. After all, the last thing investors want to hear about in a presentation is why icebergs are a major risk factor! But now they’re hopping on board with gusto as more and more discoveries take place.
One company announced a find with probable reserves of up to 600 million barrels from just one site. Another announcement revealed that a nearby site contained up to 200 million barrels, and a third site may prove more promising than both. It’s safe to say that the region is in play.
To date, all the focus in Canada has been on the oil sands play – and for good reason.
The oils sands in Alberta are in their early stages, and they’re projected to produce more than five million barrels per day by 2030 – a massive amount. That’s more than half of all current U.S. daily production.
But, oil from the tar sands is a very expensive proposition, from the usage of water and energy to the clogged pipeline distribution in the area. Finding oil offshore is relatively inexpensive by comparison.
Better yet, the distance to onshore facilities makes for manageable transport costs, and the proximity to major East Coast refineries and population centers enhances the cost savings side of the equation.
Bottom line: Finding huge quantities of oil in the Flemish Pass region may make you a boatload of money in the coming years – if you invest in the right company.
While Chevron and Shell seem like slam dunks, they’re not going to be the biggest beneficiaries. That honor falls to perhaps the single best “major” play in the sector today.
In the next issue, I’ll tell you which company that is and why it belongs in your portfolio.
And “the chase” continues,
Source: Oil & Energy Daily