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Current RDS.B Stock Info

The U.S. Department of the Interior estimates the GOM has 48 billion BOE yet to be discovered.

Royal Dutch Shell (ticker: RDS.B) announced its third major oil discovery in the Gulf of Mexico (GOM) on July 15, 2014, and expects it to yield 100 MMBOE of reserves. The company has now discovered a total of 700 MMBOE of GOM reserves, according to its release.

One of its key assets, the Mars field, has produced more than 770 MMBOE since 1996 – back when it was estimated to hold 700 MMBOE of reserves.

Production in the GOM has declined on an absolute scale since its peak rate in 2009, partially attributable to the repercussions of BP’s oil spill in 2010. BP has pledged $42.2 billion toward cleanup costs and is still embroiled in court disputes. Total production in 2013 was 19% below rates in 2009. However, firms like Wood MacKenzie believe production will grow 17% annually for the next two years and reach 2.10 MMBOEPD by 2020. By comparison, that number would be 35% greater than 2009’s total of 1.45 MMBOEPD and 68% greater than 2013’s total of 1.25 MMBOEPD.

Source: Shell

Source: Shell

Energy XXI (ticker: EXXI) and other E&Ps are using unconventional techniques and horizontal drilling to prolong the life of the play. EXXI completed the $2.3 billion acquisition of another GOM operator, EPL Oil & Gas, in June 2014. Other sizable acquisitions have occurred this year, including the $1.2 billion purchase of SandRidge Energy’s (ticker: SD) by Riverstone Holdings, and Freeport-McMoRan (ticker: FCX) recently completed a deal with Apache (ticker: APA) for a total of $920 million.

International Activity

Mexico. The U.S.’s southern neighbor currently has no producing wells in the GOM but is in the process of energy reform. The country’s hydrocarbons were nationalized since 1938 but opened the doors to international investment earlier in 2014. A proposal titled Round Zero is expected to reach a decision in September 2014 and will outline the future of exploration and production in the region. The first ever bidding round is projected in 2015. Although popular opinion is that Mexico will retain full rights to its easier to reach reserves (i.e. onshore and shallow waters), its deepwater opportunities will be largely open for opportunity.

Brazil. Its national oil company, Petrobras (ticker: PBR), has signed a production sharing contract that analysts believe will be the prototype for Mexico’s development. Brazil’s contract has a length of 35 years and will partner with four other operators for development of the Libra Field, located southeast of the country. PBR’s partners paid a $6.9 billion signing fee to reach the agreement, which also includes pledging 41.65% of their future profit oil to the Brazilian government.

Venezuela. The government is also attempting to entice foreign investment but its track record is concerning. Venezuela has a history of issuing difficult regulations and even seized rigs operated by Superior Energy Services (ticker: SPN) and detained an Anadarko-run (ticker: APC) surveying ship in 2013. SPN stated it is owed millions by the Venezuela government dating back to December 2012 and relations have been tense for the past year. Russia extended a new line of credit to the country on July 17, 2014.

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Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.