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Is This Another Step In the Offshore Revolution?

No sector of the resource world is changing more quickly than offshore oil.

The last decade has seen a quantum leap in drilling techniques and technology onshore. And producers are just now moving to apply this newfound expertise to offshore plays.

Such developments may be coming to a new area: the U.K. North Sea. Judging from some acquisitions in this area last month.

Chiefly the purchase of North Sea assets by Hungarian oil major MOL.

The firm announced it will pay $375 million to acquire producing fields from Wintershall--the E&P arm of German chemicals giant BASF.

This shuffling of property owners is intriguing. Wintershall has long been a cornerstone player in the North Sea. But the firm's exit suggests they see less upside here today than in other target areas.

When established players start exiting a play like this, it usually creates opportunities. MOL is picking up the assets at a very decent valuation--about $20 per barrel of reserves.

An acquisition environment like this could be perfect for firms looking to cash in on the offshore drilling revolution now underway. Savvy firms in the U.S. Gulf of Mexico have recently been picking up old oil fields at similarly low prices. And using them to prove the benefits of techniques like horizontal drilling in the offshore environment.

The results have been tremendous. Returns on investment from horizontal wells in the shallow Gulf are some of the best going in the industry.

Drilling is low-risk, and the new techniques are improving initial production rates and ultimate recoveries significantly.

Offshore unconventional drilling is now being tried in further afield spots like Thailand. And the North Sea would be another perfect candidate location.

MOL may not have the technical firepower to do it. But with acquisitions in the play looking favourable, it's only a matter of time until someone does.

Keep an eye out for further deals in this space.

Here's to old oil selling cheap,

Dave Forest




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