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Big things are happening in the Outer Continental Shelf—the shallow-water portion of the U.S. Gulf of Mexico.

Two critical—but under-appreciated—developments have just happened here. One that points to a paradigm shift in offshore development. And a second that shows how some of the world’s most prominent energy investors are jumping to capitalize—even if the wider investment community hasn’t picked up on the potential yet.

Event 1: We just got results for the first modern horizontal drilling campaign in the Gulf of Mexico Shelf.

You didn’t hear about it, because these results came from a relatively new and unknown player in the E&P space: Energy XXI (Nasdaq: EXXI). This tiny junior drilled 13 horizontal wells in the shallow-water Gulf Shelf during the past year, completing 11.

The chart below shows why this is a critical development. Production results from Energy XXI’s West Delta 73 field clearly show technical proof of concept for horizontal drilling in the offshore. The production adds from horizontal wells (shown in blue) have been significant.


Source: Energy XXI corporate presentation

The program is a technical success. But do the economics of horizontal drilling make sense in the offshore?

Energy XXI’s recently-released reserves figures say yes. In fact, offshore horizontals work exceptionally well.

During the past year, Energy XXI spent $648 million on…

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