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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Junior Time in the Gulf of Mexico Shelf

A critical change is afoot in the Gulf of Mexico petroleum business.

Major operator Apache said this month it is exiting the shallow-water Gulf of Mexico shelf. The company will sell its property portfolio here to energy investment specialists Riverstone for $3.75 billion.

The interesting thing is, it's only been about 10 years since Apache was aggressively pushing to get into the GOM shelf. The area has since been a success for the company, today producing 95,000 boe/d with 239 million boe in proved reserves.

And yet Apache is getting out of the play. Telling us the company no longer sees the growth potential here it once did.

Related article: Catalysts to Watch out for when Investing in Energy Companies

This is probably true for a company of Apache's size. The firm is now focused squarely on resource plays that allow it to achieve the economies of scale a big producer needs.

The more interesting part is seeing a well-heeled investor like Riverstone moving into the shelf. It's a play the group knows well. In fact, Riverstone partners John Browne and James Hackett formerly ran BP and Anadarko (respectively) at the time when both those companies sold shelf projects to Apache.

With that kind of familiarity, Riverstone must be seeing an opportunity in the shallow GOM. One that perhaps doesn't fit for a big firm like Apache, but is attractive for a smaller operator.

Related article: Rig Fire Exposes Lingering Dangers of Offshore Drilling

Other junior producers have lately been having good success on the shelf with horizontal drilling. The incremental gains in production and reserves look very profitable.

This kind of program might not affect the bottom line much for a large producer. But for a junior it could be a company-maker.

Could this be the reason the play is getting at least one big vote as the "next thing" for small E&Ps? Keep an eye on this space.

Here's to picking up what the giants leave behind,

By. Dave Forest


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