Stealth Energy, Inc. (CNSX:SLH) could represent a better play than offshore drilling companies like Petroleo Brasiliero SA (NYSE: PBR) and Exxon Mobil (NYSE: XOM), which face higher costs and lower predictability than land-based oil exploration and development companies.
Offshore Drilling’s Many Hidden Costs
Offshore drilling is an expensive procedure that involves drilling through shallow or deep water to reach oil below the ocean’s surface. With costs ranging from oil rig rentals to hurricane disruptions to oil spill risk, it is not hard to see why many offshore drillers face high costs. Meanwhile, costs can become very unpredictable given the nature of the industry and erratic weather patterns.
In 2005, Hurricane Katrina hit the southeastern portion of the U.S. and led to oil supply disruptions in an area that accounted for nearly a tenth of all oil consumed in the country. As oil prices subsequently climbed to more than $70 per barrel, offshore drillers were left largely unable to benefit with their production offline and/or damaged in wake of the storm.
Then, in 2008, there was a shortage of offshore oil rigs that resulted in rates – the amount oil companies pay to rent an offshore oil rig – that rose to more than $500,000 per day. Companies that signed contracts at that time were subsequently stuck with the high day rates in an environment that saw oil prices falling sharply from a high of over $140 a barrel to less than $40 a barrel.
Stealth Energy’s Significant Land Reserves
Stealth Energy owns an oil field in Wyoming that covers approximately 1,200 acres on the notorious Teapot Dome. Over the past eighty years, the property has produced more than 2.5 million barrels of oil, while the company’s engineers estimate that a further 7.5 million barrels remain to be produced. Several wells on the property are currently producing, while the company expects more online soon.
As an added bonus, the company has a package of approximately 48,500 acres – or approximately 75 sections – in Montana, on which it will be drilling a minimum of three prospective oil wells starting mid-September. The firm’s engineers estimate that the natural gas portion of this land package could contain up to three billion cubic feet of natural gas reserves per section, making it a significant reservoir within the United States.
Conclusions
In conclusion, Stealth Energy offers investors a more predictable source of oil at a lower cost than offshore competitors, while also being able to participate in a potentially blockbuster natural gas field. Combined, these attributes make this small Canadian driller with U.S. properties worth a second look for growth investors worldwide.