On December 18, 2013, a collective sigh of relief went up in the boardroom of one of the largest multinational oil companies on the planet.
Considered one of the six “supermajor” oil companies, British Petroleum execs haven’t had much to cheer about in the Gulf of Mexico since the Macondo disaster.
That morning, however, BP announced a major oil discovery at the company’s Gila prospect. Alongside ConocoPhillips, the company had struck a deepwater discovery roughly three hundred miles southwest of New Orleans.
Easily one of the largest plays in the Gulf of Mexico, the oil discovery highlights one of the most overlooked parts of the world’s oil supply: offshore production.
The deepwater discovery announced that morning also gave us a glimpse into something else that is far more important…
It shines a light on Big Oil’s dirty little secret.
More Money, More Problems
Recently, I mentioned how offshore drilling is playing a critical role in production today and accounts for about one-third of global supply.
And like I said: Big Oil is drilling deeper than ever before.
Over the last three decades, the share of deepwater and ultra-deepwater discoveries has grown dramatically.
Now, my veteran readers have heard me say that cheap oil is now a thing of the past. That fact will become more pronounced in the years ahead.
This year, BP has set its capital expenditures between $24 and $25 billion. Although this is similar to 2013, an overwhelming amount of that spending is allocated toward the company’s upstream activities.
But BP isn’t the only company with big spending plans. ExxonMobil has budgeted upwards of $30 billion for 2014.
The amount gets even bigger when you look at state-run behemoths like Petrobras, which is maintaining its $237 billion capital spending plan to develop Brazil’s offshore fields through 2017.
Point is, Big Oil is forced to spend more and more and more and… you get the idea.
Fortunately, there’s a small group of drillers that are taking full advantage of this.
Force Big Oil to Fund Your Retirement
Believe me, you don’t have to be a former member of the Board for British Petroleum to help fund your retirement. BP is shelling out more than $3 million to a single investment every single day!
The same can also be said for other members of the world’s largest integrated oil companies, also known as the supermajors.
You see, the dirty little secret you won’t see in BP’s commercials is the amount of cash it’s willing to pay to keep production afloat — which is precisely where this company’s modern drilling fleet comes in handy.
Look, we both know it isn’t cheap to drill offshore wells. Day rates for drillships capable of drilling in depths greater than 7,500 feet can go for almost $600,000 per day. These day rates have steadily risen over the last few years, and you can bet that money adds up quickly.
In fact, just one offshore driller in particular is milking Big Oil for more than $27 million each day.
Yet even more lucrative is how much Big Oil is on the hook for going forward. The company holds a contract backlog in excess of $20 billion, with over $15 billion of that being paid out within the next two years.
In turn, the company takes this mountain of cash and pays it out directly to investors every single quarter.
It’s an 11% annual dividend that’s hiding in plain sight.
That’s also not to mention that this company has increased this payout nine times since 2011!
However, having one of the highest dividends in the industry is only part of the equation. Over the last five years, this offshore stock has drastically outperformed its two largest customers, Exxon and BP:
So much for the orphans and widows holding on to Big Oil.
Still, there’s more to the offshore story than the exorbitant prices major oil companies are paying.
This is a rare opportunity for individual investors to take advantage of the recent bloody market correction — especially with many offshore companies trading at less than ten times trailing earnings, including the driller in the chart above, which holds a P/E of just 7.
You can check out all the details behind that undervalued offshore stock right here.
Until next time,
Keith Kohl
Check us out on YouTube!A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.
For nearly two decades, Keith has been providing in-depth coverage of the hottest investment trends before they go mainstream — from the shale oil and gas boom in the United States to the red-hot EV revolution currently underway. Keith and his readers have banked hundreds of winning trades on the 5G rollout and on key advancements in robotics and AI technology.
Keith’s keen trading acumen and investment research also extend all the way into the complex biotech sector, where he and his readers take advantage of the newest and most groundbreaking medical therapies being developed by nearly 1,000 biotech companies. His network includes hundreds of experts, from M.D.s and Ph.D.s to lab scientists grinding out the latest medical technology and treatments. You can join his vast investment community and target the most profitable biotech stocks in Keith’s Topline Trader advisory newsletter.
