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Tickers in this Article: SGY, NFX, DVN, APA, NYSE:RDS-A, MUR
The Deepwater Gulf of Mexico is becoming an increasingly important source of oil production to meet the energy needs of America over the next generation. But getting at the oil will not be easy, due to the high cost and technical challenges associated with exploring in deepwater. The Minerals Management Service (MMS), a part of the Department of the Interior, defines deepwater activity as exploration at depths below 1,000 feet.
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What's it Worth?
The exploration and production industry has spent billions to explore and develop the Gulf of Mexico over the last decade, and it has produced results. The MMS reports that 70% of the oil and 36% of the natural gas in the Gulf of Mexico is now produced from area classified as deepwater. In 1995, the deepwater only produced 16% of the Gulf's oil, and 4% of its natural gas.

It is difficult to estimate the total potential of the deepwater Gulf due to lack of data and the inherent uncertainties of such estimates. The MMS said recently that the area might contain 56 billion barrels of oil. There have been several recent discoveries in the deepwater that might help offset declines in more mature fields elsewhere. (For more, see Unearth Profits In Oil Exploration And Production.)

Exploring the Depths
Both Stone Energy (NYSE:SGY) and Newfield Exploration (NYSE:NFX) recently announced a discovery in the deepwater Gulf of Mexico in the Garden Banks block. The Pyrenees prospect is in 2,100 feet of water and hit 125 feet of net pay in several different zones. Stone Energy, which has a 15% interest and Newfield Exploration, operates the well and has a 40% interest. The company will now work on a plan to develop the field.

Newfield Exploration also announced a second discovery at the winter prospect, also located in the Garden Banks area in a different block. The well hit 44 feet of pay, at 3,400 feet in two zones. Apache Petroleum (NYSE:APA) is the company's partner on this well, along with some private companies.

It's not Lonely at the Bottom
While some may think that Winter prospect was at great depths, there are more than a dozen operators drilling at greater depths. The deepest exploration is at the Cascade Prospect where Devon Energy (NYSE:DVN) is drilling at a depth of 8,142 feet. Royal Dutch Shell (NYSE:RDS.A) is a close second, at its Great White prospect at a depth of 8,062. In 2008, Murphy Oil (NYSE:MUR) logged a discovery at the Diamond prospect at a depth of nearly 10,000 feet. (For more, see Peak Oil: Problems And Possibilities.)

The Bottom Line
The deepwater Gulf of Mexico holds the prospect of easing America's dependence on foreign oil supplies, although this will not be an easy task as it takes billions of dollars and many years to develop these valuable resources. (To learn more, take a look at our Oil And Gas Industry Primer.)

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