But before I tell you what it is, I want to give you a sense of how big this really is: It’s exactly like being there for the birth of the offshore oil and gas industry.

This industry, born of the 1970s energy crisis, now produces about a third of the world’s oil output. But back in the ‘40s and ‘50s, it was still a frontier…a pipe dream, to many.

Geologists today know of some 115 billion barrels of oil and 633 trillion cubic feet of natural gas reserves in the Outer Continental Shelf surrounding America’s coastlines alone. There are some 450 operating platforms in the North Sea today, and several thousands in the Gulf of Mexico. It is a trillion-dollar-per-year industry, plus or minus.

Thanks to the mother of inventions, offshore drillers have overcome many obstacles (mostly political). And in the process, they have unwittingly laid the technical and legal groundwork for a whole new industry…

Until recently, offshore drilling had gotten a bad rap from both political parties. The ban on drilling was first made by George H.W. Bush and has stood until his son recently proposed repealing the ban.

Both candidates in the upcoming presidential election had been opposed to offshore drilling but have changed their stances in the recent weeks. Republican John McCain has stood by the president and called for an increase in offshore drilling. McCain attempted to drive yet another wedge between himself and his democratic rival.

But even Democratic Sen. Barack Obama has eased off his stance against drilling. Obama stated last week that he would support offshore drilling as part of a comprehensive energy plan. It seems that both sides of the aisle have felt the pressure of rising fuel prices. The winner in these new political concessions will clearly be the offshore drillers themselves.

So while the toughest obstacle is finally cleared for drillers, there could be a flood of opportunities made for investors.

There is one company I’m looking at. It is this industry’s leader. Its founder led the group that co-discovered the 40 million ounce Lihir gold mine in Papua New Guinea (put into production during the late ‘90s). He is still a founding director of Lihir Gold and a fellow of the Australasian Institute of Mining and Metallurgy. He surrounds himself with old mining hands, including former Placer Dome and BHP executives.

I bet you’ve already figured out that we’re talking about a mineral deposit.

What’s so new about that, right?

Get this: It’s under the sea. Yes, we are about to see the first major startup in the deep-sea mining industry. If it’s anything like the boom in offshore drilling, you’ll want to be there.

The world’s largest gold companies together own over one-third of this company.

These players are so bullish on the prospects of this industry they all entered into non-competing and anti-dilution clauses just to get a tiny foothold… Teck Cominco and Anglo American have paid millions of dollars for a mere option to participate in a potential future joint venture. And millions more in direct investments.

Anglo and Teck’s investments total more than $50 million.

Placer Dome alone spent more than $13 million earning a joint venture interest with this company.

And in 2006, shortly after Barrick took Placer Dome over, it decided to convert Placer’s JV interests into a 9.6% equity interest (which has since diluted to less than 5%) at a deemed price of $2.86 per share.

But wait, you may wonder, just how new is this?

Outside of a few dredging operations for diamonds off the African coast in recent years, the extraction of minerals from the seafloor is virtually untapped. No one has mined the seafloor, though geologists have long known of its potential…

For a long while, they thought that these minerals were deposited as sediments from eroding deposits on nearby land. But it was later realized that the source of massive sulfides on land was the ocean, and that hydrothermal events beneath the ocean seafloor precipitated into a mineral deposit upon contact with the water. In fact, in 1985, seafloor massive sulfide systems were discovered off the coast of Papua New Guinea by a research vessel at a site claimed by our company.

Given a few modifications to technology produced by the offshore oil industry over the last few decades, the outcome of a new international treaty on deep-sea mining in the ‘90s, advances made by our company toward the establishment of the first-ever deep-sea mine this decade and the growing worldwide demand for scarce mineral resources, the time is right for this industry to emerge…and the deep sea mining profits should follow!

Regards,
Ed Bugos
August 13, 2008

P.S.: Advances in the offshore oil industry have aided operations for deep-sea miners. But these technological and political advances aren’t the only factors aiding the mineral mining industries. There are several economic reasons why mining stocks are set to soar. Readers of my Gold & Options Trader service already know this.

Deep-Sea Mining was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

What Do You Need?

Corrosion and abrasion control? 76 exhibitors. Wellbore equipment? 36 exhibitors. Laboratory equipment? 14 exhibitors. Offshore platforms? 68 exhibitors. Decommissioning services? 33 exhibitors. Mooring and positioning systems? 60 exhibitors. Pumps and compressors? Another 60 exhibitors. Artificial lift? 25 exhibitors. And it goes on. Just the OTC program alone is the size of a small-town telephone directory. Welcome to the world of the offshore, and to the OTC.

From Where Does It All Come?

In other articles, I have asked the question, how far upstream do you think? When you fill the gas tank of your car, do you ever wonder about the fuel-holding systems under the parking lot of the gas station? Do you think about the tanker truck that hauled the fuel from a terminal to the gas station? Do you think about the terminal tanks? How about the interstate pipeline or barge that carried the fuel from the distant refinery to the nearby terminal? Or the pipelines that brought the oil to the refinery? Right about at this point is where the purpose of the OTC begins.

What Is the OTC?

The OTC includes the geophysical services that help the geologists pick a spot in the middle of the ocean, so they can tell management where to spend a billion dollars or more. The OTC includes the drill ships, the jack-up rigs, and the semi-submersibles that will drill the wells. The OTC includes the drill bits, the pipe systems, and casing plans. The OTC includes the down-hole equipment that penetrates six or seven miles into the crust of the Earth. The OTC includes the massive equipment that powers and runs the rigs, the cables, the wires, the electric transmission, the safety systems, and pollution control devices. The OTC includes the transport vessels that haul stuff out to the rig, and other vessels that haul the oil ashore, or the subsea systems that pipe it there. The OTC includes the communications equipment, the training for the workers, the logistics that puts it all together, the insurance, the inspections and quality assurance, the banking, and even the good-old government regulation. The OTC is a reflection of a complex, world-spanning industry.

Rocket Science, Without the Rockets

So the OTC highlights the offshore oil industry, but with an emphasis on things about which you do not usually ponder unless you have been there. Take all of the complexity of drilling for oil and gas onshore. Take all of the geological risk, the political risk, the high costs and financial risk, the environmental risk. Take it all and then put it out in the ocean, up to hundreds of miles from shore, in water (almost always cold water, by the way) up to two miles deep, and constant corrosion and occasional hurricanes, typhoons, or icebergs coming your way. And the dictates of the modern global economy are that whatever you do, you have to do it quickly, efficiently, and safely. It is rocket science, but without the rockets.

History and Trends

The offshore industry has been around for about 60 years or so, ever since people started siting drilling rigs out over the shallow waters of the coastlines of several continents. Quite a bit of what goes on offshore is an evolutionary development of technology, with people identifying challenges and meeting them progressively.

In today’s world, as you can imagine, there are many dedicated programs to provide a boost to that evolutionary process, if not to “force” the process along. These range from government-funded research to university-level programs, and many private industrial and consultative efforts, with all sorts of combinations of the foregoing. It is all about moving farther out from shore, to more prospective areas, to deeper waters, to more extreme climates. It is all about looking for oil and gas, finding it, and bringing it to landfall.

Alternative Energy Sources From Offshore

Well, it was all about looking for oil and gas and bringing it home. This year’s OTC program actually devotes quite a bit of time and effort to offshore wind power development, as well as to capturing energy supply from tidal and wave action. It makes sense. The same people who have been designing structures and bending metal for the offshore hydrocarbon extraction industry for the past six decades are the ones whom you would expect to have the technical expertise to bend metal for energy capture systems in wind and wave.

Matthew Simmons: Energy From the Ocean

Energy derived from the ocean will be a key source of future energy supplies for the United States, said Matthew Simmons, the chairman of Simmons & Co. Intl. and author of the highly regarded book Twilight in the Desert. According to Simmons, who presented his talk to an eager and enthusiastic crowd of OTC attendees, the U.S. industry and government need to begin “now” to conduct aggressive levels of research to develop oceanic energy resources.

“This is the issue we should have paid attention to for the last 15 years,” said Simmons. Simmons noted that offshore oil production has already begun to decline, using as examples the depletion profiles of areas in the Middle East, Mexico, and the North Sea. In January 2007, noted Simmons, global offshore oil production was down 1 million barrels per day (b/d) from May 2005.

Meanwhile, according to Simmons, the offshore rig fleet is becoming “long in the tooth” as rigs age without adequate levels of new construction. Due to skyrocketing construction costs and shortages of yard space and personnel, offshore vessels and rigs are not being replaced as quickly as they should be to maintain the future pace of offshore drilling. Many vessels will also “become obsolete” in the next five-10 years, Simmons said, explaining that contractors have done an “excellent job of refurbishing rigs,” but “rust never stops.”

One key point that Simmons made in his talk was that “To slow the decline in oil and gas production, we must drill faster.” But he warned, “We may be faced with a declining rig fleet.”

Thus, according to Simmons, energy capture from the ocean offers a number of opportunities to develop future energy supplies. These include waves, currents, tides, aqua biofuels, ocean geothermal, and vent and seep energy. In a comment that had many in the room nodding their heads, as if complimenting a great idea, Simmons said, “Algae is the single most interesting biofuel. There is plant life in the oceans far below where light ever strikes.”

Simons also noted that gas hydrates are another potential energy source that remains untapped. “We have never tried to capture them, so we don’t know if it would be successful, but at least we have not tried and failed.”

And on that hopeful note, I will end this update from the OTC.

Until we meet again…
Byron W. King

May 3, 2007

Offshore Technology Conference Update was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.