Last week I met a man who is hoping to strike it rich in the next few months. His name is John McGoldrick. And after 18 years as a driving force behind explorer Enterprise Oil, he is getting ready to do it all over again.
When we met, McGoldrick showed me an aerial photograph of the Wharton West oil field in Texas. It was just a grid of straight roads splitting the fields and woodlands of this flat land. A building was visible by the highway. “That’s the gun-shop,” McGoldrick explained. And just behind it was one of the wells of Wharton West.
These oil wells are all over the southern states, barely noticeable and making no scar on the countryside. But here is the point that McGoldrick was keen to make.
It turns out these southern state oil fields have not been explored anything like as rigorously as you might guess. And while the majors struggle to source oil from hostile countries and the deepest oceans, a number of penny share explorers are moving to develop huge untapped reserves in these parts.
America’s next oil rush will be on dry land
It is now over 150 years since William ‘Uncle Billy’ Smith drilled the first well, to a depth of twenty-one metres below the ground of Titusville, Pennsylvania . Since then, the US has developed a massive thirst for oil. It guzzles its way through 21 million barrels per day, three times as much as China, a country with four times as many people.
But while the US has massive reserves offshore – notably in the Gulf of Mexico – it’s onshore where the real opportunity could lie for penny share investors.
There are no fewer than 510,000 onshore oil wells in the States, producing an average of just 10.5 barrels each per day. There is no other country with anywhere near as many oil wells – Saudi Arabia, by contrast, has 1,500 wells producing an average of 5,000 barrels per well per day.
This year alone, over 40,000 new wells will have been drilled in the USA. As each one twists its way through the ground, the hopes of oilmen soar. What will be found? Will the oil gush or the gas flow?
It is an intoxicating game, the stuff of American dreams. And John McGoldrick was right at the heart of it just when onshore drilling came of age.
Why penny explorers will beat Big Oil to the chase
McGoldrick made his name after Enterprise Oil was spun off from British Gas in 1984. He helped turn Enterprise into an industry titan, having spotted the serious opportunity in onshore drilling around the Gulf Coast.
“I noticed the off-shore boys get to travel by helicopter,” he told me, “but on-shore is where the money is.”
You see, Big Oil has to go where the big resources are. So the majors are forced into hostile territory where finding oil is a huge challenge, and where there is also the need to build a whole infrastructure to get the stuff to the customer. The onshore game is different. The costs of drilling wells are less and pipelines are never far away. Just find some oil or gas – it does not have to be a huge amount – hook up to the nearest pipeline and watch the money roll in. There may only be a small trickle of oil from each well by the standards of the majors, but if there’s oil there, it could really transform the fortunes of the smaller explorers.
With the cost of a well low, prospectors have sunk the drill bit wherever they fancy, and with little of the evidence that is so laboriously gathered in more expensive locations. In particular, 3D seismic has not much been applied and that has meant that the industry has little idea of what lies at depths below about 12,000 feet.
McGoldrick is now executive chairman of Caza Oil & Gas (LSE: CAZA). Caza managed to cheaply acquire a great deal of 3D seismic, and it will be drilling some interesting and potential significant prospects over the next two quarters.
• This article is taken from Tom Bulford’s free twice-weekly email The Penny Sleuth