The Wall Street Journal: MarketBeat: Striking Oil

September 5, 2006 4:19 p.m.

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The oil sector struck gold, after news that Chevron and two partners made a significant discovery that could boost the nation’s oil reserves by as much as 50%. The yield from the test wells in the Gulf of Mexico is undeterminable at this point, but Chevron still gained 3% on the day, and other oil stocks rose as well, boosting the Oil Service Holdrs exchange-traded fund by 1.9% on the day. Crude oil finished down 59 cents to $68.60 on the news.

–David A. Gaffen

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Deep-Sea Oil Fishing
 
1:54 p.m.: Oil drillers are abuzz today with news that Chevron, along with partners Devon Energy and Statoil, announced their first successful oil production from deep water in the Gulf of Mexico, with a production flow of more than 6,000 barrels a day. There’s talk this could end up boosting U.S. reserves by more than 50% and reducing America’s reliance on foreign oil.

But any new supply of oil will be small relative to global production, and today’s news does not augur for a huge supply of oil on the market any time soon. The first production may not be on line until after 2010, Oppenheimer analyst Fadel Gheit told the Associated Press. And Raymond James analysts this morning said the speculation of a 50% increase in U.S. reserves “seems aggressively optimistic, to put it mildly.”

But equity investors are hardly in a mood for such skeptical talk: Chevron has gained 3.3% today, Devon is up 12% and Statoil is up 2.1%.

However, while the partners directly involved in this discovery are seeing their stocks bounce — and deepwater driller Transocean is up 3.4% — the carryover effect hasn’t been significant for other companies with deepwater leases in the Gulf, including Petróleo Brasileiro, Exxon Mobil, BP and Royal Dutch Shell. Though Anadarko Petroleum, which also has an interest in the region, is up 3.9% today, shares of the rest have barely budged.

Crude oil, meanwhile, is down on the day — as one would expect — with the October crude-oil contract falling 74 cents to $68.45 on the New York Mercantile Exchange. But the end of the peak U.S. driving season, as well as reduced worries about hurricanes and United Nations sanctions against Iran, are also playing into the malaise in the crude market.

–David A. Gaffen

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