On the production front, Exxon (XOM), Chevron (CVX) and Marathon (MRO) were all early adopters and some of the few that found success in Atlantic when it was open to drilling. Given the trio’s need to finding reliable and big reserves, they could be the first to jump at the chance to add leases in the region when they hit the auction block.
However, an even bigger play could be beaten-down and left-for-dead contractor McDermott International.
The problem for the Atlantic — like most of the nation’s energy reserves — is a lack of infrastructure. The seafloor of the Gulf of Mexico is littered with a vast pipeline and gathering system network that makes getting its production to the shore quick and easy. Unfortunately, because drilling in the Atlantic never caught hold, it doesn’t have luxuries like preexisting pipelines.
That infrastructure will cost billions to produce and will need to be in place before real drilling gets going — which is where MDR comes in.
The engineering and construction firm basically does nothing but design and build offshore energy infrastructure projects. From undersea pipelines and gathering systems to floating containment units, McDermott is a specialist. What’s more, the bulk of the Gulf of Mexico’s undersea logistics infrastructure was built by the firm over the past decades.
As the undersea specialist, there’s no reason to believe that MDR won’t get the nod again to help construct the Atlantic’s much needed pipelines. That could lead to positive earnings growth and some profits for MDR.
Meanwhile, MDR stock is sitting cheap.
As investors have gone gaga for shale and heavy construction firms like Chicago Bridge & Iron (CBI) — which builds all sorts of liquefied natural gas (LNG) exporting and NGL cracking facilities — MDR shares have basically gone nowhere. However, add in the potential boost from pending Atlantic drilling, and the sub-$9 stock could surge back to its former glory days.
For investors, the energy potential of the Atlantic is great, but its infrastructure needs to be built before any real drilling takes place. Focus on MDR today, rather than the potential exploration firms.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.