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Offshore Drilling: Look, Before You Go Deep

Stocks in this article: RIG DO HERO ESV VTG

Still, there's so much interest being mucked up for offshore energy as an investment in the past 48 hours, the example of Mukluk Island, Alaska, might be worthwhile to remember also.

Everyone within the energy industry knows about Mukluk's ill-fated history. Should you know about it too?

Mukluk Island is located in the Beaufort Sea area that the Obama Administration has put under drilling consideration for the 2012-2017 offshore drilling plan. In 1984, optimistic preliminary analyses indicating the possibility of a major discovery led oil companies to collectively invest $1.5 billion in federal leases on the Mukluk area exploration.

A test well drilled nearly 10,000 feet through the sea's floor brought up salt water with only traces of oil -- it had all leaked away to other areas of the sea before the drill was active. Mukluk is today an abandoned site. Companies like Dallas-based Diamond Shamrock wrote off close to $200 million on the big Mukluk disappointment.

One oil industry executive told TheStreet on Thursday, "Mukluk was going to be a sure thing, and now it's called a billion dollar dry hole."

Of course, energy optimists say that drilling technology has gotten much better since the murky Mukluk days. The oil industry executive said, "Mukluk was hugely expensive, and drilled with the best available technology of the time. Everything was perfect, and we knew exactly where the oil was, except the oil had leaked out. Technology has improved, but you still have to drill," the energy executive said.

For investors, there are plenty more layers to drill through before going deep into your own personal investment portfolio Mukluk-equivalent.

For everything you ever wanted to know about U.S. offshore oil and gas resources and leasing, but never knew to ask before Wednesday, the U.S. Department of the Interior's Minerals Management Service web site (http://www.mms.gov/) is a good place to start.

-- Reported by Eric Rosenbaum in New York.

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