Soaring oil prices have sparked a boom in the Gulf of Mexico. Rig-rental rates are skyrocketing, employees are in short supply and property prices are climbing.

Yet one part of the gulf has missed the boom: the shallow, coastal waters.

Big oil companies, lured by the promise of larger reserves and easier drilling, are fleeing these areas and moving onshore and out to deeper waters. The gulf's shallow waters have fallen out of favor because of their aging fields, declining production and annual hurricane risk. Lofty oil prices have made drilling in deep water and the continental U.S. more lucrative and offset the higher expenses of drilling in unconventional areas.

That's spawned a land rush among small independent drillers with an appetite for risk. Over the past year, the pace of big operators leaving the gulf's shelf, where water depths are 1,000 feet or shallower, has surged along with energy prices. And that's meant more deals for small companies eager to bet big.

Over the past two years, 13 companies have cast off their shallow-water assets, nearly triple the number in deep water. In April, Noble Energy ( NBL) announced it was selling almost all of its shallow-water fields to privately held Coldren Resources for $625 million. BP ( BP) shed its remaining fields on the shelf for $1.3 billion in cash to Apache Energy ( APA), and Pogo Producing ( PPP) sold a 50% stake to Mitsui ( MITSY) for $500 million.

Earlier this year, Kerr-McGee ( KMG) and Houston Exploration ( THX) each dumped their properties for a total of $2.1 billion to W&T Offshore and Merit Energy, respectively.

To be sure, the exodus has been partly inspired by the extensive damage oil companies suffered after hurricanes hit 113 offshore platforms and 457 pipelines last fall, shutting down much of the gulf's petroleum industry. Millions of dollars in damages boosted insurance rates and pressured oil companies to reconsider their strategy in the gulf. Well over a month after the start of the hurricane season, 12% of the area's daily oil production and 9% of its gas output remains offline.

Yet many small operators dismiss the threat, saying hurricanes are just another business risk.

"Everyone says get out of the Gulf of Mexico, go onshore, go overseas; the hurricanes will kill you," said Tracy Krohn, chief executive officer of W&T Offshore, which bought Kerr-McGee's shelf properties for $1.3 billion this year. "We've been having hurricanes in the gulf forever. We've done just fine after 20 years, and we're going to do just fine."

While hard numbers on shallow-water returns are difficult to come by, it is clear that expanding into these areas hasn't appreciably slowed the growth of some key players. Over the past 14 years, Apache spent $5.1 billion buying and upgrading properties in the Gulf of Mexico, a period during which its annual revenue jumped to $7.6 billion in 2005 from $454,300. During the same period, overall company profits climbed to $2.6 billion from $47,776.

"The gulf is a cash-flow machine," Steve Farris, chief executive officer of Apache Energy, said in a conference call.

Small independents are entering and expanding in the gulf because they can make money from mature oil and natural gas fields the larger international companies are casting off. They do it by drilling new or horizontal wells, finding previously overlooked sources by collecting new seismic data, and injecting water, steam or gas to displace oil in an old well.

"It's very lucrative for small and nimble independent E&P companies, but not significant enough to attract the larger oil and gas companies," said Jan Rask, chief executive officer of Todco ( THE), a drilling contractor that focuses on the shallow waters of the Gulf Coast, in a conference call.

While size can often be an asset in exploration, shallow water seems to reward smaller, more entrepreneurial companies. It costs less to maintain output in shallow water, which gives the smaller players an advantage, and while the majors might sniff at the relatively miniscule production volumes, the smaller firms can reap healthy profits from their shallow-water operations. For example, W&T Offshore pumped 4.1 million barrels of oil and liquids last year, compared to 161.4 million barrels at larger Kerr-McGee.

Drilling in shallow water is cheaper and takes less time than in deep water. A shallow-water well costs from $5 million to $30 million and can produce from 300 barrels to 5,000 barrels a day. A deep-water well, in comparison, can cost as much as $1 billion and pump up to 30,000 barrels a day.

Still, shallow water isn't for the faint of heart. Since 1997, oil production on the shelf has fallen 38% to 187 million barrels in 2004, according to the U.S. Minerals Management Service, which oversees offshore minerals. In 2004, oil production was at its lowest level since 1966. Reserves in the Gulf of Mexico also decline faster than those in other parts of the country, with an average life of six to 10 years. That means companies need to drill and explore continuously to stay ahead. It's no wonder why many energy executives derisively call the gulf a "treadmill."

"It's hard to maintain growth there," said Marshall Carver, an energy analyst with Pickering Energy Partners in Houston. "But the economics are still good and you can make a lot of money."

The promise of increased profits led to a battle between Plains Exploration ( PXP) and Energy Partners ( EPL) for control over Stone Energy ( SGY), a shallow-water producer, in May. Energy Partners eventually won out with its bid of $1.4 billion. But its stock didn't fare as well. Since the company made its unsolicited bid on May 25, its shares have tumbled 13%, while shares of Plains have gained 21%.

Companies that buck Wall Street and stay in the gulf are not always rewarded. Kerr-McGee was pressured by shareholders to sell its shallow-water fields and chemical group and repurchase $4 billion in stock. The oil company finally did so to avoid a proxy battle with billionaire activist Carl Icahn.

When Apache bought BP's remaining shelf properties for $845 million in cash, becoming the second-biggest lease owner on the shelf, analysts didn't welcome the deal. The gulf now accounts for 21% of the company's production, up from 18% before the deal closed.

"Acquiring more reserves in the Gulf of Mexico after the hurricane fiasco of 2005 seems a triumph of hope over experience," wrote Phillip Adams, a senior investment-grade analyst at Gimme Credit, an independent research firm in New York.

But Adams is also optimistic Apache can execute. "When Apache makes an acquisition, it's not likely to be crazy. Whatever debt they incur will be repaid."

With the 2006 hurricane season now under way, the risks to the oil industry are building again, but shallow-water proponents remain bullish about long-term potential. While it's always tricky gambling against Mother Nature, a handful of small companies see plenty more to squeeze out of an area the big guys have written off.