Published: September 18, 2009

Crude oil has risen above $72 a barrel, but cheap oil just got a little cheaper.

Recently, I looked at the value of the world's leading oil companies and discovered how investors can buy oil for a fraction of the commodity's current price.

What I found was surprising.

Instead of loading up on futures contracts, it's possible -- and likely far more profitable -- to simply buy the crude the oil giants have already found by buying the oil giants themselves. I divided each company's market cap by the number of barrels in proven reserve.

The cheapest oil I found was $4.67 a barrel. (You can see the results here.)

In the article detailing that research, I suggested it might be profitable, for instance, to buy Anadarko (NYSE: APC, $64.70), which industry insiders know to be one of the leading outfits in the oil business. The whole company, I noted, could be bought for $26 billion. But the buyer would get $165 billion worth of oil.

It was a good deal then.

It's a better deal now.

That's because Anadarko just hit a new well that totally changes the math.

The company said Wednesday it had made a major find off the coast of Africa. The discovery in the deep water near the coast of Sierra Leone could well contain billions of barrels of crude. The company's 'Venus' well, of which it owns 40%, has proven the existence of an "active petroleum system" off the West African coastline.

The shares rose. Now it would take $31 billion to buy the company.

Which is curious. It seems to be undershooting a little for Wall Street to add $5 billion in market cap to account for what may be $150 billion worth of crude. The company may well have just announced a find that ultimately will double its crude reserves, and yet its stock has only risen about +8%.

Now, admittedly, Anadarko will have to spend some money to get this oil to the surface. Twenty-five years ago, it wouldn't have even been possible. Back then, it took all the engineering prowess the industry had to operate wells deeper than 600 feet.

But the "Venus" well off Sierra Leone is more than a mile below the water's surface. The techniques that will be used to exploit this find are the industry's cutting edge.

More than the math behind Anadarko might be changing.

Between this latest multibillion-barrel find and a similarly sized discovery by BP in the Gulf of Mexico earlier this month, a long-held theory about oil production may have been disproved.

The idea, known as Hubert's Peak, suggests that the world is on the downhill slope of oil production. These deep-water finds seems to suggest that that's not true.

And as the oil giants are having a harder and harder time accessing new finds in Russia and the Middle East, the technology that Anadarko and others will develop becomes ever more valuable. Advanced drilling and production techniques that will be perfected off the Sierra Leonean coast may allow dozens of more sites in West Africa or the Arctic to be developed.

Not only does buying Anadarko give investors cheap oil, it also gives them ownership of the technology that could bring billions of more barrels of oil to the surface.

As I noted, Anadarko has 40% of the Venus well. Its other owners are also publicly traded. They are Britain's Tullow Oil (London: TLW, GBP 1245), which owns 10%, Spain's Repsol-YPF (Madrid: REP) which controls 25%; as does Australia's Woodside Ltd. (ASX: WPL, AUS$55).

Investors with international brokerage accounts should consider these companies; investors not equipped to trade in Madrid, London or Sydney should seek domestically listed exchange-traded funds that hold the shares. Failing that, I'd stick to Anadarko and wait for the market to realize it's value -- and to see what's it's going to announce next.

-- Andy Obermueller
Editor
Government-Driven Investing