In the Gulf of Mexico, many oil-and-gas players stand to benefit. By David Landis, Contributing Editor September 6, 2006 A huge oil and gas discovery in the deep waters of the Gulf of Mexico could reinvigorate exploration efforts in the region and give a boost to energy firms with a foothold there. And the beneficiaries may go beyond the names that have been getting most of the attention. Three companies announced on September 5 that they had dug a successful test well more than five miles deep in an area of the Gulf 270 miles southwest of New Orleans and 175 miles offshore. Preliminary data indicate that the area could yield the equivalent of three billion to 15 billion barrels of oil and gas. The high end of that estimate could increase U.S. reserves by 50%. Shares of the three firms, Chevron (symbol CVX), Devon Energy (DVN) and Norway's Statoil (STO), rose the day the discovery was announced before settling back the following day. But other firms with leases in the area, including BP (BP), ExxonMobil (XOM) and Hess (HES), could benefit if analysts revise upward their estimates of the amount of recoverable energy that ultra-deepwater drilling in the area could yield. Devon, which owns 25% of the project, got the biggest boost. Its shares rose 12%, to $72.14, on September 5, although they dropped back to $69.01 the following day. The Oklahoma City-based firm said its share of the discovery and of other projects in the region could more than double its reserves of two billion barrels of oil and gas in the coming years. Devon already has identified 19 other drilling prospects in the area, three of which have proven viable so far. Deutsche Bank analyst Shannon Nome raised her rating on Devon to buy from hold and boosted her 12-month target price to $80 from $61, based on her reassessment of the value of the firm's deepwater Gulf reserves. FBR's David Khani raised his target price to $100 from $80, a price that also reflects his view that the company will benefit from a rally in natural-gas prices heading into the winter heating season. Goldman Sachs analyst Arjun Murti's new $77 target price represents a more conservative $7-a-share value for the new discovery, plus a $3-a-share premium that reflects what he says is the company's increased attractiveness as a takeover target. Raymond James analyst Wayne Andrews, who has a neutral rating on the shares, added a note of caution. Project delays and cost overruns are likely in large-scale projects like this, he wrote. He also noted that the success rate for ultra-deepwater exploration drilling in the Gulf of Mexico is below 30%, although he added that Devon's success rate has been much better than that. In any case, it will be years before commercial production will begin. The companies plan to drill another test well next year. Although it owns 50% of the project, Chevron's interest represents a much smaller portion of its total reserves. Its shares rose 2% on September 5, to $66.34, and shed $1.12 the next day, to $65.22. Citigroup analyst William Stevenson estimates that the discovery could add $1 to $2.50 a share to Chevron's value. His one-year target price of $75 remained unchanged, though. Prudential analyst Jason Gammel raised his one-year target price by $3, to $72. Stevenson adds that the discovery "is attracting a great deal of interest from industry players keen to capture acreage in these areas." Hess, he says, is the sixth-largest acreage holder in the area behind BP, Shell (RDS), ExxonMobil, Chevron, Kerr-McGee (KMG) and Anadarko (APC). But "there is no value in HES share price for its deepwater portfolio." Hess shares sank $2.63 on September 6, to $44.82. At that price, they're about 25% below their 52-week high.