BP’s horrific oil spill in the Gulf of Mexico has generated a lot of hyperbole. No, it doesn’t spell the end of oil’s reign. And, no, it’s not offshore oil’s Three Mile Island. Offshore oil drilling will proceed (but admittedly with much higher costs). And, no, it shouldn’t even cause the demise of BP.

But the Deepwater Horizon accident has produced a clear winner and a clear loser. And that’s something investors should pounce on. Because it opens the door for one particular company to emerge as the new bully among oil giants.

From “Drill, Baby, Drill” to “Stop the Madness”

Tina says, “We should hold off on exploring in some of the deeper basins.”

Who is Tina? Somebody we should listen to. Not because she’s right or she has the ear of the Obama administration. Tina isn’t even from America. She’s an assistant law professor at a university halfway across the world in Australia.

But in the post-Deepwater Horizon era, when she says “The last thing we need is to go into deeper waters and risk something like what happened in the U.S.,” you’d better believe that she’s speaking for dozens of governments. Here are just a few examples…

• Bulgaria is dropping plans for a new oil pipeline.

• French oil giants are upgrading equipment and procedures designed to prevent spills.

• Canada’s offshore regulator is tightening oversight of its deepest-ever exploration well (being drilled by Chevron).

• Norway is stopping deepwater drilling until the causes of the deepwater explosion in the Gulf of Mexico are better understood.

• Russia is formulating new and tighter rules.

And Australia is leaning toward scrapping its latest set of drilling permits and putting deepwater exploration drilling on hold.

The Biggest Loser

It’s not oil. If anything, all these reviews and moratoriums and stricter regulations will cut into supply in the short term, thereby raising crude prices.

It’s the Gulf of Mexico.

It was meant to be the new and lucrative frontier not just for BP but for all the other global oil majors too.

That Gulf no longer exists. Let’s face it, the Gulf of Mexico will never be the same. And I’m not talking about the washed-up oil. That will eventually clear up. But from now on, every development plan for the Gulf will be scrutinized over and over, with many new hoops for oil companies to jump through, and plenty of backup safety equipment and plans built into their operations.

I guess there’s always Cuba. It has 59 blocks in its portion of the Gulf. (Only 17 have been contracted out so far.) But even Cuba is going to be affected by the onslaught of new drilling regulations that the U.S. will be putting in place.

Don’t look now but the oil majors have already found their new offshore frontier. And it couldn’t be further away from the prying eyes of the U.S. government.

BP’s Plan B

A couple of weeks ago, BP, along with Chevron, bought the rights to a big offshore block. It’s in the South China Sea.

Did you really think that BP or the other oil companies were going to stop looking for deep-sea oil? All the big onshore oil discoveries have come and gone. But the underwater discoveries have just begun. And the South China Sea is now a prime exploration target.

Back in 2006, Husky Energy discovered 4-6 trillion cubic feet of recoverable gas reserves in the South China Sea.

Husky is going to make a lot of money from those gas reserves. But another company, CNOOC, rules the roost. CNOOC is China’s state-owned oil company, and the South China Sea is one of its major production areas.

CNOOC bought a big stake in the South China Sea one week before BP/Chevron’s purchase. And if BP and Chevron strike it big? CNOOC gets 51% of it.

How so? CNOOC has the exclusive rights to develop China’s offshore resources  – and, UNDER CHINESE LAW, has the right to take a 51% stake in any discoveries made by foreign companies.

CNOOC posted these comments on its website on June 10th…

Offshore and especially deep-water oil and gas discoveries have great significance for replenishing China’s and the world’s oil resources. We can’t cancel or stop deep-water oil and gas extraction because of the accident in the Gulf of Mexico.

Why would CNOOC want to stop deepwater exploration in the South China Sea? What happened in the Gulf of Mexico is terrible, but CNOOC can’t undo it. The company understands all too well that the Gulf accident will be driving even more companies into its territory, where it enjoys the huge competitive advantages bestowed upon it by the Chinese government. The South China Sea is the next big deepwater drilling destination. BP, Chevron, ExxonMobil, and Shell… Welcome to CNOOC’s world.

By the way, CNOOC is up 36% in my Sound Profits portfolio in less than a year. In light of recent events, I’m convinced it’s going much higher.