11/19/2012 8:45 PM ET|
Ready for the US energy boom?
The US is seeing an oil and gas revolution that promises to keep prices low for years to come. Here's how to invest in the trend.
Five years ago, I never imagined I'd type these words: By 2017, the United States will overtake Saudi Arabia as the world's largest oil producer.
In addition, according to the International Energy Agency, by 2015, the United States will overtake Russia to become the world's largest producer of natural gas.
The United States is now the fastest-growing oil and natural gas producer in the world. During the past five years, according to Citigroup, the United States has added 2.59 million barrels a day to total production.
You'd think there's an investable angle there somewhere.
I can think of four:
- First, the stocks of the companies responsible for this huge surge in U.S. production.
- Second, the stocks of the companies that will make money from solving the current bottleneck in getting this supply to market.
- Third, the stocks of companies that will benefit from the long time frame of this trend. The trend is likely to stretch on for a decade or two -- with a likely extension past 2030 as supply from Canada and Mexico increases. This will drive North America as a whole toward energy-self-sufficiency projects with long time lines that had been discounted on the risk that the boom would be over before they were completed.
- Fourth, the sectors in the U.S. economy that will reap benefits from lower U.S. energy prices, beyond the general advantages flowing to the U.S. economy from lower energy costs.
Let me start with the general picture and then move to individual sectors and trends.
What changed the picture
I don't think it's overstatement to call what we're seeing now "the shale revolution." Higher oil and natural gas prices met up with the maturing of technology pioneered in the 1970s to send oil production soaring. The new production is coming from shale formations that, until the development of new technologies for hydraulic fracturing (fracking), were thought unlikely to ever give up their oil content.
Not so long ago, the U.S. energy story was about an apparently irreversible decline in production from the big oil states of Alaska, Texas and California. Production from Alaska, for example, peaked at 2 million barrels a day in the 1970s. Production in the state ran at 567,481 barrels a day in March 2012. Production from Texas and California was falling as well.
Nothing shows the reversal in the trend more starkly than production figures from North Dakota. With 6,336 wells now pumping, oil production from the Bakken and Three Forks shale formations in North Dakota climbed to 575,490 barrels a day in March 2012 from 118,103 barrels a day five years earlier. That put North Dakota ahead of Alaska -- with its March 2012 production of 567,481 barrels a day -- and moved North Dakota into second place among U.S. oil-producing states. North Dakota now chases only Texas, which is seeing its own oil-shale boom turn projected production declines into production increases. Oil production in Texas climbed 12% from September 2011 to March 2012 to 1.72 million barrels a day.
The boom companies
The shale revolution wasn't led by Big Oil. To take one example, the key technique known as "slickwater fracturing" was pioneered by Union Pacific Resources, now part of Anadarko Petroleum (APC), and Mitchell Energy, now part of Devon Energy (DVN).
Big Oil has, in fact, been playing catch-up by buying acreage from smaller oil producers or buying the small producers outright. For example, Exxon Mobil (XOM) bought 196,000 acres in the Bakken formation from Denbury Resources (DNR) for $1.6 billion.
The problem with these deals, if you're an investor, is that they aren't big enough to move the needle at Big Oil. Take Royal Dutch Shell's (RDS.A) purchase of acreage in the West Texas Permian Basin from Chesapeake Energy (CHK) in September for $1.94 billion. That acquisition tripled Shell's production from unconventional sources and marked a major milestone in the company's march to have 250,000 barrels a day in worldwide production from shale by 2017. Even if the company hits that goal, shale would still make up just 6% of Shell's forecast 2017 production.
No, as I have written earlier -- as early as Oct. 21, 2011, in this post on Big Oil snapping up smaller players -- if you want to buy producers to take advantage of the U.S. oil boom, it's better to buy the small companies that staked out big acreage early. Names like Pioneer Natural Resources (PXD) and Concho Resources (CXO) might be familiar, since I've owned them on and off in my Jubak's Picks 12- to 18-month portfolio.
Pioneer is also currently a member of my long-term Jubak Picks 50 portfolio. The stock is up 5.28% since I added it to that portfolio on Jan. 13, but it's down 9.2% from its Sept. 14 high on worries about the global and U.S. economies. Concho Resources is down 12.3% since I sold it on May 21 at $90.26 for the same reasons. Other names to look at include Oasis Petroleum (OAS), Devon Energy, Rosetta Resources, (ROSE), EOG Resources (EOG) and Approach Resources (AREX).
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Based SOLELY on the mass of water moved by Superstorm Sandy (e.g. not any accompanying wind power, etc.), that SINGLE storm contained more energy than has been used by humankind in all of history. By a factor of >1000. Fossil fuels are, by definition, finite. It is not a question of IF we will run out, it is a question of WHEN. First year economic students will tell you that is a recipe for ever-increasing prices. Discoveries of new deposits and/or new recoverable fossil fuel types only prolong the inevitable. The intelligent course for humanity is to invest NOW in harvesting wind, solar, and hydro energy -- (far) less polluting *and*, as far as humanity is concerned, infinite in supply.
How come you don't see poverty in Saudi Arabia like you do in the United States? Both countries have about the same amount of oil and natural gas. And, how come it cost Americans $4.00 for a gallon of gas when in Saudi Arabia it cost pennies on the dollar.
Is there anything wrong with this picture? Where is all this profit going that is made on the production of oil in America?
First, oil is not produced, it's extracted.
Second, that picture is highly misleading. We won't be pumping it from the ground, we'll be crushing it out of rocks. Yep, Shell is going to have to change its name to Shale.
Third, the Candadians are squeezing the stuff from sand, & now we're crushing it out of rocks. How long before this gets too expensive to maintain?
Finally, petroleum is our most valuable source of lubricants & plastics. Burning it is short sighted at best, & better described as idiotic.
How come you don't see poverty in Saudi Arabia like you do in the United States? And, guess what, both Saudi Arabia and America has equal oil and natural gas reserves.
In Saudi Arabia you can buy a gallon of gas for pennies on the dollar. Here in America a gallon of gas is selling for approximately $4.00. Is there anything wrong with this picture?
"name one specific site where there is a reported environmental issue from fracking or oil shale production."
" leak in the pipeline"
A wannabe politician who understands the way answers are given by politicians WHEN THEY KNOW THE ANSWER AND HAVEN'T GOT THE BALLS TO ACCEPT THE REALITY THAT THEY ARE NEW FOUND CHICKEN LITTLES CRYING FOR THE WORST TO HAPPEN SO THAT IT FULFILLS THE WORST CASE SCENARIO THEY HOPE WILL REINFORCE THEIR WEAK AND NONEXISTENT ARGUMENTS!
FACT, THERE ARE NO EXAMPLES OF THE HORROR STORIES CRIED ABOUT FRACKING BY ECO-GAYS OR TV MOVIES, THEY ARE AS VIABLE AS JURASSIC PARK IS A POSSIBILITYious
Here is a link to environment Canada's (a sector of our government) report that confirms that confirms contamination. So you want to continue this or admit you oil guys are WRONG.
All you libtards and big oil haters its a teachable moment time. All oil (few exception) are traded in US Currency in the world. As obama and the fed keep printing money and devaluing the dollar making it worth less and less. Oil countries have to sell the oil for higher and higher US Dollar prices to compensate for the deflated $ exchange rate for other currencies that buy oil. Think about the exchange rate for US $ and the Peso. We in American can buy more in mexico by trading fewer US$ for more Pesos Same thing happens with Oil and our Dollar becoming worse and worse. This is the offset to the supply and demand argument that more oil mean lower prices that is true except in a devalued dollar. So watch oil and gas keep going higher when the economy gets slower from printing more money which devalues the $ and creates inflation prices raising. That's as simple as I can make in a world where 51% of morons put a moron back in office.
"No one cheers more for a tyrant than the ones he enslaves"
Oil and gas prices will start falling when we are 100% free of any other source. Once we are only dependent on ourselves, we will have total control of the price we pay. The oil we sell on the open market will be sold at prices determined by demand and supply. Gasoline prices will drop drastically when we start converting cars, trains and buses over to CNG. The injector has already been invented, we just need the go from Obama.
"Slickwater fracturing" as you call it wasn't devised by Mitchell Petroleum or Anadarko. This type of petroleum recovery has been used since the 1940's. To tell you the truth, I'm not exactly sure who perfected this operation. It was either Halliburton, The Western Company or **** Hughes. In the 40's it was Eddie Childs and the Western Company who specfically used Fracturing and Acidizing, while Halliburton put their resources into Cementing. Eventually both companies did both as did Hughes and Schlumberge. Halliburton took off and made their mark in the Saudi oil fields in the 50's, 60's, 70's and branched into offshore stimulation in the Persian Gulf. Halliburton grew and left the other companies behind. Halliburton realized if they got the cementing work, that most of the time they would get the stimulation work as well. The Western Company being primarily stimulation borrowed massive amounts of money to try to get into cementing and offshore work. They bought a couple of million dollar rigs and hundreds of cementing trucks and equipment but went broke when the oil boom crashed in the mid 80's. Halliburton was strong enough and diversified enough, they had no problem weathering the storm. Western Co. couldn't overcome the debt and went out of business.
So-called "slick water" I've never heard that term used and I have been involved in the industry for years. Like I said this nothing new.
When you fracture a well you take fresh or salt water depending on the well and blend it with pig lard which makes the water slick so it reduces the friction between the water and the tubing which drops the pressures drastically. The lard also allows the water to be able to hold sand in suspension. You pump the water and sand into the formation at high pressure to crack the rock open. the fluid flows into fissures and after a specific time flows back out leaving the sand in place to hold the rock open so oil can flow more easily. This technique has been refined and doesn't affect drinking water tables.
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