Oil well in West Texas at sunset © BRANDON JENNINGS, Getty Images

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.

Jim Jubak

Jim Jubak

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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