2/7/2012 6:58 PM ET|
Strike it big in the new energy boom
New technology is rapidly boosting US domestic fuel production. Here are some the companies at the forefront of this expanding field.
First there was the tech boom. Then the housing bubble.
Now, new profits and investment opportunities are emerging from the surge in U.S. gas and oil production. Innovations in drilling techniques -- such as hydraulic fracturing, or fracking, and horizontal drilling -- have made it easier to extract oil and natural gas from shale and other rock formations. That has boosted production and led to billions of dollars of profits for some early pioneers and investors.
"America stands on the verge of a major change that puts it on a course to near self-sufficiency" in energy, says Tobias Levkovich, Citigroup's chief U.S. equity strategist, who says the energy surge is a key reason to be upbeat on the market and U.S. economy.
"The implications are simply stunning on America's current account figures, trade balances and even potentially the positioning (and cost) of U.S. military forces around the world," he says. "The increase in production of shale gas could also add millions of new jobs."
Investors are eager for an energy boost in a market that has only very recently shown some strength. The broad Standard & Poor's 500 Index ($INX)is up more than 6% so far in 2012, after ending 2011 pretty much where it began. The S&P Energy Index is up 4.25% this year.
Much as in previous booms, however, investors risk jumping in after some of the best gains have been reaped. Indeed, the energy patch can be a tricky place to invest. Surging gas production has been a boon to consumers and companies that use natural gas for heating or to make various products. But all that added supply has coupled with an unusually warm winter to send gas prices down nearly 50% in the past year.
That drop has pressured companies like Chesapeake Energy (CHK, news), the second-largest natural-gas producer, which has seen its stock price fall by more than a quarter in the past year, even as it meets success extracting more gas through new techniques. Cabot Oil & Gas (COG, news) was the top-performing stock in the S&P 500 last year, with a gain of 100%. But so far this year, the stock has dropped about 15%, another sign of the challenges for investors playing this new wave.
It's also true that environmental scrutiny of this drilling is on the rise. And shale extraction is relatively new, so uncertainty remains over how long wells will produce.
Natural-gas prices may rebound from current low levels, at least over the long term, as more uses are found for this low-cost energy. But for now, analysts recommend that investors focus on companies seeing growing oil production from innovative drilling methods, rather than those sticking with gas. Two larger independent drillers that some investors recommend: EOG Resources (EOG, news) and Continental Resources (CLR, news).
Other attractive stocks: Also attractive are chemical and other companies benefiting from tumbling natural-gas prices. Analysts recommend companies including CF Industries (CF, news) and LyondellBasell Industries (LYB, news).
As recently as 2005, few held out much hope for any boom in U.S. energy production. Most experts said producers would see a gradual slowdown of domestic oil and gas production, and billions of dollars were invested in ways to import natural gas from abroad.
But in just the last few years, the new drilling techniques have created a new gusher. Among the innovations: drilling down in the ground and turning horizontally to capture more of the gas and oil trapped in underground shale deposits, and using a mix of water, sand and chemicals to break apart porous rock and release oil and gas.
The new drilling methods are "a completely disruptive technology" allowing companies to double and triple growth in energy production in just a few years, says Dan Rice, manager of the BlackRock Energy & Resources Fund (XBGRX).
Some of the most attractive companies are those that have been able to shift from natural-gas exploration to oil extraction. As recently as 2006, EOG saw 79% of its revenues come from natural gas, and just 21% from so-called liquids, which include crude oil. But the company became worried about future oversupply of natural gas and began to focus on oil. This year, EOG says, it expects to see about 75% of revenues come from liquids, and just 25% from natural gas.
Rice says shares of both EOG and Continental, which has become a major driller for oil in areas like North Dakota, are inexpensive.
He also is a fan of Range Resources (RRC, news) and EQT (EQT, news), companies active in the booming Marcellus Shale region, which ranges through states including New York and West Virginia. Others recommend smaller energy producers, such as Oasis Petroleum (OAS, news) of Houston, that could be takeover targets.
Some analysts are most excited about chemical companies like CF Industries (CF, news). Nitrogen production accounts for about 80% of the company's sales, according to analysts at Citigroup. And natural gas accounts for about 85% of the cash production costs for CF's nitrogen production, the analysts said, a reason for optimism on the company.
A riskier stock with potential upside: Cheniere Energy (LNG, news), which once aimed to be a big importer of natural gas. A glut of U.S. gas forced the company to scrap those plans, but it now is hoping to be the nation's first exporter of liquefied natural gas.
As natural gas drops, and consumers and power companies that depend on natural gas benefit, the chemical industry will as well, Citigroup says, because "the chemical industry consumes about 10% of natural gas" in the U.S.
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We're at the tipping point now with energy prices where they are. It's not so much the cost of driving to work that does the damage, it's the perpetuating prices of producing and bringing goods to market that hurt businesses and consumers alike. I've been there, done that, and folded up a small business because I could no longer ship my product and have a competitive price.
$2.80/gallon or less was the magic number, and it accounted for about 20% of the cost of my item to a potential consumer. At $4 a gallon, it was 50%, and at the peak when we had $5/gallon, shipping was almost as much as the cost of the item....
Until we get energy under control and end speculating, nothing is going to change.
The only boom I'm gona see and feel is when BIG Oil Companies
once again raise their record profit margins...
That causes food and most things we use daily in life to increase in price..
The boom will be felt in Americans pocketbooks...!
i doubt the increase will help the population, obama probably is going to sell it to china. Alaska's oil goe's to asiain countries. it is a sick country as the one that runs it can't get it all together about helping the American people, he has a mental problem, he can't figure on helping his own country.
The US exports almost no crude oil. Since there's little refinery capacity in Alaska most of that oil comes thru the pipeline down to the lower 48 to be refined.
The US is exporting about 37,000 barrels of crude a day.
The fact is we export refined products *we don't need and there's not enough demand for here*
It's about time for us to start thinking about our future and now to finally start using our own resources. We've got the technology and also to keep the environment clean.
Let the rest of the world fight over the Mid East Oil Countries while we become more independent from them.
One way to make sure that happens is to vote in people that will represent the people of the USA and understand the importance of being independent of other oil producing nations.
I've already stopped buying from CITCO (Hugo Chaves, owner and dictator who hates the USA)
Here are some large companies that do not import Middle Eastern oil:
Sunoco, Conoco, Sinclair, Hess, ARCO, Maverick, Flying J, Valero and Murphy Oil USA.
Lets start by buying from these companies.
"Fastfrog" I agree and people should understand that the Keystone pipeline is a short term measure with temporary construction jobs. This country needs to implement long term programs that strategically put us in a better position to deal with the rest of the world.
i doubt the increase will help the population, obama probably is going to sell it to china.
Alaska's oil goe's to asiain countries. it is a sick country as the one that runs it can't get it all together about helping the American people, he has a mental problem, he can't figure on helping his own country.
The profits oil companies make go to investors including pension and retirement funds.
Liberals rage against the oil company profits because their socialist leaders tell them its evil.
Most have no idea about how oil companies are run or that an oil Co at the pump makes apx .07cents. The rest go to to state and federal taxes and the hundreds of regulations designed to
profit our socialist administrations dreams of one world power. Which just means destroying our middleclass and giving American families a third world lifestyle. While the greedy bunch in the whitehouse eat lobster and vacation the average American can no longer enjoy the same.
Yes now they come and tell you grandios stories of how to make your fortune investing in gas and oil.
As some of the article points out; Maybe you shopuld have been invested about 2-3 years ago, not now. Well actually you could invest now, but you have missed some huge upside gains and the dividends along the way.
We do have pieces of what was mentioned,with pipelines and coal.
Until you,our Government and the rest of the American public get serious about alternative energy,
all of us will keep paying the high buck,no matter where it comes from.
Boycott who and what you want...But that is pretty much a joke, unless you cut your usage by drastic amounts and then start supporting weaning us away from the "black gold."
Yes, we have solar investments also.....It's called hedging.
But if you are not an investor,you'll never understand anyway. And you will come on here to bitch about things.......That YOU really won't HELP TO CHANGE.
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