American oil investors are in for a wild, rich ride
In this wildcatting decade, oil exploration stock investors need to be nimble to get the best returns. Follow the exploration companies and watch where you play.
During the last energy decade, the booming 1970s, investors could simply pick up international oil companies like Exxon (now Exxon-Mobil (XOM)) or Chevron (CVX) (which now owns Texaco), the American partners of what is now Saudi Aramco and walk away with big returns.
It's not that simple these days. Today's boom is not only American, but it belongs to dedicated exploration companies, not the oil majors. Fracking is very expensive, meaning price swings can wipe out profits. You have to pay attention to infrastructure. But the gains can, if anything, be sweeter.
The easiest way to play has been to stick with the oilfield service giants, the "arms merchants" for the fracking revolution. Over the last five years shares of Baker Hughes (BHI) are up 79 percent, Schlumberger (SLB) shares are up more than 105 percent, and Halliburton (HAL) has seen a 175 percent gain.
Schlumberger's numbers would do any tech CEO proud. Revenues from 2010 to 2013 are up 78 percent and profits have grown in-line with that revenue. Last year the company brought 14.4 percent of revenue, $6.732 billion, $1.21 per share, to the net income line.
But what if you want to play the oil itself? In that case you need to know your plays, and who leads in each one. Fortunately the Energy Information Agency EIA keeps monthly tabs on the numbers, and a little more research will reveal the leaders:
The largest play right now is the Permian in West Texas. It was producing 1.68 million barrels per day this month, and that should grow by another 38,000 barrels/day next month. The biggest production is coming out of the so-called Spraberry area where the biggest producer is Pioneer Natural Resources (PXD) , operating more than 7,000 wells.
The second play is Eagle Ford, a crescent-shaped formation running from west and south of San Antonio all the way to Dallas. It produced 1.479 million barrels/day this month and should deliver 31,000 more per day next month. The biggest player here is EOG Resources (EOG) with plans to drill 520 wells there this year alone.
The third major oil play is the Bakken, in western North Dakota, a formation that extends into Canada, Montana and South Dakota and has turned Williston into the 21st century's most vivid oil boom town. Some 1.116 million barrels of oil came out of the Bakken each day this month, with another 20,000/day due next month. The largest player here is Whiting Petroleum (WLL), following its purchase of Kodiak Oil and Gas.
In the last five years Pioneer shares surged 562 percent, those of Whiting are up 283 percent and those of EOG are up 183 percent. But in the last year Whiting has shown the strongest gains, nearly 76 percent, against a gain of 38 percent for EOG and 20 percent for Pioneer.
The reason is that surprises happen. New fields, new formations, and new wells can send production stocks soaring, but the reverse will also prove true. Fracked wells play out or "deplete" more quickly than old-style vertical wells, and the rate can be unpredictable. Experts disagree on how long these plays, and other fracking plays that mainly contain gas with names like Marcellus, Haynesville and the Utica shale will run. Oil companies are also looking at new formations like the Tuscaloosa Marine Shale, which extends into Mississippi, and the Antrim, which covers most of Michigan.
All this means that you can indeed get rich in oil from behind your PC screen, but it will pay to pay attention, and be prepared to trade based on news, even rumors of news. It's a wildcatting decade, so pull on your big boots and take a look at the modern oilpatch. You may be richly rewarded.
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Keep on pumping!
Love them checks that allow me to retire in comfort.
Thanks Grandpa for holding onto that land that people said was only good for growing winter wheat.
LOL - I love reading all the whining and complaining and "poor me, poor me" comments by all you commoners.
Its SIMPLE people!!! get in the game and be a part of it, or shut up and go read an article about Oprah or Obama.
LOL keep on Drilling baby
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