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.

By TheStreet.com Staff Aug 25, 2014 1:17PM

A pumpjack & oil refinery in Seminole, West Texas © David Sucsy/Getty ImagesBy Dana Blankenhorn, TheStreet


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.


TheStreet.com logoSchlumberger'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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130Comments
Aug 25, 2014 2:23PM
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Nothing new here. It's called supply and demand - we'll 'supply' the gas and we'll 'demand' that you pay higher prices for it...... Simple!
Aug 25, 2014 1:45PM
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How is it that this weekend I witnessed such a Wild variety of Gasoline prices. I saw two gas stations with prices below $3. One was $2.96 and the other $2.94. Then Walmart was $3.05 with most still around $3.19. However, some were still showing $3.39. What gives? Consumers are being PLAYED, over and over again.
Aug 25, 2014 6:53PM
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We are using less oil, we are producing more than ever, we are exporting more than ever also. What makes you think the price is based on supply and demand?
Aug 25, 2014 5:26PM
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Drill Baby Drill - Let the middle east eat a little sand sandwich and watch oil come down to a reasonable level.
Aug 26, 2014 8:40AM
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we were told a few years back to cut back on electricity when we had the big black out  ??? . the next year elect co  said they did not make any money  so they raised the  rates  ??  we were told back in the 70 s that there was a shortage of oil  need to cut  back  a while  later  steel manufactures  were almost gone  plastic and fiberglass plastic bags  ect ect  all made from  oil??  we were told  there was a gas shortage  a couple of years ago  we needed to  cut  back  now  gas is 3.50  or  better  and will rise this winter.   because there will be a shortage  because we had to convert to heating  oil . dose anyone see a pattern  hear  we cut  back  they lose  money  and raise prices  ??? they cut  refineries  back 30%  and tell us they can't keep up with the demand  ????  anybody see the manipulation  going on here  by the millionaires  and billionaires  or am i just paranoid. selling  less for  more  is not growth
Aug 25, 2014 2:58PM
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Someone always posts to these stories that oil companies only make about 8c a gallon profit for gasoline which is absurd. They control what their franchise station owners pay and what they can charge limiting the station owners profit not their own. How could anyone believe when a station in town charges $2.99 a gallon but charges $3.49 near the airport the oil company is only making 8c at both?
Aug 25, 2014 4:47PM
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Oil companies are as crooked as a dogs leg.....Look at Exxon's profit for the last year and tell me they aren't raking it in....BS...Not only that, the freaking A-HOLES are still trying to skip out on taking FULL responsibility for the Valdez incident in Alaska by playing in the courts until (they hope) someone will give up and go away. SCUMBAGS!!!!
Aug 25, 2014 3:53PM
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Yet another article written by someone who doesn't know the first thing about fracking.

All wells, vertical or horizontal, are fracked.  This writer may have been trying to say that horizontal wells deplete faster than vertical wells.
Aug 25, 2014 3:30PM
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Oil companies and oil service companies are the back bone of America.  As steel was in our infancy.  Some of the most honest and hard working people there are.
Aug 25, 2014 6:50PM
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Call me greedy - it's why I invest in oil.
Aug 26, 2014 11:53AM
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don't believe all this crap.  I have two natural gas well on my property and the county taxes on them are more than the royalties I am getting.
Aug 26, 2014 12:20PM
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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.

Aug 25, 2014 2:49PM
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The better play will always be to the oils which have proven reserves.  Their equity prices move in line with the price of crude oil, natural gas and oil products.  The rest are timing plays.
Aug 26, 2014 11:54AM
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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


Aug 25, 2014 7:17PM
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Would that be OKS. Oklahoma is booming. Housing sales are great. Some of these have high P/E ratios.
Aug 26, 2014 8:48AM
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Is this the same MSN website that just a week ago listed real estate and half a dozen other things as being "too risky" for the average investor?
Aug 25, 2014 8:49PM
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 I am not an expert in oil. But I talked to people in the 1970's oil industry. The banks quit loaning to oil exploration. It went bust not because there was not oil. So if the banks will not loan money they will not to be able to explore. In my state it is the little guy looking for oil
Aug 26, 2014 12:32PM
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We need more pipelines to move the crude.  As long as Buffet can get $32 a barrel to haul crude by rail, the price of crude, and the price of gas, are not  going to go down.  In the areas where grain is shipped primarily by rail, they cannot get enough cars to move the grain. Grain elevators are full, the harvest is in full swing, and they can't get cars to move the grain to market.  Why?  The railway system is more interested in moving crude oil than moving food supply.  The railroad bigwigs are as responsible for the high price of fuel and gas, as the oil companies.  And, as long as the railroads control the flow of oil and grain, we will continue to pay higher prices for everything we buy.  And, these same railroads get subsidies from the government as well.  Its a lose-lose situation for the American consumer while people like Buffet get richer and richer.
Aug 25, 2014 4:42PM
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Ahhh, we have found and met the enemy, "the oil cartels"....the enemy is ourselves.
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