This is the oil play to watch

The Cline Shale in Texas could be the largest North American oil region of all time. Here's one stock at the center of it all.

By StreetAuthority Apr 18, 2014 10:09AM
Caption: An oil field near Bakersfield, Calif.
Credit: © Keith Wood/Getty ImagesBy Eric Winter

Every now and again, an opportunity comes along that turns unsuspecting, normal people into overnight millionaires.

Such as are the promises being made with the Cline Shale, located in the Permian Basin in West Texas. It has become one of the most talked-about and buzzworthy energy plays in the last century, let alone the past few years.

Covering an area of over 1 million acres, the Cline Shale could be the largest North American oil play of all time, with the potential to pull 30 billion barrels of oil out of the ground.

For perspective, the Bakken Shale in North Dakota and Montana and the Eagle Ford in South Texas are estimated to contain 4.3 billion and 3 billion barrels of oil, respectively. The Cline is bigger than both combined -- several times over.

The proliferation of methods like fracking has made drilling for commodity reserves much more feasible in the past decade, and there is no shortage of exploration and production companies rushing to the area to stake their claim.

I have had a unique geographical advantage in that I spent the past year and a half in West Texas, feeling firsthand where the Cline Shale shock waves are reverberating through the surrounding towns. I've been privy to both hearsay and facts, and having my ear to the ground has helped me to digest the progress and better form a timetable for the play.

I can say without a doubt that the excitement is growing and is more palpable now than ever.

Home and rent prices are surging in some areas, while other cities are rushing to build out infrastructure for the anticipated influx of workers and related service providers.

Astute readers of StreetAuthority may remember that we covered the play briefly last May, with the primary focus centered on two of the early adopters, Devon (DVN) and Apache (APA).

So what has transpired since that article was published?

Well, one of the most surprising events is that Devon has all but pulled its operations out of the Cline Shale, predominantly due to "a lot of variability" in production at test sites. While this has tempered expectations for some, supporters of the play say not to be swayed, as larger energy companies have been known to divert their attention from unconventional or unproven plays. Just last year, Royal Dutch Shell (RDS) disclosed that it would be pulling out of the fastest-growing formation on the planet, the Eagle Ford.

Apache has continued to make headway in its Cline Shale efforts, announcing late last year that it has managed to reduced its Cline Shale well costs by over $1 million. The company has accomplished this by reducing drilling time and costs.

Although Devon has separated itself from the shale, overall growth in the area has grown impressively, and other companies are reporting record results from their wells. A number of these companies are private, but there are a handful of publicly traded companies making their mark, allowing investors a way to take part in the play themselves.

One such company is Pioneer Natural Resources (PXD).

An independent oil and gas company, Pioneer has a very large presence in the Permian Basin, landing in the top 10 in terms of net acreage holdings. The $28.7 billion company continues to see its oil production rise in Texas, pulling out nearly a million barrels in 2012.

Most importantly, Pioneer has been a standout producer in the Cline Shale. Last November, the company announced record results from three test wells in the Permian Basin, pulling out 3,156 barrels in a one day, the highest ever in that area.

PXD soared on the news, and the good results continue to come today. Pioneer continues to up its number of drilling rigs in the area and has earned a "buy" rating from Goldman Sachs. Being smaller and more nimble (than, say, Devon) means that Pioneer isn't suffering from the ill effects of costly international products that larger oil producers are caught in at the moment, allowing it to focus its attention on the Permian.

Risks to consider:
Speculation seems to be ripe surrounding the Cline Shale, and clarity can be hard to come by with varying test results, players entering and exiting the scene, and so on. The effects of the shale will vary from company to company, as the increased supply could likely drop the price of oil.

Action to take:
With crude oil still hovering north of $100 a barrel, exposure to oil in your portfolio is a prudent move. Rumors and speculation can prop up stock prices, but perform your own due diligence to ensure you are in the right names according to your risk appetite. The Cline Shale is still very much in the beginning stages of its output, but it has the potential to be a huge boon for those investors and companies (like Pioneer) that are getting in on the ground floor.

Eric Winter does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.


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35Comments
Apr 18, 2014 2:34PM
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This is great news.  We should be producing every single drop we can.  Let's send the environmentalists to China to choke on the air there and let them attempt to damage their economy.
Apr 18, 2014 6:13PM
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MSN at it again, Obama delays decision on the XL pipeline, and not a word about it. And conveniently  on a Friday of a holiday weekend.
Apr 18, 2014 4:17PM
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Produce more oil here but shop at big box stores and still support China!! Right?
Apr 18, 2014 9:40PM
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Gas is $3.75 here today. No lines. The more they gouge, the more ordinary citizens continue to look for ways to avoid driving and buying gas. 
Apr 18, 2014 2:48PM
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Must have more oil

--- To build more electric cars and solar cells
--- So we can all pretend to be "green".'

CASE CLOSED

Apr 19, 2014 1:37PM
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Just in the Green River Reserve is 2 trillion barrels of recoverable oil with present day tech . Sorry to say every DemocRAT US President has closed this area to further drilling by making it a US Monument area . If opened oil and gasoline would be half the price . Of course MSN Business will not tell you about Green River Reserve because they are on their very calloused knees to their no good lazy smelly muzzie commie master Hussein OwebaMao lol .
Apr 18, 2014 3:55PM
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Oil Play? You're right. The gas is at $4/gal. I say we've been played over and over again unless we lighted up the gas stations across the US. I call this fighting fire with fire.
Apr 18, 2014 6:10PM
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LOL you don't think the great divider is going to let them go after this. No not unless he gets half of it.
Apr 20, 2014 5:50PM
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We wouldn't want to get too much of this stuff lower costs for energy could get the economy a real recovery instead of making a few people rich.
Apr 20, 2014 4:53PM
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US Crude production has been soaring while American Crude Consumption has continually fallen. So the Keystone pipeline is not being built to reduce gasoline prices for the average American but so that Big Energy can sell our excess Crude Supply elsewhere. It's not enough that the Average American has seen Wages Decline or Stagnant for over a Decade. Now we must also at the same time be gouged continually at the pump while Big Energy Manipulates prices.

There isn't a lack of Crude in America but there is a LACK of real Regulations concerning Futures Manipulation. We have seen the proof as there are countless Ghost Commodity Warehouses plus folks buying up Oil Contracts with no intent on ever accepting any deliver. This Rampant corruption, gouging,  and price manipulation is destroying what's left of the Working Poor and Fading Middle-Class. But go ahead, believe Big Oil LIES about the Keystone Pipeline and why it's actually being built.

Apr 20, 2014 9:25PM
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"Bakken Shale in North Dakota and Montana and the Eagle Ford in South Texas are estimated to contain 4.3 billion and 3 billion barrels of oil, respectively. The Cline >>> IS <<< bigger than both combined -- several times over."

"Speculation seems to be ripe surrounding the Cline Shale, and clarity can be hard to come by with varying test results..."

And yet we get "clarity" from this article stating that, despite varying test results, the speculation is a certainty!  This is nothing more that a misleading advertisement.
Apr 19, 2014 2:53PM
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Wow, 30 billion barrels? Sounds like a lot until you compare it to what we burn in a year. 30 billion barrels is what the world burns in one year. The U.S. is down to a mere 6.89 billion barrels per year. This won't make gasoline prices go down, but it will make some people very rich. 
Apr 19, 2014 2:32PM
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The Premise of this article is whether investments in some of the Oil plays and Companies working in the Oil patch are worthwhile...?

Don't really see any mention of Obama/Democrats/Republicans in the Article...

I know some of you have a lot of trouble with 8th. grade reading and comprehension..


But bottom line is whether you are invested in oil or energy plays..?

If not, guess that is your loss...

Apr 19, 2014 7:05PM
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What lunacy. Leave the shale there. Keep the water. Get RID of Big Oil. WALK. If you can't walk or ride your bike there, don't patronize it. GET US OFF THE OIL STANDARD. 
Apr 19, 2014 2:23PM
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So many MORONS, so little time....!!


We probably don't even need the Green River, wherever that may be..??

We have large humongous finds, that are coming to fruition so many other places..

We are discovering and pumping/fracking more than we can refine...

Pipelines are overloaded and being built continuously.


And now the Keystone XL, (it is/WAS over on the sidebar slide show) lookee, lookee..

Obama is not holding it up, that is TYPICAL Republican lies...As always.

It has been cleared by the State Dept, or environmental process as a go ahead..

Only reason Obama has to sign off is because of crossing International Border.

The PROJECT is being tied up in Nebraska Courts, with an injunction by Land owners and Environmentalists, maybe others?  From crossing certain areas.


The Court Action is slated to go before the Nebraska Supreme Court in Oct/Sept.

When and if the SC strikes down the Court action or the pipeline is rerouted, then probably Obama will act on the decision; More than likely for approval for it to go ahead and be built.

The problems in Nebraska have been ongoing for well over a year or two...

And Vindictive Republicans have been blaming Obama for it all along...They are idiots.

Apr 18, 2014 2:19PM
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What lunacy. Leave the shale there. Keep the water. Get RID of Big Oil. WALK. If you can't walk or ride your bike there, don't patronize it. GET US OFF THE OIL STANDARD. 
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