The unconventional oil revolution is on. Production is exploding…
For longtime Growth Stock Wire readers, this is an old story with a new twist. For years, we’ve shown you how new technologies – horizontal drilling and fracking – have liberated enormous natural gas resources.
That new production has changed the face of the natural gas market… And we’re about to see the same happen with oil.
Before we get into what I expect for the oil market, let’s take a look at how the big picture has changed for gas…
From 1990 through 2010, U.S. natural gas production climbed by 25%. Demand couldn’t keep up with surging production, which destroyed natural gas prices. They fell from a high of $14 per thousand cubic feet (mcf) in 2008 to settle between $3 and $4 per mcf now.
[ad#Google Adsense 336×280-IA]Oil also suffered a catastrophic drop in 2008… But while natural gas has languished, oil has been climbing. Rising prices have spurred exploration companies to take innovations from natural gas and apply them to unconventional oil deposits, like the Bakken up in North Dakota and the Niobrara in Colorado, Nebraska, and Wyoming.
The results have been astounding.
The Wattenberg Field Colorado, a Niobrara shale field, is now the seventh-largest oil and gas field in the lower 48 states.
A traditional vertical well here would produce about 61 barrels per day for 16 years. It would cost a company about $15 per barrel to find and develop the oil. But a fracked horizontal well will produce 302 barrels per day for 33 years. It costs the company just under $14 per barrel to find and develop the oil.
These new wells can recover 10 times more oil than a traditional well.
Ladies and gentlemen, welcome to the revolution.
Those new wells in the Niobrara and the other oil shales are already increasing U.S. oil production. Take a look…
There’s no question that we hit our low ebb in 2008. We only produced 1.8 billion barrels that year… 150 million barrels per month. In 2010, we averaged 166 million barrels per month. As of June 2011, we’re averaging 169 million barrels. That’s a significant improvement… thanks to the shale revolution.
As you would expect, the companies exploiting the oil shales are the same that pioneered new techniques in natural gas production.
Chesapeake Energy (CHK) remains the undisputed king of U.S. shale plays. It has major acreage positions in seven of the eight biggest shales. And with 800,000 acres, the company is the largest landholder in the Niobrara. For investors looking for exposure to the upside of shale oil, Chesapeake is one of my favorite names.
And as is the case with any type of commodity production boom, the “picks and shovels” providers that supply products and services to producers will benefit from the new American oil boom. For a list of names to start with (or just a broad bet), check out the holdings of the PowerShares Oil & Gas Services fund (PXJ).
The new American oil boom is on… and this sector will make a lot of money on it.
Good investing,
— Matt Badiali
[ad#jack p.s.]
Source: The Growth Stock Wire