August 12, 2014
I'm willing to bet that if you've picked up a newspaper within the past five years, you are aware of the recent surge in domestic oil production. You may have heard of names such as Bakken Shale, Eagle Ford, and Marcellus Shale; as well as terms such as hydraulic fracturing, horizontal drilling, and tar-sands. It can seem a little overwhelming, so I'll stick to the basics. As you may know, the United States became the number one oil producer in the world last year, just squeaking past Russia and Saudi Arabia, who are second and third now, respectively. This includes crude oil, natural gas liquids, and biofuels. Crude oil production in the United States rose some 60% in the first quarter of 2014 alone. A combination of newly discovered deposits, new extraction techniques, and a desire for domestic energy independence has led to this new energy boom; and there doesn't seem to be any sign of a slow-down on the horizon. Just last week, the United States Energy Information Agency reported that a record 16.8 million barrels of crude are now being produced daily in the United States. But where is this all coming from?
There are a few hotspots around the country and just offshore that are key players in this influx. Eagle Ford in Texas and the Marcellus Shale in Pennsylvania are some of the top producers. I believe the place to keep your eye on, though, is the Bakken Shale deposit in North Dakota. The "oil shale" located here is a solid, sedimentary rock that releases an unrefined, oil-like liquid when the rock is heated/fractured. The extraction process is both tricky and expensive, however, and requires a controversial drilling technique known as hydraulic fracturing, aka "fracking" to recover the oil. Essentially, drilling companies will drill a vertical well and then a horizontal well deep below the ground to reach the shale. They then shoot a highly compressed mixture of water, sand, and a chemical solution into the shale formation causing it to fracture. The oil seeps out and is then collected by pumps while the contaminated water is collected, cleaned, and reused. Regardless of whether or not you agree with the methods for extracting the oil, the simple fact is, it's happening at ever-increasing rates around the country. The rise in returns producers are realizing in these basins, coupled with the economic booms experienced by the surrounding communities, is attracting more money, jobs, and people to these areas and the oil and gas industry. Major Bakken producers such as Whiting Petroleum Corporation and Continental Resources are currently experiencing record oil production and record cash flows out of Bakken region. In fact, Whiting Petroleum just recently announced plans to acquire competitor, Kodiak Oil & Gas Corp in order to increase their market exposure. However, as with all investments, returns are not guaranteed, and you have the potential for gain as well as loss through investments of the aforementioned companies.
So, what does this all mean for you? Well, besides the potential investment opportunities in oil and gas companies, it could also mean a fortified national economy in general. This economic recovery needs fuel to continue, and what better source than complete energy independence. Energy independence could potentially provide a stability that this country hasn't experienced in a very long time. If you have any questions or would like to discuss investment options in the oil and gas industry, please feel free to contact me.
Angelo A. Costanza, Financial Advisor
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).