Posted on 12/29/2013 7:43:40 PM PST by ckilmer
As we come to the end of 2013, it’s a good time to reflect on some of the biggest resources stories of the year. One that immediately comes to mind is the U.S. energy resurgence and its tremendous effect on oil and gas.
Only a few years ago, we were contemplating the supply constraints facing the petroleum industry, as many major oil fields around the world were declining in production. Now, with the disruptive technology in shale oil and gas, we may be looking forward to decades of drilling.
Two charts clearly illustrate the incredible growth in oil and gas. While there are many shale areas around the U.S., there are a few notable hot beds of activity. Regarding the domestic production of tight oil, most of the growth has been in the Eagle Ford area that’s outside of San Antonio, Texas, the Bakken formation in Montana and North Dakota, and the Permian basin in West Texas.
At the beginning of 2011, the selected shale areas shown below were producing less than 1 million barrels of tight oil per day. Now, production is nearing 2.5 million barrels per day.
Shale gas in the U.S. has also taken off in recent years, with the Marcellus shale in Pennsylvania and West Virginia, Haynesville in Louisiana and Texas, and Barnett in Texas contributing to the majority of the growth, according to the U.S. Energy Information Administration (EIA). Since 2010, natural gas production among the many shale areas jumped from under 10 billion cubic feet per day to about 27 billion cubic feet per day.
America’s ingenuity and success in extracting its oil and gas resources certainly seems to be unique. Even though shale areas are found around the world in Australia, Turkey, Russia and China, the U.S. is expected to supply the majority of light tight oil (LTO) to the world through 2035, as other countries are “struggling to replicate” the experience in the U.S., according to the International Energy Agency.
As our resident expert on the natural gas and oil opportunities spouting out across the U.S., Evan Smith, CFA, portfolio manager of the Global Resources Fund (PSPFX), discussed the many investment opportunities recently with Streetwise Reports.
In the published article in The Energy Report, Evan says that lately, the shale activity has been more oil-directed, particularly in the Bakken and Eagle Ford. For 2014, he believes there will be a delineation of acreage, focusing on pad drilling:
“Continental Resources Inc. (CLR) is testing 16 wells per pad in the Williston Basin in North Dakota. The company will repeat that pattern and drive costs down. We’ve seen a big shift to multi-well pad drilling in 2013, but I think it’s going to become much more standardized in 2014. The efficiencies that we’ve seen, which have led to more productivity with fewer rigs, will probably remain and perhaps even accelerate in 2014.”
Earlier this year, we said that oil explorers such as Continental, EOG Resources and Pioneer Natural Resources that were focused on high-margin shale drilling from Texas to North Dakota were set to outperform big oil companies, such as Exxon Mobil and Royal Dutch Shell. We thought these explorers were poised to reap bigger returns than that of energy titans fifteen times their market value, as they devoted almost all of their drilling capital to higher-margin, domestic crude wells.
However, to make the most out of the energy renaissance, investors should look beyond these direct shale plays. As highlighted in The Wall Street Journal, “another boom” is being created in a key ingredient used in hydraulic fracturing: sand. The WSJ finds that companies that mine the ideal sand used to crack rocks and allow the oil and gas to flow out have increased substantially. For example, since going public in August 2012, shares of U.S. Silica have doubled, according to the WSJ.
Refiners also benefit tremendously. Because crude oil exports are mostly prohibited, the oil is refined before being shipped to the rest of the world. As you can see in the chart, in recent years, the U.S. has moved from importing refined petroleum products prior to 2010 to exporting more than 1 million barrels per day as of September 2013.
Frank Holmes
for The Daily Reckoning
Yeah, great for the stock market and their investors but not so good for the folks. Oil remains as high as it was with the Cartel in charge. Those in charge will still try to get the most for their product so I guess that is understandable. World market and all...
If you want a job, they are where the oil/gas is being produced in those states and especially Texas. The top quality engineer husband of my sister-in-law lost his job when the company he worked for lost a contract with the naval installation in Corpus Christi. He did odd jobs after that, searching for a job, then the oil came in below San Antonio, near Alice, Texas, and now he has a fine engineering job. Don't tell him oil drilling is “not so good for the folks”. The economy around these drilling sites in Texas is booming with workers needing rooms, houses, groceries, gasoline for their trucks, you name it, those areas are making money for everyone. Don't tell them drilling “isn't good for the folks”.
What isn't good for the folks is the Muslim president trying to shut oil and gas down. He is killing this country.
Heh, don’t get me wrong, the oil industry is a boom for all those looking for jobs - that can do the manual labor.
I was speaking for those of us that consume oil, gasoline, etc... The boom in oil discovery and production has not seemed to reduced the price in our lives. Not necessarily a really bad thing but a fact. I was talking about the folks in the general sense (non oil producing folks - the buyers of oil products).
No. Dak. gives me gas.
Hear, Hear!
Bammy's at War with America.
“the oil industry is a boom for all those looking for jobs - that can do the manual labor.”
When companies start new drilling, all types of jobs open - management, licensed engineers, technicians, secretaries, accountants, all manner of jobs, not just manual labor. In fact, in this day and time, knowledge of how machinery works is more important than being strong for manual labor.
We don’t know what a gallon of gas will cost a year from now or six months from now, but whatever it is, people still need these thousands of new jobs.
If the economy completely collapses next year, which I expect it likely will, the cost of food will be more important than the cost of gasoline. One can cut travel down to just going to work and back, but a body requires calories to keep going.
A lot of those folks have part of their retirement in stocks and are benefiting.
Of course... but if you look at the broader picture... do you want to help those that have invested in these stocks or the folks that need the gasoline and oil to get by.
It is always a balance between those that produce and those the partake in the benefits of those producers that also provides the benefits to all. Can’t get one without the other you know...
Well, I guess that depends on how far you are from a Supermarket of can you provide for yourself (hunting, fishing, etc).
Not really disagreeing with you but all things are fungible and tomorrow, who knows...
Energy would work the same way as any other market if government would get out of the way. Do you know why oil and gas are still high here? One - taxes, on oil companies and products. In some states taxes on a gallon of gas approach 40% of what you pay at th pump. Two- environmental regulations. We haven’t had a new refinery built in this country in decades. Utilities are forced by legislators to use a so-called green energy sources which are inefficient and costly. Gasoline has to be made a zillion different ways to conform to various demands of states with their own ideas of what it should contain for which season.
Government is to blame for the distortions in the market and the high costs of energy, not the oil and gas companies.
It’s as cheap as it ever has been in history, if not the cheapest. 2 silver dimes still buy the same or more of it than they did 80+ years ago...
Actually, whole-hardheartedly agree! You nailed it!
See Pining_4_TX for the accurate information. Seems to always be government interference that distorts markets!
I know of all that, but the aspect of it appearing to be more distressful to purchase is also due to the purchasing power of the dollars used to get it declining, and/or being pressed by other needs (taxes, regulatory costs, etc...).
If you do the conversion to 1965 silver coinage it always works out to between approximately 18-32 cents a gallon, and currently it’s around .22 I believe... If it stayed over or under those boundary values for an extended period (like a year plus), then you’d know there was something fundamentally skewing either the supply or demand side.
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