Shale Oil Companies: Current Hot Commodity
Shale plays have been huge this year and are just gaining in popularity. With the stock market taking a down turn, it has been a great opportunity to buy in to some stock holdings you may have not originally been interested in. Looking long term, now is the perfect time to buy in to shale oil stocks. David Fessler explains why this is the case, and shares some of his favorite shale oil picks.
Natural Gas Drillers Shifting to Liquid-Rich Shale
It’s especially true here in the United States, where most of the large natural gas drillers have shifted over to the liquid-rich areas of shale plays.
As evidence of that, take a look at the following graph from the Energy Information Administration (EIA).
It clearly shows the dramatic rise in crude oil and condensate production, particularly from the Barnett and Bakken shale formations.
The most interesting part of this graph is that the 2009 number of about 55 million barrels is going to seem very small in just a couple of years.
All of the plays listed in the graph – plus a few more not shown – have acreage that’s rich in liquids. Some more than others. That’s where the drillers have moved their rigs to, and they’re actively drilling there.
Why? With natural gas prices around $4.00, there’s a lot more money in the liquid part of the plays for the drilling companies, and that’s what they’re targeting.
- North Dakota’s Bakken formation is a very rich oil play, with a small percentage of natural gas. Liquid production there increased 150 percent since 2005.
- Drillers are using the same horizontal drilling and fracking techniques used for shale gas formations to produce oil from the Bakken.
- Annual output from the Bakken has increased from about one million barrels annually in 2005 to over 146 million in 2011. That’s over 400,000 barrels per day.
Its recoverable reserves keep rising, too. Continental Resources(NYSE: CLR), the top producer in the Bakken, estimates recoverable reserves of as much as 24 billion barrels of oil buried there.
Right now, Bakken is limited to about 800,000 barrels per day, but new designs for increasing the pipeline infrastructure will raise overall capacity to about 1.1 million barrels per day in just a few years.
What About Other Shale Oil Areas?
While the Bakken is certainly a hot area right now for liquids, other shale plays previously known for natural gas production are now producing significant volumes of liquids:
- The Barnett in Texas saw overall liquids production double from 2005 to 2009.
- The Woodford Shale in Oklahoma saw liquids production surpass one million barrels in 2009, an increase of 83 percent from the previous year, and eight times the volume of 2007.
- Eagle Ford, another Texas formation, saw 2009 liquids production increase five-fold over the previous year. Current output is about 71,000 barrels per day, and that number should increase to about 421,000 barrels per day by 2015.
- Liquids production from the Marcellus Shale in Pennsylvania quadrupled in 2009 and is on track for similar increases this year.
Chesapeake Energy (NYSE: CHK) expects 50 percent of its increase in revenue in 2011 to come from increased liquids production in the Marcellus shale formation.
Drilling for shale oil is big business. Baker Hughes, Inc (NYSE: BHI) indicates in their weekly rig count that there are currently 1,099 rigs drilling horizontal wells in the United States. That’s an increase of 19 from the prior week and 221 from the year before.
While Hughes doesn’t break out rigs that are specifically drilling horizontally for oil, its U.S. oil rig count is up 420 from a year ago. We can certainly infer that a lot of those rigs are horizontal units operating in the shale plays.
Natural gas prices are extremely low at this point. With the continuous production of natural gas in the U.S. we are bound to make some cash from this. Why not buy in early, hang in there long term, and cash in down the road. Sounds like a solid plan to me!
Quotes taken from report by David Fessler, Read the entire article here.
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