The Sleeper Play of 2011

Posted by Ian Cooper - Thursday, December 2nd, 2010

From Energy and Capital:

We've heard too much whining lately over natural gas. 

“There's no money to be made... Prices are too far in the gutter... We'll never see a dime in shale stocks.”

Believe me, it gets tiresome after a while.

And the excuse that's my personal favorite: "I'm waiting for energy prices to return to 2008 levels before I even think of buying."

When another analyst told me as much during a recent phone call, I could barely contain my anger.

It was the worst bit of advice I've heard in a long time.

I was mad because you could've lost a lot of your hard-earned money following that line of thinking.

It could take years for oil and gas prices to reach those levels again, and the natural gas supply glut plaguing North America is just one reason you shouldn't expect to see $14/Mcf anytime soon.

You'll regret waiting, too. Let me explain...

Texas' peak oil woes

When we talk about declining production, we typically throw Alaska and California — the second and third largest producing states in the U.S. — into the mix.

Today, let's just focus on the Lone Star State.

Because as you can see below, Texas' oil production has been in trouble for decades:

texas peak oil


Unlike Alaska and California, however, companies in Texas are tapping into new opportunities.

And even though the state will never return to its former production levels, every bit helps.

Tapping into Texas shale

Every shale story starts in the Barnett.

The first well was drilled in 1981 by Mitchell Energy, later acquired by Devon Energy.

However, it wasn't until 2000 that production started to ramp up. By 2006, nearly two billion cubic feet of natural gas were being produced from the Barnett on a daily basis.

Now it appears that Texas has struck shale success — twice.

The Eagle Ford formation

You may remember us talking about the Eagle Ford formation before. It's located in South Texas and lies directly beneath the Austin Chalk shale formation.

But this isn't your typical shale story... There's something special about the Eagle Ford shale.

Unlike the Barnett, Marcellus, or even Haynesville plays, the Eagle Ford formation holds a significant amount of both oil and gas.

So far this year, companies have been grabbing as much land as possible:

  • Marathon Oil Corp. recently acquired 17,000 acres in a $10 million deal with Denali Oil and Gas. Marathon also has the option to purchase another 58,000 net acres at a later date. If Marathon ends up taking all 75,000 acres, it would cost them up more than $200 million.

  • Chesapeake Energy recently shelled out nearly $200 million to Antares Energy Ltd for 23,180 net oil and natural gas leasehold acres.

  • Remember when we talked about China's shale boom? CNOOC paid $2.16 billion for a stake in Chesapeake's Eagle Ford acreage.

And if you believe there's no money to be made over the long run, think again...

eagle ford compnaies

Now that millions have been spent buying the acreage, we can expect the drilling to heat up. And 2011 is shaping up to be a huge year for South Texas.

Another way to play shale

It's easy to get swept up with who's buying whom or what someone's latest production results were. But what you may not know is that there's another way to play this shale boom.

I'll give you a hint: It's all about improving the technology that's unlocking these massive shale formations.

In fact the last time my readers dipped their hands into fracking technology, they walked away with an quick 30%.

We've uncovered one company that's still flying under everyone's radar.

It just became public a few months back, and its new fracking technology could change the entire shale game.

Soon, I'll tell you all about this new opportunity.

Until next time,

keith kohl 

Keith Kohl
Editor, Energy and Capital

P.S. If you've been looking for more ways to tap into the kind of financial news that helps your daily trading, we just launched a free service earlier this month for readers. It's called the Wealth Wire, and I recommend checking it out right here.

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