One of the Most Notable Stories of the Year: Energy Renaissance in the U.S.A.
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.
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 is CEO and chief investment officer of U.S. Global Investors, Inc., a boutique investment advisory firm based in San Antonio that manages domestic and offshore funds specializing in the natural resources and emerging markets sectors. The company’s no-load mutual funds include the Global Resources Fund (ticker PSPFX), which invests primarily in energy-related stocks.
For more insights and perspectives from Frank Holmes, visit his investment blog “Frank Talk” at http://www.usfunds.com/investor-resources/frank-talk/.
U.S. Global Investors, Inc. is an investment management firm specializing in gold, natural resources, emerging markets and global infrastructure opportunities around the world. The company, headquartered in San Antonio, Texas, manages 13 no-load mutual funds in the U.S. Global Investors fund family, as well as funds for international clients.
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May 30th, 2020
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