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Friday, October 19, 2012
"This place used to be a ghost town," my friend Cactus told me...
We were in his mud-covered Chevrolet Silverado, driving by the new Wal-Mart in Karnes City, Texas.
About five years ago, the town's population was less than 3,500. "Main Street" consisted of a gas station, a post office, and a small place to eat. The average household income was about $25,000. And an acre of land cost about $350 in Karnes County.
That's no longer the case...
Today, Karnes City is booming with activity.
Restaurants are now packed at lunchtime as workers go on break. Many of them make six-figure salaries. Most of the land now fetches $10,000-$15,000 an acre. That's 3,650% higher in just five years!
Karnes City sits on top of one of the largest shale formations in the world... The Eagle Ford shale is 50 miles wide and spans 400 miles through the entire state of Texas.
Most of the towns lying on top of it were small and sparsely populated. But in recent years, they've transformed into "boomtowns" as some of the largest energy companies in the world have moved into the area to take advantage of the region's rich oil and natural gas resources...
The Eagle Ford is the largest oil find in the U.S. since Prudhoe Bay, Alaska, in 1968. I'm sure you've heard plenty about it already. It's mentioned repeatedly in oil and gas publications and on Bloomberg and CNBC.
Despite all the research that's been published, the Eagle Ford is still in its infancy in terms of oil production and exploration...
You see, this shale region is what we call an "unconventional" oil and gas play... meaning it isn't a traditional reservoir, where we can drill a well that acts like a straw and sucks up the oil and gas. Instead, the Eagle Ford is a series of thin rock layers. The oil and gas are trapped between these layers, which makes traditional oil drilling useless.
But thanks to new drilling technologies like "fracking," major oil producers can rejuvenate wells long thought to be dry. Cactus says only 5% of natural gas is recovered – on average – through new drilling methods. For unconventional oil, it's more like 10%.
Cactus Schroeder knows what he's talking about. He's one of the smartest men you'll find in the oil business. He has been drilling for oil in Texas for more than 30 years... with personal interests in over 1,000 drilling projects. And if he's right, five to 10 years from now, recovery rates in the Eagle Ford could double...
Right now, wells in the Eagle Ford are producing 300 to 600 barrels of oil per day. That's more than the Bakken shale that runs through Montana and North Dakota. Total oil production in the Eagle Ford is currently 300,000 barrels per day. Global energy research provider Platts estimates total production in 2016 could reach 1.6 million barrels per day in the Eagle Ford.
According to the Railroad Commission of Texas, there were only 72 oil-producing leases in the Eagle Ford in 2011. In 2011, it jumped to 368. This year, the number could easily top 500. And it's just the beginning...
Most energy companies in the Eagle Ford have been exploring areas southwest of Gonzales and DeWitt counties. (You can see this in the map above.) But some of the largest oil companies in the world are just starting to drill in the counties northeast of Lavaca.
Cactus and I drove through most of these counties during our three-day, 400-mile haul through the region. Every few miles, we'd see 100-foot drilling rigs with steel pipe casings stacked up alongside them. The rigs towered next to large water pits. From the passenger seat, I observed 40-man crews preparing to "frack" for oil and gas 5,000-plus feet below the surface.
Within the next decade, oil companies will find ways to recover much more oil from unconventional wells. That's great news for the premier energy companies – like EOG Resources, Pioneer Natural Resources, and Range Resources – that operate in the region. They have huge growth potential. They also have hedging strategies in place to help reduce their exposure to volatile oil prices.
Right now, these three stocks are trading near their 52-week highs. Things could get bumpy over the next few months through earnings season and the presidential election. I suggest using any weakness as a buying opportunity.
Porter Stansberry agrees: "We are in the midst of a massive, global discovery phase for oil and gas." He believes buying shares of producers like EOG Resources and Range Resources will create enormous wealth for shareholders. Read more here: How to Own Your Share of the Next Wave of American Oil Wealth.
Dan Ferris shared an unusual way to get in on the energy boom in the Eagle Ford and Marcellus shales. Get the full story here: A Safe Way to Profit from America's New "Millionaire Factories."
Another day, another new high for Big Pharma names Johnson & Johnson, Pfizer, and Merck.
More than 24 insurance companies are sitting at 52-week highs, including Berkshire Hathaway, AIG, and Allstate.
"Boring" stocks are doing fine... fresh 52-week highs for Heinz and Clorox.
Expensive tech plays are shifting into a downtrend... VMware and Red Hat touch their lowest levels in nearly three months.