Three Words Every Oil Investor Must Know
With prices still perched well above the $100-threshold, opportunities abound in U.S. oil.
Indeed, some of the hottest plays — IN THE WORLD — are right here in our own back yard.
Today I want to recap a very simple strategy you can use to cash in on America’s oil rebound.
In fact, it’s so simple it just takes the memorization of three words…
Here are the three words every oil investor must know:
When it comes to profiting from America’s shale bounty, those are the only three words you need to know.
Today I want to recap why this three-part cycle is separating the treasure from the trash in the Eagle Ford of South Texas. And more importantly, how you can use it to cash in…
Richard Mason, the chief technical director for Hart Energy, explained this three-step progression at last year’s Developing Unconventional Oil & Gas conference in San Antonio (just north of the Eagle Ford formation.)
You see, when it comes to America’s new shale bounty, the cycle is evident.
First shale players have to discover the deposit and delineate the sweet spots. In the early stages of this cycle costs are high and wells are hit or miss. It’s a real wildcat atmosphere. But if you bet on the right pony in this race you can make a killing.
Next, shale players optimize drill plans and completion strategies in order to lower costs and increase recovery. The optimization phase is where investors can narrow down their options and focus on the best players.
Last, shale players harvest their bounty of oil, gas and condensates. This is the stage where investors can expect continued production and respectable returns through dividend payments.
Today, the Eagle Ford has long been discovered, and the sweet spots are evident (I even circled them below!):
Today, the Eagle Ford is in between the optimization phase and the harvest phase, ready to payout for investors. This is an investing atmosphere where you can separate the winning investments from the losing ones. So let’s have a look…
When you look at the drill-permitting chart for the Eagle Ford, you’ll start to see a pattern. First, everyone wants to be in the “sweet spot” of the play (unfortunately for latecomers, real estate in this neck of the woods is leased out!) But once you zoom in to that sweet spot, which is still about 70 miles long and nearly 20 miles wide, there’s another noticeable trend amongst operators.
Source: DrillingInfo (2012)
This is a busy graphic to be sure, but if you look at it in three sections it’s easy to unlock the code. In particular you can see that EOG Resources (EOG), ConocoPhillips (COP) and Pioneer Natural Resources (PXD), all hold parallel positions along the oil/gas window.
First look at EOG in the dark green. Then look to Conoco in the yellow. Last, look at Pioneer in the light green.
Specifically, you can see that three producers are concentrating their permits in a northwest line (and if you must know, the dark blue circles represent Talisman/Statoil and the purple circles represent Marathon permit activity…so those companies are also in the thick of things.)
The three operators listed on the map are essentially “going with the grain” of the Eagle Ford play. Considering we’re in the midst of the optimization stage, this is no coincidence.
For example, EOG is focusing its efforts to efficiently produce oil. And by looking for a standardized play the company can start maximizing its well efficiency: standard drill plans, multi-well designs, standard completion techniques, standard downstream logistics, etc.
This is precisely what you’d want to see as an investor. Efficiencies are coming home to roost in South Texas.
But not all companies are aligning in such profitable form. Taking a look at another big player in the area, you’ll see that Chesapeake Energy isn’t taking the same optimized approach (which is also a reason I’m not adding them to the investment-worthy category right now.)
Whereas EOG, Conoco and Pioneer are aligning themselves with rifle-like accuracy in the sweet spot of this formation, Chesapeake seems to be going for a shotgun method of permitting. It could work out for Chesapeake in the long run. But I’d much rather go with three companies that are pinpointing their drill-plans and already starting to achieve efficiencies.
There’s plenty more to be said on this topic, including a full update from San Antonio (just north of the Eagle Ford production zone), which I hope to have to you later this week!
In the meantime, remember, finding the best investment opportunities in America’s newfound oil fields is as easy as 1-2-3… discover, optimize, harvest.
Keep your boots muddy,
Ed. Note: These three words provide just a glimpse into how the world’s best investors are making boatloads on the developing U.S. energy story. Lucky for you we know one investor whose done all the legwork, and he’s willing to share his research. He’s one of the gurus behind The Daily Resource Hunter, which every day, gives you the most in-dept analysis of the resource markets you’re likely to find. And it’s completely free. Sign up for The Daily Resource Hunter, right now, and start profiting from the new U.S. energy boom today.
Original article posted on Daily Resource Hunter