The Unstoppable $74B Shale Stimulus Plan

You won’t find any doom and gloom here, my friend.

The d&g is already baked into the pie, right? We already know our government is a financial mess and the Fed Chairman du jour will pull all the levers he can — all of which seem to end up the same effect (less value for the greenback.)

A vague Fed announcement sends the Dow into a 300-point tailspin? That’s all par for the course!

Today we’ll dig in to our golf bag, pull out our favorite driver and blaze our own trail — and as I hinted above there’s no doom and gloom where we’re heading!

First off, get that gloom out of your head. You have to remember the U.S. isn’t looking the same as it was in the summer of 2008, especially from an energy standpoint.

Regardless of the comments of Ben Bernanke there’s an unstoppable shale trend cascading through North America. It’s big news, and big money for Americans.

Stable, cheap energy is what this country was built on — it’s also the reason we’ll continue to thrive today.

Plus, our ongoing thesis holds true: the main reason our economy isn’t falling flat on its face — LIKE EUROPE — is due to America’s abundant natural resources. Lump all of North America together and we’re got plenty of oil, gas, coal, uranium, gold and silver to go around.

Wealth is flowing from the soil here in the states. Which gets us back to the unstoppable nature of America’s shale boom!

Regardless of the recent Fed-based market volatility — shale oil and gas are starting to make a positive difference for our country. Luckily you and I are on the front lines of this boom, and get to see some of the amazing turn-around stats associated with such a game-changing event.

Think about it, back in 2005 the U.S. was importing around 10 million barrels per day (bpd) of oil — a majority of which was coming from OPEC. Back then our exports of petroleum products were dismal, at their low a mere 844,000 bpd.

Today the tides have turned. We’re importing closer to seven million bpd — of which OPEC is not the majority. And exports are booming — with over three million bpd.

When you do the math, the U.S. is exporting an extra $74 billion in petroleum products per year. That’s more benefit than any Fed stimulus plan — and it’s all organic, free-market movement.

Better yet, we’re seeing the same excitement in the natural gas sector.

If you’ve been paying attention to our discussion on natural gas exports (via LNG) you’ll know that I don’t believe the global economics are going to allow the U.S. to be a major exporter of raw natural gas.

Luckily my opinion doesn’t matter! It’s water under the bridge. America’s net benefit from shale gas is undeniable. So whether we export or not, we win. We’ll either see a boom in exports, which will help support higher natural gas prices, or we’ll see lower natural gas prices and a boom in U.S. manufacturing — a veritable win/win.

Indeed, lately we’ve spent most of our time covering the recent boom in oil shale plays — but there’s plenty of action still brewing on the natural gas side of things.

In particular, Pennsylvania’s Marcellus shale is still a sleeping dragon. As it stands the Marcellus formation is producing some seven billion cubic feet per day (bcfd) — for reference that means just two days of Marcellus production can fuel Washington D.C.’s residential market for a year. Two days = one year. Got it? Seven billion bcfd also makes the Marcellus the largest US gas-producing play, according to IHS.

Plus, when you drill down to the well-by-well economics you’ll realize there’s tons of potential for future production and profits. Take a look:

Marcellus Shale Estimated Ultimate Recovery EUR

The chart above is busy, but it’s worth decoding. In particular each vertical bar represents a percentage of wells sampled — in other words, add up all the bars and you’d come to 100%.

You can see that a large majority of the bars rest in the 1.5-4.0 billion cubic feet (BCF) range. That is, a majority of Marcellus wells have an estimated ultimate recovery of anywhere from 1.5-4.0 BCF. The average is 2.0 BCF, according to the Journal of Industrial Ecology’s recent report.

That’s all poppycock, until you add in the price of natural gas. Assuming a $4 price (current price is around $3.90) a 2.0 BCF well would pay out $8 million over its 30-year life — not so hot considering these wells can cost $7-10 million to drill.

But, when you start looking at two other factors, the numbers start to get real interesting.

First, consider if gas prices rise. A rise to $6 puts a 2.0BCF well in the black. And it makes a 4.0 BCF well a cash cow.

Next, consider the right side of the chart above. Past the 2.0BCF well average, there are plenty of wells producing WAY above that average. For instance there are wells off to the right that could produce 13BCF over a 30-year period. At $4 natural gas that’s a $53 million pay out!

Again, there are just some of the preliminary stats — remember, we’re in the early stages of America’s oil and gas boom.

But if the future remains as bright as it looks, this unstoppable trend will treat America well.

Keep your boots muddy,

Matt Insley
Original article posted on Daily Resource Hunter

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