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Wednesday, August 18, 2010
There's a new oil play opening up in the U.S.
Stretching across Colorado, Wyoming, and Nebraska, it's called the Niobrara Formation. And it's not really "new" – Niobrara wells have produced oil and gas for decades.
But two key technologies have caused an explosion of new oil and gas drilling here. And several companies are positioned to profit. Let me explain...
Last week, I told you about the merger between Nabors Drilling and Superior Well Services. Hydraulic fracturing (or "fracking") has revolutionized the natural gas industry. And Nabors – a giant drilling company – needed to have its own hydraulic fracturing equipment. That's why it bought out Superior, a fracking specialist.
Fracking isn't just opening up new sources of natural gas. It's opening up old oil fields, too.
It's a huge story in Texas, home of the Eagle Ford shale. We've drilled through the Eagle Ford for decades, producing oil and gas from rocks above and below it all along the Texas coastal plain. But until recently, we didn't have the technology to extract anything from its thin layer of tightly layered rocks.
Now, fracking (along with new horizontal drilling techniques) is unlocking the Eagle Ford. And the field is producing natural gas, liquids (think lighter fluid or gasoline), and oil.
The same thing is happening in the Niobrara. Historically, Niobrara wells needed natural fractures in the rocks to produce oil and gas. Today, companies are making their own fractures.
And while the Eagle Ford shale is nearing the end of its second full year of development, the new Niobrara wells are fairly young. As far as potential investments go, several companies with large acreage positions stand to gain from new Niobrara wells.
Take a look...
If the Niobrara play develops like the Eagle Ford did, those acres could be worth $2,500 to $10,000 each over the next 18 months to two years. I believe the Niobrara will see tremendous growth over that period.
If you are looking for a new growth play in oil and gas, find companies with exposure to the Niobrara Formation. It's the next "new old" oilfield in the U.S.
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