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Drilling Is Just Getting Started at the Next Big U.S. Oil Play

By Matt Badiali, editor, S&A Resource Report
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...
 
Company
Market Cap
(millions)
Niobrara Acreage
Acres
(Per 100 Shares)
EOG Resources
$23,770
400,000
0.16
Chesapeake Energy
$13,680
400,000
0.06
Noble Energy
$11,690
800,000
0.46
Mariner Energy
$2,390
54,000
0.05
Quicksilver Resources
$1,950
100,000
0.06
Carrizo Oil and Gas
$614
50,000
0.14
Double Eagle
$45
53,000
0.48
 
 
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.
 
Good investing,
 
Matt Badiali




In The Daily Crux
Market Notes
Fear retreats... Volatility Index down 15% since Monday morning surge.
 
China Mobile hits new high... now the third biggest company in the world by market cap behind Exxon and Apple.
 
Las Vegas Sands hits fresh 52-week high... shares have doubled in 2010 as investors expect big growth in Macau.
 
Earnings today... Target (department stores), NetApp (cloud computing).
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1094.16 +0.2% +10.6%
Oil 33.68 -0.6% -8.6%
Gold 120.22 +0.4% +30.6%
Silver 18.02 -0.6% +31.3%
US-Dollar 82.29 +0.1% +4.2%
Euro 1.29 -0.1% -9.0%
Volatility 24.59 +1.1% -6.1%
Gold Stocks 473.82 +1.7% +37.3%
10-Year Yield 2.64 +0.0% -25.2%

World ETFs
Symbol Price
Change
52-Wk
USA 109.79 +0.2% +10.8%
Canada 26.68 +0.8% +15.5%
Russia 18.80 +0.3% +16.5%
India 33.41 +1.2% +29.3%
Israel 15.14 +0.9% +20.1%
Japan 9.62 +0.6% -2.7%
Singapore 12.08 +0.0% +20.3%
Taiwan 12.64 -0.1% +16.3%
S. Korea 49.41 +0.4% +22.3%
S. Africa 59.54 -1.0% +21.8%
China 40.71 -0.3% +1.7%
Lat.America 46.88 +0.2% +21.6%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 103.58 -1.2% +2.1%
Big Pharma 61.85 -0.3% -1.4%
Internet 56.17 +0.7% +25.9%
Semis 12.30 +1.4% +3.6%
Utilities 30.83 -0.6% +7.4%
Defense 16.76 +0.3% +13.4%
Nanotech 8.44 +0.5% -12.9%
Alt. Energy 8.98 +0.7% -8.3%
Water 15.56 -0.3% +0.0%
Insurance 14.86 +1.3% +13.3%
Biotech 18.48 +0.2% +17.5%
Retail 16.37 +1.5% +10.1%
Software 20.62 +0.1% +13.9%
Big Tech 45.55 +0.4% +16.7%
Construction 11.59 +0.8% -2.7%
Media 11.66 +0.9% +24.0%
Consumer Svcs 57.16 +0.7% +18.9%
Financials 51.19 +0.3% +4.2%
Health Care 60.54 -0.1% +6.6%
Industrials 55.18 +0.2% +19.3%
Basic Mat 60.87 +0.4% +22.0%
Real Estate 51.59 +0.0% +35.8%
Transportation 78.11 +0.5% +19.7%
Telecom 20.49 +0.5% +18.5%

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