Customer Service 1 (888) 261-2693
Advanced Search

A Vast, Hidden Source of Growth for Oil Companies

By Matt Badiali, editor, S&A Resource Report
Wednesday, June 12, 2013

Some of the country's top shale plays are going to see huge growth in the next few years...
 
These companies will grow reserves and production by 30%, 40%, or even 50%... without adding a single new acre of land.
 
It comes down to the idea of "stacked plays." Let me explain...
 
Longtime readers know that shale fields are responsible for an incredible boom in oil and gas production. These deposits come in the form of thin layers of oil-soaked rock.
 
If you could see them exposed in a cliff, the rocks would look like layers in a cake... And sometimes, several layers of the cake hold oil and gas. We call that a "stacked play."
 
These stacked plays are great for oil and gas producers. They can drill into several oil reservoirs from a single point on the surface.
 
Take the Spraberry/Wolfcamp formation in West Texas, for example...
 
Officials from Pioneer Resources (NYSE: PXD), which owns approximately 730,000 acres in the area, boast that Spraberry/Wolfcamp could be the world's second-largest oilfield, with 50 billion barrels of recoverable oil. That's an astonishing volume of oil... more than the Bakken, more than the Eagle Ford, and more than Alaska's iconic Prudhoe Bay.
 
And they might be right... Spraberry/Wolfcamp has six productive layers of shale. The productive rocks are spread over 4,000 vertical feet. According to Pioneer, if you spread those rocks out flat (instead of stacking them up) you'd have a 3 million to 4 million acre oilfield.
 
When Pioneer wants to increase production, it doesn't have to worry about the huge costs of a brand-new exploration program. That's because its exploration is directly under its existing wells. A single drill "pad" – the flat, cleared area set up for the drilling rig – used to hold just one well. Now... it can support 30 to 40 wells. That saves money and time.
 
The Bakken shale in North Dakota could offer the same benefits... And we might start calling it the Bakken/Three Forks. The Three Forks is another productive rock layer below the Bakken.
 
Continental Resources (NYSE: CLR) is the best player in the Bakken. The company believes those rocks could more than double the Bakken's recoverable reserves to 32 billion barrels of oil. And you can see what those "extra" barrels have already done for the company...
 
In just five years, Continental's reserves per acre grew by 144%... And I expect that number to continue to grow as it keeps drilling the Three Forks. Continental shares are in a strong uptrend, up 38% since last August. And the promise of the stacked play could add significant reserves... and value... to Continental's shares over the next 12-18 months.
 
Other shale basins hold similar promise. The Marcellus Shale in Pennsylvania has two more shales underneath it... the Utica and the Devonian. Another basin, called the Powder River, is home to the Niobrara formation. We're just starting to understand the stacked plays here.
 
Below, you'll find a list of companies with exposure to the massive stacked plays emerging in the U.S. right now.
 
Company
Market Value
Stacked Play Exposure
Continental Resources (CLR)
$15.6 billion
Bakken
Pioneer Resources (PXD)
$19.7 billion
Spraberry/Wolfcamp
Range Resources (RRC)
$12.3 billion
Marcellus
Apache Corp (APA)
$33.4 billion
Bakken & Spraberry/ Wolfcamp
Devon Energy (DVN)
$23.9 billion
Powder River Basin & Spraberry/Wolfcamp
Chesapeake Energy (CHK)
$14.3 billion
Marcellus

While all these companies have exposure to stacked plays, not all are as aggressive as Pioneer and Continental in their approach. Individual success will depend on the company's approach. However, I believe that as the aggressive companies succeed, the entire industry will follow them.
 
I'm currently researching this idea for the S&A Resource Report. We'll cover this topic in detail later this summer.
 
For investors interested in exposure to oil and gas, these companies offer stable growth with little exploration risk. We're 10 years into the shale revolution... and it's still in its infancy.
 
Good investing,
 
Matt Badiali




Further Reading:

If you keep up with commodity news, you've probably heard plenty of arguments from shale oil "doubters." But as Matt explains, you can't afford to buy into their arguments...
 
"If you listen to the doubters, you'd avoid shale companies altogether," he writes. "That would be a huge mistake. During revolutions like this, huge fortunes are made." Read more here: Don't Believe This Shale Oil Argument... It'll Cost You.

In The Daily Crux
Market Notes
Silver is stuck in a downtrend... big silver fund SLV breaks down to a fresh two-year low.
 
World's biggest resource company BHP Billiton plunges to its lowest level in almost a year.
 
"Emerging markets" are back in a downtrend... big fund EEM sinks to a nine-month low.
 
Electric-car maker Tesla falls 13% over the past two weeks... shares are still up 171% in six months.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1634.07 -0.5% +24.8%
Oil (USO) 33.84 -0.5% +10.2%
Gold (GLD) 133.22 -0.5% -14.3%
Silver (SLV) 20.97 -0.9% -24.5%
U.S. Dollar 81.09 -0.7% -1.9%
Euro 1.33 +0.3% +6.6%
Volatility (^VIX) 16.77 +8.6% -28.8%
Gold Stocks (^HUI) 263.05 -2.6% -39.7%
10-Year Yield 2.19 -0.9% +36.9%

World ETFs
Symbol Price
Change
52-Wk
Japan (EWJ) 10.92 -2.0% +26.4%
USA (SPY) 163.57 -0.8% +27.2%
Israel (ISL) 14.72 -2.8% +23.7%
Taiwan (EWT) 13.54 -0.7% +19.0%
Singapore (EWS) 13.13 -0.6% +18.2%
India (IFN) 19.68 -2.4% +15.1%
Canada (EWC) 27.49 -0.9% +11.9%
China (FXI) 34.80 -1.6% +9.0%
Russia (TRF) 14.02 -2.4% +7.8%
S. Korea (EWY) 55.25 -1.1% +5.2%
Lat.America (ILF) 38.56 -1.6% -0.5%
S. Africa (EZA) 55.86 -1.3% -7.5%

Sector ETFs
Symbol Price
Change
52-Wk
Construction (PKB) 19.50 -1.7% +54.6%
Media (PBS) 20.43 -0.9% +46.7%
Financials (IYF) 72.26 -1.2% +40.3%
Biotech (PBE) 29.42 +0.1% +38.8%
Health Care (IYH) 102.05 -0.2% +37.5%
Defense (PPA) 24.79 -0.3% +36.3%
Alt. Energy (PBW) 5.35 -2.6% +32.5%
Consumer Svcs (IYC) 102.58 -0.6% +32.9%
Industrials (IYJ) 84.25 -0.7% +30.9%
Water (PHO) 22.52 -0.8% +31.6%
Retail (PMR) 30.53 -0.9% +29.3%
Transportation (IYT) 112.32 -0.8% +26.8%
Telecom (IYZ) 26.22 -0.5% +25.5%
Software (PSJ) 29.93 -0.9% +19.7%
Big Tech (QQQQ) 72.93 -0.7% +19.5%
Insurance (PIC) 19.01 +0.1% +18.3%
Nanotech (PXN) 6.98 -1.4% +17.5%
Basic Mat (IYM) 70.60 -1.0% +15.5%
Real Estate (IYR) 67.20 -1.1% +14.5%
Semis (PSI) 15.91 -1.2% +12.3%
Utilities (XLU) 37.87 -0.2% +7.1%

Recent Articles