Sunday, February 27, 2011

Plenty Of Oil Left In U.S.

Forget what you've heard about Saudi Arabia's oil fields approaching their production peaks, if they haven't already passed them.  New techniques involving proppant injections, hydraulic fracturing, and horizontal drilling are unleashing the untapped potential of oil fields right here in the U.S.:

This new drilling is expected to raise U.S. production by at least 20 percent over the next five years. And within 10 years, it could help reduce oil imports by more than half, advancing a goal that has long eluded policymakers.

Shale oil and gas are going to be big domestic winners thanks to petroleum engineering.  Don't thank policymakers for this bonanza.  Thank high world oil prices that have incentivized new exploration and production.  The free market works just fine when we leave it alone.

Companies are scrambling to line up shale oil and gas properties for production.  Chesapeake Energy just sold a large shale gas property to BHP Billiton for $4.75B.  EOG Resources wants to double its rig count this year in the Eagle Ford shale oil formation.  Occidental Petroleum has long been confident that its shale properties in California will drive its future growth.  Shale producers are not pure-play situations; companies like BHP (with ROE over 34% and a very healthy balance sheet) are in a much better position to deploy capital and expertise into virgin territory. 

Full disclosure:  No positions in CHK, BHP, EOG, or OXY at this time.