Advanced Oil Drilling Technology

The Hidden Cost of the U.S. Oil Boom

By
Friday, October 18th, 2013

You may not be familiar with Project Independence...

Some of my veteran readers might recognize this as the energy initiative undertaken by Nixon back in 1973.

The goal was simple and straightforward: The United States will achieve energy independence in order to cast off the shackles of foreign oil imports.

Although I know a few drivers who aren't particularly fond of some its legacies (which included establishing a 55 mph speed limit on highways), Project Independence kick-started a well-known tradition in America.

I'm referring, naturally, to every president since Nixon to call for U.S. energy independence.

Skewed Perspectives and Pledges Broken

Unfortunately, none have been able to accomplish this feat.

If eliminating foreign oil imports was the plan all along, we've actually failed spectacularly since the 1970s (click chart to enlarge).

oil imports 10-18

But at least we're making progress, right?

After all, the U.S. is poised to become the world's biggest liquids producer in 2013, averaging 12.1 million barrels per day throughout the year. For the record, that tops Saudi Arabia by about 300,000 bbls/d and Russia by more than 1.5 million b/d.

Still, I feel inclined to point out the single biggest mistake you can make — that is, falling for the political boast that the U.S. is flush with cheap, abundant sources of energy.

While the latter part of this Beltway rhetoric rings true, it's far too misleading in its entirety.

Although every president since Nixon will be quick to extol the progress made toward U.S. energy independence, not one is willing to talk about the costs of achieving it.

The oil boom we're currently enjoying is a perfect example. Being hailed as the world's top liquids producer may look astounding on paper, but those 12.1 million barrels per day come with a twist...

That the figure also includes more than 2.5 million barrels per day of natural gas liquids, as well as more than a million barrels per day of both biofuels and boosting refinery output.

Don't get me wrong; I'm not trying to discount our crude oil production, which increased to over 7.4 million barrels per day in July of this year.

I'm merely pointing to the elephant in the room that nobody seems to want to discuss: the added costs attached to this new supply.

But I'll let the Energy Information Administration show you exactly how much more we're paying for it (click chart to enlarge):

cost of oil well

While this may be a frightening prospect for anyone with skin in the game, there is a specific group of investors that can turn this into a distinct advantage in today's market.

And that group includes you.

Invest in the REAL Future of the Energy Sector

Believe it or not, the future of the energy industry isn't in the sudden discovery of world-class oil or natural gas field.

We already know where to find these massive deposits. In fact, geologists have known about these oil and natural gas giants for decades. Remember, the first drillers dug into North Dakota's Bakken Formation as early as the 1950s. Back then, the Bakken was considered a last resort by every oil company in the area, one that would only be targeted if all other options were exhausted.

Nowadays, there's a lot more on the line.

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Take another quick glance at the chart above to get an idea of how dramatic the cost per well has risen in just the last five years...

I'm willing to bet the house that those costs are significantly higher today.

Think about it. The fact is tight oil production is not only responsible for the entire increase in U.S. oil output, but it's had to make up for the irreversible decline in U.S. conventional production as well.

Notice the EIA chart conveniently ends in 2007. If the Department of Energy had available data up to 2013, the increase on the chart above would be much steeper...

You see, the number of horizontal wells— the telltale sign of our shale boom — really took off around 2005, when the Barnett Shale was gaining prominence. (Evidence of this growth in horizontal drilling is unmistakable in the Barnett play, which you can see firsthand right here).

Buried in all of this is a situation that's rapidly becoming the single-most important investment potential in the U.S. energy industry for individual investors like us...

Because what it all boils down to is how companies will be able to economically extract those huge unconventional oil and gas resources beneath U.S. soil. This will mean cutting the exorbitant costs associated with drilling and completing today's shale wells, which can run as high as $12 million per well or more in certain plays.

And guess what?

That solution is already available.

You see, the next step involves more than simply increasing our feverish drilling pace...

The next step for the U.S. tight oil and gas boom isn't by way of discovery. It's by way of technology.

Until next time,

Keith Kohl Signature

Keith Kohl

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A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.


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