Banking on South Texas Oil
The Texas Triple Threat
Never get in a fight with a geologist.
I found myself in this very position this past week. Without getting too far into the details of our argument, our conversation took a turn toward new potential oil discoveries. I made the mistake of asking him where he thinks the next big U.S. oil field will be discovered...
He was quick to tell me, “We don't need to find another huge field, because we already know where they are!”
I didn't like his reply, but in the back of my mind, I knew he was right.
The now-famous oil plays in areas like North Dakota aren't new to the scene. Companies have been drilling the Bakken Formation since the 1950s (though we've only been able to extract the oil and natural gas in the region more recently).
But there's one place that's been at the top of the U.S. oil industry for over a century.
And that's Texas.
What's more, after a hundred years and billions of barrels of oil, there's still a ton of crude left in those fields — even the oldest ones on record.
The geologist was quick to remind me that all it'll take is a little nudge in the right direction to get those barrels out of the ground.
I've long considered Eastern Texas the crown jewel of the U.S. oil industry.
It was the birthplace of modern oil production. Most everyone has seen a picture of the gushers that made legends out of areas like Spindletop.
And last year I covered in depth the resurgence of another legendary Texas oil area, the Permian Basin. Today the Permian Basin accounts for more than 66% of the entire state's production.
It might be time we add a third Texas play to the history books...
You won't find the explosive gushers, or even a long, rich history of producing crude from this region. Nonetheless, this play is having a significant impact on the state's oil rebirth.
I'm talking about the Eagle Ford Shale in South Texas.
According to the Texas Railroad Commission, production in the Eagle Ford reached 374,231 barrels per day:
The first Eagle Ford wells were drilled back in 2008. Today there are 21 active fields in the play spread across 14 counties.
Last year the Eagle Ford's impact on the Texas economy was projected to be over $60 billion, supporting more than 100,000 jobs. It's also one of the reasons Texas has managed to boost its oil output back over the two million barrels a day mark — something that hasn't happened since 1988.
So here we have the Texas triple threat: East Texas, Permian Basin, and Eagle Ford.
Our focus as investors, however, is on the lucrative opportunities still available...
Two Foolproof Texas Investments
I've been told there are no guaranteed winners in the stock market.
That might be true for other sectors. But does a true win-win investment scenario exist in the U.S. energy markets?
I think so...
In fact, I want to tell you about not one — but two.
You see, it doesn't matter what kind of investment you're after, be it a prospective long-term position that pays out a regular dividend, or one with a considerable degree of growth ahead that'll cause your pockets to overflow...
Why not have both?
One of the strongest investments you can make is from infrastructure. And each one is deeply rooted in Texas' oil and gas industry.
Now, I realize pipelines, refiners, and rail don't sound as sexy as a penny stock wildcatter that suddenly strikes a gusher. But you don't need me to tell you which of these comes with a mountain of risk. Bet the farm on a wildcatter, and you're one dry hole or bad string of drilling complications away from losing your investment.
Personally, I've always found the best (and least stressful) plays in a portfolio are those you can literally put aside and look at once or twice a year, just to see how much they've made you.
We've covered so many of these kinds of investments in North Dakota, I'd be remiss not to include the Texas oil patch...
Both offer an annual yield around 4% and both have moved about 25% higher since the New Year.
What would've happened if you'd invested in these companies and taken Ron Popeil's approach to "set it and forget it'”? I think it's safe to say you wouldn't have any complaints.
Take a look:
Things can't get much better than that...
Or can they?
The infrastructure plays above desperately rely on one major underlying factor to keep their value — that is, our crude production absolutely must continue growing.
And the only way that's going to happen is for U.S. producers to take things to the next level.
They won't be able to achieve this through sudden and massive oil discoveries. (As I hinted at earlier, we already know where the oil is; it's just a matter of extracting it in the cheapest and safest possible way.)
So oil and gas companies are using the same methods today they did to spark our shale and tight oil boom years ago...
They're using what works.
In 2006 companies were pairing alternative drilling technologies with decades-old completion techniques. Nowadays, they're utilizing a technology that dates as far back as the 1970s, just as U.S. oil production peaked. And they're about to kick this technique into overdrive — giving companies a chance to fully exploit newer shale plays, as well as revisit and breathe new life into older fields that have long been abandoned.
I'll give you all the details on this burgeoning technology next Tuesday, and at the same time show you another win-win investment keeping Texas and North Dakota wells with crude oil for decades to come.
Look for my report to hit your inbox before the market's opening bell.
Until next time,
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.