Is the frack war over?
Simply broaching the topic of hydraulic fracturing is enough to elicit a vicious knockdown, drag-out fight in the media. We would be remiss to think otherwise, too.
Just within the last week or two, we've been flooded with stories accusing this technique, used during a well's completion process, of sparking earthquakes and even causing cancer in children.
I'll bet if we look hard enough, we'll unearth some media pundit who's convinced it will poison every drop of water within a hundred miles of a New York orphanage.
But perhaps a little background is in order first...
No matter how much you abhor the notion of fracturing a rock formation more than a mile underground, you have to admit the process has improved somewhat.
Hey, at least we're not using “exploding torpedoes” anymore, right? Gone are the days when it was perfectly acceptable to detonate a bit of nitroglycerin and hope for the best.
Crude? Maybe, but the iron-cased torpedo vastly increased oil production in the post-Civil War era. Modern fracturing techniques used now, as you should know, hardly bear a resemblance to the exploding torpedo.
The process we are using today has its roots firmly embedded in Kansas, where it was first used back in 1949. In fact, here's what the scene looked like at the Hugoton gas field 67 years ago:
Thing is, this process was virtually unheard of outside of the industry up until a few years ago... and it only took one stubborn oil exec to change that.
My long-time readers undoubtedly recognize the name George Mitchell. He was the first one to crack the shale code by combining horizontal drilling with hydraulic fracturing.
The pioneering work that Mitchell Energy did in the Barnett Shale may be the single-most important catalyst to the shale boom that's currently underway.
Most people don't realize what that truly means.
The Dirty Truth Behind Fracking
Ever since that day in Kansas, more than two and a half million frac jobs have been performed.
Today, nine out of every ten oil and gas wells onshore need to receive some form of fracture stimulation. When more than two-thirds of the rigs in North America are drilling horizontally, this really shouldn't come as a shock to anyone.
The Energy Information Administration was just as blunt when it reported that 3.2 million barrels per day of U.S. oil production came from tight oil resources — accounting for 91% of North American tight oil production!
Every last drop of that oil would be taken away if it weren't for hydraulic fracturing.
And as much as I'd like to fall prey to wishful thinking, the sobering fact here is that the United States is run on fossil fuels right now.
Yes, that dynamic will eventually change, but that doesn't mean we can simply ignore that 63% of the energy consumption in the United States still comes from oil and natural gas.
That isn't stat manipulation; it's the dirty truth behind fracking.
Drilling Down Frack Investments
To frack or to not frack... believe me, it's not even a question.
Of course, the most direct hydraulic fracturing investments are in service companies like Halliburton, Baker Hughes, and Schlumberger.
And these massive companies — with a combined market cap of $216 billion — have performed admirably for individual investors like us in the long run:
Truth is, we're addicted to cheap energy.
That isn't going to change no matter how much we'd like to think otherwise. This is why I've been trying to hammer down one point more than any other: the real cash cows in the industry will come from successfully improving upon our drilling and completing technology.
George Mitchell did it during the 1980s, more than a decade after U.S. production peaked...
You can bet it'll happen again.
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.