The Oil War on U.S. Soil
Top U.S. Shale Plays
There's a three-way battle under way for the U.S. energy crown...
And we have front-row seats to the action.
With oil hovering around $107 per barrel yesterday afternoon, this trio of oil plays is worth nearly $2.5 billion per day.
Just how important are they to the U.S. oil industry? Well, together they account for three out of every ten barrels of crude oil produced on American soil each day (hence the $2.5 billion payday at current crude prices).
When we're talking about this much money at stake, it's impossible not to have a little friendly competition... However, the contest among the top U.S. shale plays feels more like a barroom brawl.
The Shale Scuffle
Although stories of tight oil plays containing huge resources are popping up all over the media these days, there is a caveat: All that oil is worthless unless we can produce it.
Otherwise, it'll sit underground long after we've left this earth.
And to complicate matters even more, producing this oil is not as simple as horizontal drilling and hydraulic fracturing.
The factors in economically extracting the crude oil can differ dramatically from one formation to the next.
Consider that it took George Mitchell over 20 years to perfect his technique in the Barnett Shale. When he did, he created a huge amount of wealth for a new generation of execs and individual investors alike.
In some areas, drillers simply haven't found the right formula yet.
I wouldn't worry too much. They will eventually.
Until they do, the real money will continue to be made in the places responsible for boosting U.S. oil production to over 7.3 million barrels per day.
As you can probably guess, only one of these can claim the energy crown...
One Oilfield to Rule them All
Over the last five years, much of the spotlight on the U.S. oil industry has been focused on two particular areas: the Bakken and Eagle Ford Shales.
(I'll confess my attention has been focused on these areas recently, simply because of the sheer growth we're seeing.)
And yet, neither of these two shale formations holds a candle to the one lying in West Texas...
Last week, I mentioned a company that was outperforming Big Oil by a considerable margin.
This company happens to control nearly a million acres in what could potentially be the biggest shale play in the world: the Spraberry-Wolfcamp Shale located in the Permian Basin.
Are the 50 billion barrels of oil equivalent believed to be recoverable from the play for real?
Remember, it's all about whether or not we can extract that oil...
You should know that West Texas is an area that's accustomed to getting oil out of the ground.
Between January and May this year, roughly 886,115 barrels per day were produced in the Permian Basin, or 12% of every drop of oil produced in the United States.
That puts it ahead of the Bakken — and far ahead of the Eagle Ford Shale.
And if you want to know just how important the Spraberry oilfield is to the Permian Basin, consider this: It's one of the only fields in the area boosting production (click the chart to enlarge).
That's hardly a drop in the bucket, dear reader. And I have a feeling the future will be even brighter for companies with skin in the game...
What's more, there's a truce on the horizon in this war for supremacy of U.S. oil production.
It all revolves around Cushing, Oklahoma.
If we can pin down one fact weighing heavily on the Texas oil industry, it's the supply glut at a major oil hub in Cushing, Oklahoma.
Cushing is the settlement point for the U.S. benchmark crude, Western Texas Intermediate.
Having a huge oil hub so close to them, you can imagine how irate Texas producers became when crude from North Dakota started flowing in, creating a rather large bottleneck...
Now that Bakken crude is starting to flow in all directions, a truce may finally be in sight, as the glut in Cushing begins to ease (click chart to enlarge):
The stockpile of crude at Cushing hasn't been this low in 17 months!
The bottom line is the glut will continue to ease as more infrastructure is put into place in North Dakota and Texas...
And all that does is make more room for Permian Basin oil.
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.