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Shale Oil vs. Oil Shale

Blueprint for an Oil Fortune

Written by Keith Kohl
Posted November 17, 2011

Editor's note: For a more updated information from Keith Kohl on Shale Gas Stocks, click here...

I first came across Alex Harris here on the pages of Energy and Capital back in early October.

He was a newer reader who had recently made the decision to start investing in energy.

I couldn't blame him for wanting to get a piece of the action — especially after hearing the success stories from some of my other readers.

After reading the first email he sent me, I knew right away Alex had fallen victim to one of the most common misconceptions for new energy investors today...

And it's imperative you don't make the same mistake.

Shale Oil vs. Oil Shale

I had only made it halfway through Alex's email when I spotted it.

Like everyone else, he was eager to get started... and he had overlooked the stark difference between shale oil and oil shale — an error that would have cost him dearly.

There's no question that the United States is being swept up in shale fever.

The truth is, just five years ago, nobody was paying attention. Now, this story is headlining on the nightly news and trending on every major outlet's website I come across.

As always, the mainstream media is the last to the party. And all too often, they get confused...

That especially goes for the trillions of barrels of oil shale beneath Wyoming, Colorado, and Utah.

When it comes to the Green River Formation, we're talking about finely-grained sedimentary rock that holds a significant amount of kerogen.kerogen pic

Kerogen, unfortunately, is not crude oil.

Thanks to a twist in geological fate, things turned out much differently.

You see, had this resource been buried a little deeper and for a few more million years, we would be sitting on the largest crude oil deposit in the world.

Think of it as the first step in the oil-generating process. In this case, the kerogen has to be heated to release the petroleum-like liquids.

As one of my readers told me back in 2008:

Keith, the literature in 1949 would have believe oil from this rock was coming tomorrow, except the papers were dated in 1910. Now it's 2008 and once again they're saying it's right around the corner.

But we know that everything has its price.

How much more attractive will developing the Green River oil shale be when a barrel of crude oil costs $200?

Although some of the largest oil companies are still trying to make the numbers work, the reality here is that the production process requires too much time, money, and water right now. Shell's been at it for nearly fifty years without a breakthrough.

I'll let you make up your own mind as to whether or not we'll get around to developing the vast oil shale deposits...

What I won't let you do, however, is fall for the common misconception that this is the same as shale oil plays like the Bakken. Failing to recognize the drastic difference between these two oil investments would be a catastrophic mistake.

Unlike the kerogen in the Green River, the production coming out of North Dakota is of the light, sweet variety.

But as Nick Hodge correctly pointed out yesterday, tomorrow's oil isn't a sure bet.

Even the Saudis' future oil supply is coming under fire lately, and not because of its quality — we already know their spare capacity is of poorer quality — but rather for the lack of transparency in OPEC.

It's become a running joke that OPEC members cook their books and regularly cheat on production quotas.

Profitable Boom or Investment Sinkhole?

When I didn't immediately hear back from Alex, I couldn't sleep for a week. It wasn't until a few weeks later that he replied and my fears were alleviated.

Fortunately, he had spent a little more time separating the facts. But he was still missing one key part...

He didn't know where to look.

According to Alex, it felt like he'd missed the entire shale boom. He even told me he was toying with the idea of picking up a play like BHP, since they spent $12 billion for Petrohawk Energy last July.

I had a slightly different option for him.

Sure, you could dish out ten times more money per share for a company that had to buy its way into the play...

But personally, I prefer the drillers that have been in it since the beginning.

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Until next time,

kpk sig

Keith Kohl
Editor, Energy and Capital

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