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This Isn't Our Last Resort

Energy and Capital's Weekend Edition

Written by Keith Kohl
Posted April 7, 2012

“Shale is our last resort. It's nothing but hype that started four years ago, and it'll be gone in the next five.”

I'll admit it was difficult for me to take his sentiment very seriously at first...

But then I realized the gentleman honestly believed that it all began in 2008.

It was easy to see why he thought this way. After all, 2008 was the year the USGS released their reassessment of the Bakken Formation, which thrust the play into the limelight.

Unfortunately, he was a few decades off on his timing.


Truth is the first Barnett wells were drilled back in the early 1980s. Thirty years later, there are approximately 16,000 Barnett wells in the formation... and they're producing more gas than ever:

barnett activity
click image to enlarge

If we were really worried about the lasting power of the Barnett, wouldn't you expect to see production wane just slightly — or that it wouldn't be one of the largest unconventional natural gas plays in the U.S. after three decades?

What's more important is how that feverish drilling pace has spread like wildfire to virtually every formation with the word "shale" attached to it (well, almost  — but I'll get to that in second)...

Perhaps the best example of this excitement is in North Dakota, where production is expected to jump from half a million barrels a day to nearly three million barrels per day over the next decade.

It's the same frenzy that's taking place in the Eagle Ford play in Texas. And earlier this week, we that same rush of activity at newer shale plays like the Marcellus and Utica Shales.

So when should we start worrying?

Our Last Resort

Whenever we hear the political machines touting the 1.5 trillion barrels of oil beneath Wyoming and Colorado, it's time to get nervous.

Here's why...

Today, the EROI of conventional oil is about 20:1. In other words, we're producing roughly 20 barrels of oil for every barrel invested. For oil shale, that ratio is between 1:1 and 2:1.

(And that's not to mention the fact that we would also use between three and five barrels of water simply producing that oil.)

Let's assume for a moment that, no matter how unlikely it sounds, energy-hungry politicians manage to kick-start a plan to go after our oil shale resource.

We'll even take it a step further and pretend that production ramps up to two million barrels per day...

The water requirement alone would be immense.

So when the rhetoric becomes a reality, and we start spending billions of dollars developing the infrastructure to seriously begin producing oil shale from the Green River Formation, then it's time to start sweating.

For now, there are much better opportunities out there.

Here are just a few of those investment opportunities that have crossed my desk this week:

Energy Investment Opportunities: Our Top 3 Energy Picks for this Week
Why play a $640 million lottery when $270 trillion is sitting on the table?

Canada's Oil Matters: Obama's "Smart Diplomacy" Makes Things Easy for Harper
We import almost twice as much oil from Canada as we do from Saudi Arabia. We don't have to go to war halfway around the world to ensure we get this oil...

Safe, Stable, Consistent and High-Yielding: REITs are an Essential Part of Your Portfolio
What's a REIT? Simple: REIT stands for Real Estate Investment Trust. Owning a REIT gives you the benefits of being a landlord without having to go unclog some schmuck's toilet in the middle of the night.

Declaring War on Coal: Are Dark Days Ahead for Coal?
How the newest EPA ruling may drive our coal production to China, and why investors can find new profits in natural gas...

The World's Most Reliable Economy: And it's Closer than You Think
If you think Apple's unstoppable rise over the last few years is a compelling investment story, you're going to love this...

Wal-Mart Fairly Valued at $120 a Share: WMT to Do Half a Trillion Dollars in Sales
Two weeks ago, I showed you how the world's largest company, Apple, was fairly valued at $4,000 a share... Today I'll show how the world's largest retailer, Wal-Mart, should double in price in a few years.

Technical Trading Secrets: Do This Before You Buy Anything
Analyst Ian Cooper offers readers a look at one of the simplest technical trading secrets available

Information Overload: Tune Out the Noise
There is such a thing as information overload. And in this high-speed digital age, I think we're all affected by it in some way.

The Utica Shale Play: Is Ohio's Utica the Next Major Shale Play?
Editor Keith Kohl shows investors a new up-and-coming shale play that is starting to attract a lot of attention from Big Oil.

Do You Have an Energy Royalty Trust?: Go Fish
If you've never caught a 100-pound tarpon, I suggest you do so immediately. If you haven't yet diversified your energy portfolio, I suggest you do that, too.

Enjoy your weekend,

kpk sig

Keith Kohl
Editor, Energy and Capital

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