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Avalon Shale Stocks

Brian Hicks

Written By Brian Hicks

Posted September 9, 2013

In the midst of the American shale boom, new discoveries will yield comparisons to the nation’s most successful plays like the Eagle Ford or the Bakken. And these comparisons are valid, so long as they are based in realism and data.

shale gas 19Some of the discoveries do manage to stand up to these major plays; others do not.

The Avalon shale is a small oil and gas play, and it will never likely be a major energy producer. But it is still a play worth cataloging if you’re on the prowl for new investments. The shale is part of the Permian Basin, so you know you’re in good hands.

The region has a rich blend of natural gas, oil and natural gas liquids (NGLs).

There are no definitive reserve estimates in the region, but since the Permian Basin has 103 billion barrels of oil in place and 41 trillion cubic feet of technically recoverable reserves, the Avalon is in prime territory.

The companies that are already in the region have reported successful results, and major operations are expected to pick up in 2014 and beyond.

The Avalon shale is located in New Mexico, but it extends into Texas. In New Mexico, the Avalon encompasses Chaves, Lea, and Eddy counties. It is also referred to as the Leonard Shale, with the two names used interchangeably, and it is one of three formations known as the Bone Spring formation.

Composition includes zones of sandstones, which require man-made stimulation to extract resources, and shale siltstones that are 6,500 to 9,000 feet.

American Energy Boom

As of now, U.S. production does not need a helping hand from the Avalon. But the small play may become useful in the coming decades, since new discoveries are necessary to keep the boom going.

In North Dakota, oil production broke another record in June, with over 820,000 barrels per day of oil and 930 million cubic feet of natural gas. The state of Texas now produces over 2.4 million barrels a day – levels that hearken back to the 1980s.

The Permian accounts for more than half of Texas oil production and 19 percent of national production. Since the Avalon is part of the Permian, there’s no doubt it can contribute in its own way to the shale boom.

But an ever-lingering question is whether or not North Dakota and Texas will be able to prop up the U.S. shale oil boom forever. Sure, other states are participating, but in terms of the shale craze, North Dakota and Texas are the first two at the helm of the boom.

For now, at least, it’s a good thing that North Dakota and Texas are acting as major supporters of the shale oil boom to prevent oil gluts from forming too fast. But other states and shale territories may eventually have to join in to keep the boom going as the decades pass.

That’s why I think plays like the Avalon Shale are very important and worthwhile long-term investments.

Avalon Activity

Here’s why you should be excited about the Avalon Shale.

According to the company’s press release, Energen Corporation (NYSE: EGN) purchased 11,000 net acres in the Bone Spring and Avalon areas for a total price of $37 million back in 2011. By 2012, the company possessed 110,000 undeveloped acres, with over 340 drilling hotspots.

Chesapeake Energy (NYSE: CHK) has been in the region as well, with 120,000 net acres spanning across the region. The company estimated well output would in the range of 350 million barrels of oil. But you may want to watch Chesapeake carefully until the company gets its fiscal house in order.

EOG Resources (NYSE: EOG) is a positive bet, since this company has had a great track record of energy production. The largest acreage holder in the Eagle Ford of South Texas, EOG has reported success within 49,000 acres of drilling, with a 100 percent working interest in wells in Eddy County.

As an investor, this is a good place, since this will be one of many shale areas where companies with a domestic focus on shale oil will invest capital.

The Avalon is not a household name in the energy boom, but the investment excitement is there, and it is proving to be a promising piece of territory.

Keep small shale plays like this on your radar.


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