The days of cheap oil are behind us.
This isn’t a new concept. In fact the last time I used the low-hanging fruit metaphor, it was to explain Peak Oil to my twelve-year-old niece.
The idea, as you might expect, is that as you pick fruit from the tree, eventually the easy-to-reach pieces will all be gone. The only fruit left on the tree will be too high and hard to reach, thus not worth the effort…
How well are things going for U.S. oil production?
At first, my line of thinking is right alongside yours. Sure, we’ll never reach the same production rates that we did in 1970, but just how bad are things since our production peaked?
After all, production increased slightly in 2009 and 2010, didn’t it?
The truth is things may be worse than we imagined…
Nearly 80% of all the oil wells in the United States are producing less than 10 barrels per day.
You read that correctly — less than ten barrels per day.
So much for the images of huge gushers from back in the days of Spindletop…
Known as “stripper wells,” these wells are at the end of their lifespan; in order to be categorized as such, a well is typically producing less than ten barrels per day for a year. Not a very comforting thought.
And a quick glance at the EIA numbers will paint for us a very different picture of domestic production:
Still think there’s a lot of cheap, easy-to-access barrels underneath U.S. soil?
As you can see, nearly 19% of our country’s crude production in 2009 came from wells producing less than 15 barrels per day. In total, that amount comes out to about 900,000 bbls/d — just shy of the amount we import from Saudi Arabia every single day!
And this doesn’t just apply to the smaller states. In Texas — our largest oil-producing state by far — almost 90% of wells produced less than fifteen barrels per day, making up more than 43% of the state’s production.
Low-hanging fruit, indeed.
So where does that leave us? That all depends on how you look at the situation.
Peak Oil offers an unprecedented opportunity for investors. Only through new advancements in drilling have we been able to hold off the decline recently. But not all oil investments were created equal…
When Big Oil Fails to Deliver
Forget about Big Oil.
Though companies like Exxon and Chevron are thrilled to post strong quarterly numbers (Exxon boosted its income by 41% and Chevron reported profits jumped by 43%), there’s only one word to describe their performance to investors: lackluster.
This isn’t the first time we’ve put the supermajors up on the chopping blocks, and it certainly won’t be the last.
I’m not suggesting giant oil companies are completely worthless to investors (not yet, at least); I’m simply saying there are better opportunities available to us…
(I’ll let you make your own decision about which investment you would’ve rather made.)
The veritable drilling boom happening in North Dakota has been covered by us since the beginning, long before the USGS was even sniffing around the Bakken. And there’s another option open to oil and gas investors — one that not only carries little risk, but still has a tremendous upside.
The Safest Oil Profits in Today’s Market
I say let the drillers fight over the last few barrels, because you don’t have to rely on higher-risk drillers for a solid payday in today’s market.
There are much safer plays posting gains for investors.
I recently told readers about Carbo Ceramics (CRR). This stock is the gift that keeps on giving. As you can see, I’m not exaggerating:
The company manufactures ceramic proppants used during the hydraulic fracturing process, giving producers an advantage over using sand to keep the fractures open, improving productivity. And here’s the best part: Carbo doesn’t need to own a single acre of land to ensure its growth over the next couple of years…
For that, we need only look at our country’s drilling activity.
It took a severe drop in crude prices (a 77% decline within six months during the latter half of 2008) to drag down the record number of oil and gas rigs drilling within the United States.
Today, we’re back over 1,900 operating rigs, and we’ll be seeing record drilling activity within the next two years. Furthermore, with more than 60% of those rigs are drilling horizontally, the backlog of fracturing jobs will continue to build.
That alone will drive Carbo’s growth going forward.
Of course, the last time I brought up Carbo, several concerns arose regarding the fate of hydraulic fracturing. What people don’t realize, however, is that investors will make a small fortune whether the practice is banned or not…
It’s a win-win situation. And I’ll tell you all about it later this week.
Until next time,
Editor, Energy and Capital