America’s Gain on This Lucrative Middle East SectorThe world isn’t necessarily looking to the Middle East to supply the oil demand. While Saudi Arabia has historically taken a dim view of light-quality oil developments in the Eagle Ford Shale formation in Texas and the Bakken formation in North Dakota, the output is putting a dent in its production.
During the first quarter of 2013, Saudi Arabia’s economy contracted 6.3%—its sharpest decline since quarterly data was made available in 2010. During the first quarter, Brent crude prices fell seven percent, while production slipped eight percent. On top of that, Saudi oil exports to the U.S. fell to 1.09 million barrels per day (bpd) in the first quarter versus 1.4 million bpd during the same period last year. (Source: Hussain, H., “Saudi Arabia’s oil sector threatened by North American supply,” Financial Post, July 18, 2013.)
In fact, it’s quite possible that in a couple years, U.S. production could outstrip the domestic industry’s capacity to refine it. This opens up the door to the possibility of the U.S. starting to export oil for the first time since the 1970s. This could increase the influence the U.S. has on world markets and help stabilize domestic gas prices. It could also encourage further exploration and drilling.
Not that U.S. exploration and drilling has been idle. In 2012, an estimated $145 billion was spent on drilling and completing onshore wells; in 2009, that number stood at $73.0 billion. Analysts expect that spending to continue for the next few years as more and more investors take advantage of America’s oil boom.
Today, Texas has more than 20% of the world’s drilling rigs in operation. It’s not surprising when you consider that, based on capital investment, Eagle Ford Shale ranks as the largest oil and gas development in the world. (Source: Shieber, J., “Blackstone Jumps Into ‘Unconventional’ Energy Rush,” Wall Street Journal, February 9, 2012, last accessed July 22, 2013.)
One interesting play in the Eagle Ford Shale formation is Matador Resources Company (NYSE/MTDR). Most of the company’s operations are located in the Eagle Ford Shale in South Texas and the Haynesville Shale and Cotton Valley in Northwest Louisiana and East Texas. The company has estimated total proven reserves of 23.8 million barrels of oil equivalent, including 10.5 million barrels of oil and 80.0 billion cubic feet of natural gas.
Covering parts of Montana and North Dakota, the U.S. Geological Survey estimates the Bakken reserve area contains as much as 7.4 billion barrels of oil and 6.7 trillion cubic feet of recoverable natural gas. In May, Bakken production reached an all-time high of 810,000 bpd. Some expect the Bakken to produce more than a million bpd by the end of the year.
Oasis Petroleum Inc. (NYSE/OAS) is an independent exploration and production company that engages in the acquisition and development of oil and natural gas resources in Montana and North Dakota. It produced 4.9 million bpd in 2010, 10.2 million bpd in 2011, and 20.6 million bpd in 2012 for a three-year increase of 320%. (Source: “By the Numbers;” Oasis Petroleum Inc. web site, last accessed July 22, 2013.)
Over the last number of years, the global oil supply picture has changed dramatically. Not surprisingly, there are a number of great plays in Texas and North Dakota that could experience solid gains with the new U.S. oil boom just getting started.
This article How to Profit from America’s Gain on This Lucrative Middle East Sector was originally published at Daily Gains letter and has been republished with permission.
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