Exploding in 2014

Peter-FallonRight now, shares of the company I’m about to explain the background to are trading about 10% off their 52-week highs. It’s the perfect time to get in.

For the last five years, unconventional oil and gas development has been exploding in the Marcellus shale. It’s only more recently that development has started in the Utica shale.

In many areas of Ohio and Pennsylvania, the two plays overlap one another. The Marcellus is located at average depths of 3,000-5,000 feet, while the Utica is down around 15,000 feet.

Check out the graph below, courtesy of Wood Mackenzie North American Gas Service.

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It’s clear that the Northeast is going to be the largest supplier of natural gas in the U.S. “Northeast” really means the Marcellus and Utica shale formations.

Even with all the wells drilled to date, there are still huge areas of both plays that are unexplored. It’s true not all areas of either play will ultimately turn out to be highly productive.

However, the main reason for the lack of exploration has been the lack of takeaway and production infrastructure. Even if gas and oil is there, gathering lines, processing facilities and transmission line connections all have to exist in order to sell and market it.

As evidence, look at the map below, courtesy of Pennsylvania’s Department of Environmental Protection.

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Notice that of the 2,965 permits issued, less than half of them have turned into wells. Data is as of January 2014.

The number of wells drilled in the northwest corner of Pennsylvania is only 153. Compare that to drilling activity in the southwest and northeast sweet spots.

Ninety-two of those wells drilled, were in just one county: Butler. The reason? It just happens to have access to processing and gathering infrastructure.

There isn’t more gas in the higher density drilling areas. Those areas just contain well-developed infrastructure.

There are several companies addressing the infrastructure problem. One of them is Williams Companies, Inc. (NYSE:WMB).

Williams owns the Transco pipeline, one of the longest natural gas transmission lines in the country. It connects the Gulf coast region with northeast population centers.

Williams has a number of extensions to the Transco pipeline underway. These will connect processing facilities serving the Utica and Marcellus shale to the Transco line.

However, there’s another company squarely focused on the “oily” sections of the Utica and Marcellus as well as the natural gas producing areas.

It’s already completed five major northeast gas-processing facilities in the last six months. It has another nineteen under construction.

When all are completed a few years from now, the company will have nearly five billion cubic feet per day of natural gas processing and transmission capacity. In addition, it will have crude processing capabilities of over 400,000 barrels per day.

Similar to Williams, this company gets most of its income by acting as a “toll-road operator.” The more oil and gas that runs through its pipelines and processing facilities, the more money it takes in.

Here’s a map of the Utica and Marcellus sweet spots or “fairways.”

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As you can see from the map, this company’s gathering and processing infrastructure is located well within the fairways of both the Utica and Marcellus. In addition, three major transmission pipelines – the TEPPCO, ATEX and Mariner – cross through its operating area.

This is strategically important, as the company need only build tie-ins in order to be able to market its natural gas or crude oil.

In addition to being a strong growth play the company currently yields 5.33%. Since going public 12 years ago, it’s raised its dividend 192%.

I’ll be adding it to my Wealth From Power portfolio next week. In all fairness to the subscribers of my Wealth From Power service, I can’t divulge the name here.

But you can learn the name of this company and the others in the Wealth From Power portfolio by signing up for my service. Existing subscribers are experiencing gains of as much as 100% in as few as three weeks time.

Profitably yours,

Peter Fallon.

Note from Midas Legacy Editor: Peter retired in his early 50’s after a successful career in the fields of energy and technology. His success as an investor and business owner spans over 40 years, and he has now combined his experience with his knowledge and passion for energy, technology, and investing. He is also the editor of our energy stocks recommendation service, ‘Wealth from Power’, available by invitation only.

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