If you have been taking my advice for the past few weeks, you’re making money. The government did not shut down and every dip presented a huge buying opportunity, especially in the companies that I mentioned like Netflix (NFLX). So what’s next?
Well, the big money on Wall Street is betting on energy, especially the “shale” plays of Texas, the Dakotas, and Louisiana. One of the top performing groups in the market this year has been oil plays in three “shale” basins: Eagle Ford, Bakken, and Marcellus.
But let me tell you about one more…
One more is about to join in the fray and that one is the Permian basin.
These shale plays are primarily ‘tight oil’ or unconventional oil plays. Unlike places like Saudi Arabia where the oil is literally bubbling out of the ground, the tight oil plays require technology to get to the black gold. And that technology is both expensive and somewhat controversial. You’ve likely heard of it: fracing (pronounced fracking).
Fracing involves shooting water and chemicals at very high rates of pressure into certain types of sedimentary rock formations that are known to contain hydrocarbons, oil, and natural gas. The mixture “forces” the hydrocarbons out of these recesses, “fracturing” the rocks to release the energy if you will.
Fracing has become the high growth sector in energy, adding more than a million barrels of oil per day of production in the US alone. But not all production is equal and the companies that are blazing the trail are some of the up and comers in the industry. One in particular is blazing a trail that competitors are finding tough to follow and it just issued a “tell” to the market.
Sanchez Energy (SN) is a player in the shale rich Eagle Ford formation of Texas. The company has seen its share price move more than 40% this year with a big chunk coming just in the past few weeks. Sanchez is one of the low “cost” producers that recently started drilling and producing in the area. In fact, compared to the competition, Sanchez nearly doubles its cash flow per barrel of oil drilled.
It achieves this efficiency through technology and management of its projects. And investors like the results. So much so, that a few weeks ago the company issued a “tell”. It sold stock in a secondary offering that the market not only scooped up but also decided that it wanted more. And, since that secondary – just a few short weeks ago, the shares have tacked on more than 20%. I think they have a lot further to go.
SN owns more than 95,000 acres in the Eagle Ford Basin and it’s just getting started with its drilling program. So, if you’re looking for a way to participate in the “new energy boom” with a lesser-known name, then it might be worth your while to keep tabs on this up and coming opportunity – the insiders on Wall Street already have!
To your wealth,
Banker X.
As an engineer, primarily electrical but with other disciplines, I very much appreciate your technical descriptions as well as expert financial comments.
Thank you.
Dave