The Shale Play No One is Talking About

banker xThe Energy Sector is on fire. Higher oil prices are leading the way again, but that’s not the only story. Natural gas is the fastest growing sector in energy thanks to low prices and a bent towards cleaner burning fuel.

The oil story is all about shale oil, where it’s being discovered and how it’s changing the landscape of energy dependence in the US. Last year the United States recorded the largest daily increase in production in its history, producing more than a million barrels per day over the previous year. Most of this production increase came from onshore production in the oil rich regions of Texas, Louisiana and the Dakotas.

Shale oil comes from shallow formations of rock that contain oil. This oil is not in deep reservoirs but in loose rocks, which must be heated for the oil to be extracted. During this process the shale is heated and the resulting vapors are what contain the oil and gas. The vapor is allowed to cool and liquify producing the oil. This is a more expensive process and comes with greater environmental concerns as well, but with oil prices above $100, companies that are involved in the shale business are rocking the bottom line. The latest estimates show that shale oil costs around $70 per barrel to extract and that leaves a lot of upside margin at current levels.
One company in particular is enjoying huge success from their fields in the prolific Eagle Ford Shale in South Texas. The Eagle Ford Formations is made up of sedimentary rocks dating back millions of years and can be found throughout Southern Texas.

Once company that is involved in the region has escaped attention until recently. They are a relatively new player in the market and they are still not well known. But they are tearing up production. Sanchez Energy (SN) has seen production more than double this year compared to ALL of last year. And that trend is just beginning!

The company just completed a capital raise, which knocked down the shares a bit, providing a great opportunity to jump in. Oil prices don’t look like they’re going to fall sharply anytime soon. In fact he opposite is likely as economies from China to Europe are experiencing better economic times than a year ago. Add to this the issues arising in the Middle East and you have a scenario for either higher prices going forward or stability at the $90 plus level, which is where the price needs to stay for companies like Sanchez to make money.

Normally when a company raises capital, the effects can be very negative. In the case of Sanchez, there was some initial negativity but that will quickly change as investors realize that the capital was raised for growth and purchases of more acreage or leases. A company like Sanchez fits the profile for a hyper growth story – strong management, massive year over year sales increases, the ability to benefit from oil or gas production, and lots of acreage in the most prolific region for shale oil in the US. I would not be surprised to see the shares hit a new 52-week high in the coming days as more news of their plans filters out.

In the next issue I’ll show you a sleeper play on the Natural Gas revolution – it’s not what you’re thinking. This company doesn’t produce one cubic foot of natural and likely never will!

To your wealth,

Banker X.

 

Bookmark and Share facebook twitter twitter

Leave a Comment

*