The most profitable opportunities usually lay beyond the headline stories. Such is the case with U.S onshore oil and gas plays.
You have likely heard plenty about the Bakken and Eagle Ford oil formations. And if you’re a regular Daily Profit reader, you’ve also heard about the Permian.
The U.S. Energy Information Association (EIA) outlines these formations as the “Big Three.” It forecasts that they’ll contribute the most to U.S. tight oil production growth through 2020.
Total U.S. Tight Oil Production By Formation, 2008 – 2040 (million barrels per day)
But the “other” oil formations out there beyond the Big Three make up the balance of U.S. production growth. These are all thrown together as one group, displayed as the yellow zone in the EIA’s chart above.
In the course of my research I’ve dug into these other formations and discovered some extremely interesting details. The most compelling fact for investors is that, buried in this group, lay the most profitable oil basins on U.S. soil for explorers to drill (note that I’ve pulled the data for all returns discussed below from Credit Suisse’s most up-to-date research).
At the top of the profit list is a small section of the Marcellus shale. This may come as a surprise since much of what we’ve heard about the Marcellus is related to its plentiful natural gas reserves. However, there’s also a super-rich liquids component in the southwest corner of Pennsylvania.
In this window, natural gas liquids (NGLs) and condensate production have helped drillers earn an average rate of return of 73%. That’s a massive return, well above the 50% return earned in the most profitable section of the Permian.
While the super-rich liquid window in the Marcellus is relatively small, high returns generated enough interest to get explorers digging deeper.
What they found was the up-and-coming Utica shale formation. The Utica is an oil and gas shale play that lies to the north, and in many areas underneath, the Marcellus.
What sets the Utica apart from the Marcellus is the bigger liquid-rich component. Drilling reports from companies operating in the area disclose that roughly 70% of production has been liquids, with about 35% to 40% being crude oil (the rest are NGLs).
With returns of up to 73% matching those in the super-rich window of the Marcellus, the Utica is emerging as one of the most compelling “unknown” shale oil and gas plays in the country.
And finally, the Denver Basin in Colorado is home to Wattenberg field. Interest in the Wattenberg is growing quickly after estimates suggest it holds more recoverable oil than Saudi Arabia. The Niobrara formation is the most compelling zone of the Wattenberg field.
Notice in the image below — courtesy of the Colorado Geological Survey — that the Niobrara is extremely deep. It’s actually below sea level in some areas. But even at this depth the average return from the Niobrara formation ranks third best in the country, delivering rates of return around 66%.
The super-rich Marcellus, liquid-rich Utica and the emerging Niobrara are delivering rates of return in excess of 65%, based on data aggregated by Credit Suisse.
Those returns match or exceed the most profitable zones of the Eagle Ford and Permian, and are well above the 35% rate of return offered by the Bakken. Such returns make these lesser known plays headline-worthy as far as I’m concerned. Expect to hear more about them as drillers turn in more drilling results.
Editor’s Note: I’ve recently completed a series of reports outlining my favorite companies drilling in the super-rich Marcellus, Utica and Niobrara formations. You can learn how to get these reports here.
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