It’s usually a challenge to select one single growth trend that is more powerful than the rest. But that’s not the case these days – it has to be the boom in U.S. oil and gas production.
Forty years ago the Arab oil embargo against the United States launched the 1973 oil crisis. The embargo immediately caused oil prices to spike by 40%. Nationwide fuel shortages become commonplace.
How far we have come since then.
The growth trend in U.S. oil and gas production is likely to make North America energy-independent by 2018. We’re now producing more oil and gas than Saudi Arabia. In just the last four years, crude reserves have climbed by 50%. Since 1999, natural gas reserves have doubled.
This reversal means that the U.S. is enjoying a long-awaited position of strength in the global energy landscape. And it means that when the 50th anniversary of the oil embargo rolls around in 2023, the U.S. is likely to be a net energy exporter.
Most investors already know that advancements in drilling techniques — like hydraulic fracturing — deserve the gold medal for getting the U.S. energy industry to where it is today. But few understand the positive impact of two lesser known advancements.
Two Advancements Powering This Growth Trend
One of these is the ability of companies to tap into multiple oil formations from a single well pad. They can do this because in some areas, like the Permian in Texas and the Colorado Basin, multiple oil formations are stacked on top of each other.
Each layer can be drilled independently. And when this is done from one well pad, it yields far more oil at far less cost. This helps companies mastering the technique generate very high returns.
Companies are also learning to drill wells much closer together. This is called downspacing. The goal is to maximize the amount of oil recovered without one well interfering with the recovery of another well.
In areas like the Utica, companies are having great drilling results moving up from eight wells per section (a section is 640 acres) to16. And they’ll be testing 20 wells per section in 2014. This is just one example in one basin; others are moving in the same direction.
The combination of downspacing and drilling multiple layers — along with fracking — means companies recover much more oil from each acre of land. The best part is that there is no additional cost involved to acquire more land.
In areas like the Permian and Eagle Ford in Texas, Wattenberg in Colorado, and Utica in Ohio, the financial payoff has been huge. And with years of drilling inventory left in many parts of these basins companies can still find property to purchase, albeit at a higher and higher premium as time goes on.
As the U.S. blazes a path toward energy independence, consider adding exposure to U.S. oil and gas producers in your portfolio. You don’t want to miss out on the biggest investment growth trend of the decade.
Income From Pipelines: the Safest Energy Investment
Most investors hope to “catch a flier” on small, risky exploration companies who usually don’t have a drop of oil in their wells. But in our experience, people don’t build pipelines until they know when and how much oil they’ll pump. Which makes pipeline stocks the least risky investments in the entire energy sector. No pipes – no oil. Click here to read my full write-up on two American pipeline stocks paying big (and growing) dividends.