Could the next oil boom be right here in the United States?
Last week, the United States Geological Survey published an estimate that the shale rock deposits called the Bakken Formation, which stretch from North Dakota to Montana, could hold as much as 3.7 billion barrels of oil (see article: Bakken Shale in US may hold 3.7 bln bbl oil - USGS). If this estimate proves to be accurate, Bakken would be the largest single deposit of oil in the continental United States.
Much like Canada's oil sands, oil shale is an unconventional source of the oil that takes a lot of energy to convert. The Bakken Formation was discovered all the way back on the 1950's, so it's not like we didn't know it was there. In fact, a number of companies looked into producing oil from oil shale when the price of oil skyrocketed in the 1970s. At the time it was deemed not economically viable. Well, the high price of oil has caused many companies to look towards Bakken again as a potential source. New technology, including horizontal drilling, makes recovery of oil from there easier and the USGA's huge new estimate of the area's potential reserves have some people absolutely giddy about Bakken’s potential.
A number of smaller oil shale stocks have gone absolutely bonkers lately. Unfortunately, I am not invested in them. I do own XTO, which just last week announced that it is purchasing Linn Energy's oil shale assets in the Marcellus Shale formation in Pennsylvania and West Virginia for $600 million (see article: XTO Energy to buy Linn Energy assets for $600M). So I have some exposure there.
I also own stock in Marathon Oil (MRO), which I bought awhile ago before I even knew that it has 320,000 net acres in Bakken. According to Marathon’s web site, its Bakken stake "has the potential to add more than 20,000 net barrels of oil equivalent per day of production by 2012." I even found a handy picture of Marathon’s stake which I have included at the bottom of this post.
A third company with oil shale exposure is Hess (HES). Despite my affinity for the lowly New York Jets, I do not currently own Hess stock. Hess recently announced that it is increasing the number of drilling rigs that it has in the Bakken area from six to eight.
Other oil shale plays include Brigham Exploration (BEXP), Continental Resources (CLR), EOG Resources (EOG), Kodiak Oil & Gas (KOG), Petrobank (PBEGF.PK), Petroleum Development Corporation (PETD), and Whiting Petroleum (WLL). It will be interesting to keep an eye on oil shale companies in the coming months and years. If oil prices remain this high…or higher, and the USGA’s estimates prove to be accurate a lot of money is going to be made by the companies that are investing in this area.
Long XTO & MRO