Best of the Week
Most Popular
1. Dollargeddon - Gold Price to Soar Above $6,000 - P_Radomski_CFA
2.Is Gold Price On Verge Of A Bottom, See For Yourself - Chris_Vermeulen
3.Dow Stock Market Trend Forecast 2018 - Nadeem_Walayat
4.Gold Price to Plunge Below $1000 - Key Factors for Gold & Silver Investors - P_Radomski_CFA
5.Why The Uranium Price Must Go Up - Richard_Mills
6.Dow Stock Market Trend Forecast 2018 - Video - Nadeem_Walayat
7.Jim Rogers on Gold, Silver, Bitcoin and Blockchain’s “Spectacular Future” - GoldCore
8.More Signs That the Stock Market Will Rally Until 2019 - Troy_Bombardia
9.It's Time for A New Economic Strategy in Turkey - Steve_H_Hanke
10.Fiat Currency Inflation, And Collapse Insurance - Raymond_Matison
Last 7 days
Gold – “Make Me Feel Good…Tell Me Anything” - 25th Sept 18
Sector Rotation Continues. Bullish for Stocks - 25th Sept 18
Whose Trillion is it Anyway? US Federal Government Shocker! - 25th Sept 18
Focus on the Stock Market’s Price Action and Ignore the Failed Hindenburg Omen - 25th Sept 18
5 Problems All Restaurant Owners Will Face - 25th Sept 18
Gold Price Trend Forecast 2018 - Video - 25th Sept 18
How the US Dollar Penalizes Emerging Asia - 24th Sep18
Stock Market Macro/Macro View: Waves and Cycles Part II - 24th Sep18
DJIA Makes New High  - 24th Sep18
Gold Price Trend Forecast 2018 - 24th Sep18
The Stock Market Has Been Exceptionally Strong this September. What’s Next for Q4 2018 - 24th Sep18
Gold / US Dollar Inverse Trend Relationship Video - 23rd Sep 18
US and Global Stocks, Commodities, Precious Metals and the ‘Anti-USD’ Trade - 23rd Sep 18
Gerald Celente Warns Fed May Bring Down the Economy, Crash Markets - 23rd Sep 18
Top 3 Side Jobs for Day Traders - 23rd Sep 18
Gold Exodus to Reverse - 22nd Sep 18
Bitcoin Trader SCAM WARNING - Peter Jones, Dragons Den Fake Facebook Ads - 22nd Sep 18
China Is Building the World’s Largest Innovation Economy - 21st Sep 18
How Can New Companies Succeed in the Overcrowded Online Gambling Market? - 21st Sep 18
Golden Sunsets in the Land of U.S. Dollar Hegemony - 20th Sep 18
5 Things to Keep in Mind When Buying a Luxury Car in Dubai - 20th Sep 18
Gold Price Seasonal Trend Analysis - Video - 20th Sep 18
The Stealth Reason Why the Stock Market Keeps On Rising - 20th Sep 18
Sheffield School Applications Crisis Eased by New Secondary Schools Places - 20th Sep 18
Precious Metals Sector: It’s 2013 All Over Again - 19th Sep 18
US Dollar Head & Shoulders Triggered. What's Next? - 19th Sep 18
Prepare for the Stock Market’s Volatility to Increase - 19th Sep 18
The Beginning of the End of the Dollar - 19th Sep 18
Land Rover Discovery Sport 'Approved Used' Bad Paint Job - Inchcape Chester - 19th Sep 18
Are Technology and FANG Stocks Bottoming? - 18th Sep 18
Predictive Trading Model Suggests Falling Stock Prices During US Elections - 18th Sep 18
Lehman Brothers Financial Collapse - Ten Years Later - 18th Sep 18
Financial Crisis Markets Reality Check Now in Progress - 18th Sep 18
Gold’s Ultimate Confirmation - 18th Sep 18
Omanization: a 20-year Process to Fight Volatile Oil Prices  - 18th Sep 18
Sheffield Best Secondary Schools Rankings and Trend Trajectory for Applications 2018 - 18th Sep 18
Gold / US Dollar Inverse Correlation - 17th Sep 18
The Apple Story - Trump Tariffs Penalize US Multinationals - 17th Sep 18
Wall Street Created Financial Crash Catastrophe Ten Years Later - 17th Sep 18
Trade Wars Are Going To Crash This Stock Market - 17th Sep 18
Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - 17th Sep 18
Financial Markets Macro/Micro View: Waves and Cycles - 17th Sep 18
Stock Market Bulls Prevail – for Now! - 17th Sep 18
GBPUSD Set to Explode Higher - 17th Sep 18
The China Threat - Global Crisis Hot Spots & Pressure Points - 17th Sep 18 - Jim_Willie_CB

Market Oracle FREE Newsletter

Trading Any Market

How to Profit from the "Shale Oil Bubble"

Commodities / Crude Oil Jan 18, 2012 - 07:10 AM GMT

By: Money_Morning

Commodities

Best Financial Markets Analysis ArticleJason Simpkins writes: It's true: French, Japanese, and Chinese energy companies cannot seem to get their hands on a big enough slice of U.S. shale oil deposits these days.

However, that doesn't mean this investment frenzy is evidence of a "shale oil bubble."


Instead, it's a classic sign of an investment trend - one that will continue throughout 2012 creating an opportunity for investors to profit.

Consider that in just the past two weeks:

•French oil major Total S.A. (NYSE ADR: TOT) invested $2.3 billion in Chesapeake Energy Corp.'s (NYSE: CHK) Utica Shale operation in eastern Ohio.
•China Petroleum & Chemical Corp. (NYSE ADR: SNP), spent $2.2 billion for a 30% stake in five Devon Energy Corp. (NYSE: DVN) shale projects.
•And Japan's Marubeni Corp., a commodities trader, agreed to pay $1.3 billion for a stake in Hunt Oil Co.'s Eagle Ford shale property in Texas.

The Reality Behind the Shale Oil Bull Market
That's a clear sign to investors that interest in shale deposits among foreign energy companies is beginning to heat up.

And to hear the mainstream media tell it, these companies are overpaying for access to U.S. shale deposits.

In fact, they claim that has led to astronomical valuations and the formation of a "shale oil bubble."

But that that perception is actually only half right: While the value of shale deposits has skyrocketed, the reality is that the higher prices are fully justified based on the increasing demands for oil and gas.

What's more, the foreign companies that are paying top dollar for access to U.S. shale assets aren't just paying for access-they're also paying for expertise.

"Foreign majors needaccess to technology andexpertise, as well as being able to putsome portion of reserves on their books," said Money Morning Global Energy Strategist and Editor of the Oil & Energy Investor Dr. Kent Moors. "For that they are quite prepared to farm in for a minority position in development projects."

In return, U.S. energy companies get the investment dollars needed to develop costly and complex reserves.

These foreign investments also give U.S. companies the money they need to acquire more land leases and increase their odds of hitting an especially productive gas or oil reservoir known as a "sweet spot."

That, Dr. Moors says, is where the "bubble" talk comes from.

"U.S. operators cannot afford to under-commit and that has led to an inflation in land prices," Moors said. "Those prices are nowrather out of proportion toa NYMEX gas price of $2.60 per 1,000 cubic feet and hugestorage volume dueto amild winter."

Still, the demand curve for gas will eventually move up as a result of increased usage in electricity generation, replacement of crude oil in petrochemicals, and a renewed emphasis on liquefied natural gas (LNG).

These energy companies, therefore, are taking a medium-term view. In short, they believe that once demand and prices begin to rise, these higher land values will be justifiable.

So where do investors fit in?...

"Shale Oil Bubble" Fears are Overblown
Investors can profit from this frenzy by looking for prospective takeover targets in the energy sector.

According to Subash Chandra, an analyst specializing in energy stocks for Jeffries Group Inc., the stocks to watch are SM Energy Co. (NYSE: SM) and Oasis Petroleum Inc. (NYSE: OAS).

"With independents being bought out, these two have the credentials that buyers are looking for," Chandra told SmartMoney.

Another oil sector analyst, William Featherston of UBS AG (NYSE: UBS), screened 40 potential takeover targets for the best combination of desirable characteristics. Traits that would appeal to the big oil suitors include untapped energy deposits and the financial ability to extract those deposits.

Featherston agreed with Chandra's choices, and came up with several more: Texas-based Anadarko Petroleum Corp. (NYSE: APC), Houston-based Cabot Oil & Gas Corp. (NYSE: COG), and Southwestern Energy Co. (NYSE: SWN).

For investors who'd like exposure to the entire group, there's also an exchange-traded fund (ETF), the Powershares S&P SmallCap Energy Portfolio (Nasdaq: PSCE). Those who want to cast an even wider net can try the IQ Global Oil Small Cap fund (NYSE: IOIL), which also includes small oil companies outside the United States.

Meanwhile, Money Morning's Moors advises investors to look for small companies that already are operating successful oil shale fields, have good prospects for expansion, and are well managed financially.

"On average, we will once again find that small companies that satisfy these criteria tend to produce higher return for investors than larger vertically integrated oil companies," Moors said.

Moors also advises investors to not overlook the most promising players in the oil industry, the midstream providers, which are involved in the transportation and storage of oil, and particularly Master Limited Partnerships (MLPs).

"The market will produce a rising number of pipeline, processing, gathering, and storage facilities mergers, with the position of MLPs and the equity issuances from them, becoming even more decisive," said Moors.

(Note: To get the full benefit of Dr. Moors' expertise, you can sign up for his free newsletter, the Oil & Energy Investor, by clicking here.)

As for the "shale oil bubble", today those fears are completely over-blown.

Source http://moneymorning.com/2012/01/18/how-to-profit-from-the-shale-oil-bubble/

Money Morning/The Money Map Report

©2012 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive



© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules