North America oil drilling is on the rise, and many oil companies – and their stocks – are following.
The Oil and Gas Journal reported for the week ended May 18 there were 12% more oil and gas drilling rigs active in the United States from the same period a year ago, totaling 1,986.
Just look at the Texas Eagle Ford shale region, the largest U.S. shale oil deposit, which is booming more than expected. Shale oil production has increased nearly seven-fold from 2010 to 2011, from an average of just less than 12,000 barrels a day to about 83,400 barrels a day.
And that could explode to 500,000 barrels a day by the end of 2012, according to Valero Energy Corp. (NYSE: VLO) CEO Bill Klesse, with output expected to double to 1 million barrels a day "in the next few years."
Eagle Ford isn't the only area exploding with activity. More than 475 rigs are working across the Permian in West Texas and southeastern New Mexico. Those areas are already producing close to a million barrels a day. By decade's end, that daily total could double to nearly the total oil output of Nigeria.
"We're having a revolution," G. Steven Farris, chief executive of Apache Corp. (NYSE: APA), one of the basin's most active producers, told The New York Times. "And we're just scratching the surface."
Oil Companies Venture Into New Territory
Onshore drilling isn't the only activity coming to life in the sector.
The steady and steep rise in crude oil prices continues to thrust oil companies to advance exploration. Having been forced out of the Middle East, oil companies have ventured into new territories, geographic and technological.
Wood Mackenzie, an oil consultancy in Edinburg, notes a "significant westward shift" in oil-investment, away from traditional areas such as North Africa and the Middle East to "unconventional" North America.
In fact, more than half of the international oil companies' long-term capital investments are now being plowed into four "resource themes," Wood Mackenzie told The Wall Street Journal.
Those themes include:
- Drilling even farther out to sea.
- Devising equipment to squeeze oil from the tar sands in Canada.
- Drilling for oil in the deepest depths of the oceans.
- And positioning technologies like hydraulic fracturing or "fracking," to produce gas from shale rock.
Fracking, the technique that blasts water mixed with sand and chemicals underground to release locked-in hydrocarbons from shale formations, continues to grow more common, more popular and more profitable.
In 2012, fracking capacity in North America is expected to climb 28% to roughly 18 million horsepower, according to oil-market research group Spears & Associates.
Spears notes that spending on fracking in North America, which accounts for 87% of the global fracking market, is expected to swell to $30 billion this year.
Oil Stocks to Watch: HAL, CJES, NS
These oil stocks are ready to skyrocket while this oil "revolution" takes over:
- Halliburton Co. (NYSE: HAL) is the world's second-largest oilfield services company, and the largest provider of fracking services. On April 18 the company reported that first-quarter income jumped to $627 million, or 68 cents a share. That's a 23% increase from $511 million, or 56 cents a share for the same period a year ago.
Halliburton CEO Dave Lesar acknowledged that the company scored record North American revenue of $4.2 billion as new U.S. drilling activity helped balance the slide in natural gas drilling, as natural gas prices sit near decade-low levels.
Wall Street has a one-year price target of $47.28, a 50% premium to Thursday's closing price of $31.41.
- C&J Energy Services (NYSE: CJES) provides hydraulic fracturing, coiled tubing and pressure pumping services to oil and natural gas companies. Its modern fleets put into service over the last four years have contributed to the company's growth with additional expansion and revenue expected.
C&J is the leading independent oil services firm in the Eagle Ford, which has recoverable reserves estimated as high as 7 billion to 10 billion barrels.
From a valuation standpoint, CJES shares look especially attractive with a price to earnings ratio of 5.29. Wall Street's one-year price target is $28.83, a 57% hike from Thursday's $18.35 closing price.
- NuStar Energy (NYSE: NS): Spun off from Valero, NuStar is an oil transportation company that currently operates two pipelines out of the Eagle Ford shale oil formation in south Texas. Analysts have concerns about declining earnings per share and a disappointing return on equity, although that is partly due to heavy investments made in drilling infrastructure.
On the other hand, cash flow is strong and revenue growth in the most recent quarter was up 40.6% year over year. CEO Curt Anastasio said the company is evaluating a number of Eagle Ford projects that could double its earnings over the next few years.
NuStar's P/E of 19.5 is lower than the industry average of 21.7. Though shares are down 6.6% so far this year to $52.48, the one-year average price target is $58.50, about 11% higher. But perhaps the best reason to look at NuStar – a master limited partnership (MLP) — is the dividend. It pays $4.38 for an eye-popping yield of 8.3%.
In fact, Kent recently raised his oil price target - significantly.
But if you missed it, a major event is now just six weeks away that will have profound effects on the market. And oil at this target level is set to have significant effects worldwide - many of which the world is not prepared for. Yet the most significant effect of all - for you, anyway - will be the extraordinary amount of money this situation is likely to create. ]
Related Articles and News:
- Money Morning:
Natural Gas Companies: A Contrarian Bet on Higher Prices
- Money Morning:
Good News for Investing in Natural Gas: U.S. Government Approves Sabine Pass Plant
Halliburton Profit Rises as U.S. Oil Fracking Demand Grows
- Absolute Wealth:
Top Fracking Stocks Poised for Success
- The New York Times:
U.S. Inches Toward Goal of Energy Independence