If you want to know how to invest in the most lucrative area of energy, just focus on U.S. shale oil production.
In fact, we just uncovered the next wave of "millionaire-maker" shale oil plays.
It's hard to believe that an advancement as profitable as this one was practically non-existent merely 10 years ago.
Fast forward to last year, when domestic oil production marked the largest single-year increase on record, thanks in large part to increased U.S. shale oil production, according to BP's Statistical Review of World Energy. Oil production, including U.S. shale oil, grew by about one million barrels a day last year to about 8.9 million barrels per day, reported BP.
That's up 13.9% from 2011.
And, in turn, the increased U.S. shale oil production caused U.S. crude oil imports to drop to the lowest level since 1997, according to the U.S. Energy Information Administration (EIA). Crude imports in 2012 were about 8.5 million barrels of oil a day, down from a peak in 2005 of 10.1 million barrels per day - again thanks to rapidly growing U.S. shale oil production.
U.S. Shale Oil Boom is Far From Over
While the impact of U.S. shale oil production has already been significant, it's about to get more prolific - and profitable - for two reasons.
First, the EIA estimates that the U.S. has an abundance of recoverable underground shale oil - at least 58 billion barrels.
Second, the U.S. has a technological advantage over other nations with shale drilling industries. Roughly 95% of drilling rigs in the U.S. are capable of the horizontal drilling needed to extract shale oil, which is a percentage unmatched by drilling rig fleets in any other country.
This is a key point for investors because oil is more difficult than gas to extract from shale rock formations.
That makes unconventional oil is much more expensive to produce than conventional oil, according to Money Morning Global Energy Strategist Dr. Kent Moors. In fact, shale oil can be about 20 times more expensive to extract.
This combination of superior technology and ample shale oil reserves means one thing:
the U.S. could easily become the number one oil producer in the world in less than five years, says Leonardo Maugeri, a former CEO of Italian oil company Eni and currently a Harvard Kennedy School Belfer Center researcher.
Maugeri said he believes U.S. shale formations could support more than 100,000 wells - an astounding number considering there are only about 10,000 oil producing wells here now.
Further U.S. advances in drilling technology can expand the producing lifespan of shale oil fields to well beyond 2030 and put U.S. shale oil production at up to 5 million barrels of oil per day by 2017, Maugeri said.
Finding the U.S. Shale Oil Sweet Spot
Most of the increase in shale oil production is likely to come from three regions - the Bakken-Three Forks formations in North Dakota, the Eagle Ford formation in Texas, and the Permian Basin also in Texas, Maugeri says. Right now, production at these fields is leading the way with output increases.
U.S. shale oil production in Texas increased by 33% in just the past year, reaching 2.45 million barrels per day in April from 600,000 barrels per day a year prior, according to recent EIA data. The gains were predominantly from the Eagle Ford shale fields and the Permian Basin.
Growth in Texan oil production is just now surpassing the growth of the Bakken shale oil formation in North Dakota, but U.S. shale oil production in North Dakota still continues to increase at an impressive clip.
The EIA reported that production at the Bakken climbed by 30% over the past year from 610,000 barrels a day to 793,000 barrels per day in April. Three Forks is estimates to contain about 3.73 billion barrels of oil, more than the recoverable oil in Bakken, which lies in the same geographic area.
Keep in mind that in 2008, before horizontal drilling began, North Dakota was only producing less than 140,000 barrels of oil a day. Now it's the second-largest U.S. producer after Texas.
If you're looking for how to invest in this major U.S. energy revolution, the bottom line is that the advancement in U.S. shale oil drilling technology and shale oil production is still young. More profits from this industry lie ahead.
The first stage of development created oil millionaires. The companies that profited from the early shale days rewarded investors with healthy returns.
The next step means new opportunity for another group of companies - and new opportunity for investors.
That's why we found the best ways to invest in U.S. shale oil: Round Two.
- Financial Times:
Better Drilling Techniques Line Road to Profit
- American Enterprise Institute:
Growing Oil Output Means US Should End Export Ban
- Pork Network:
Total US Crude Oil Imports Continue to Decline in 2012