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The Top Five Eagle Ford Shale Oil Stocks

The shale oil boom is turning out to be even bigger than anyone predicted.

Recently Money Morning told you about the Bakken oil shale boom. The Eagle Ford shale oil formation in south Texas is nearly as large, and production there is ramping up rapidly.

Eagle Ford is among the largest U.S. shale oil deposits, with recoverable reserves estimated as high as 7 billion to 10 billion barrels.

But Eagle Ford is also "liquids-rich." That means it has a high concentration of oil versus gas -- a major attraction at a time when oil prices are high and natural gas prices are at historic lows.

Many oil companies are eager to get in on the action at Eagle Ford, and expectations are running high.

"We are evaluating a series of projects ... that could literally double our company's earnings over the next few years," Curt Anastasio, CEO of NuStar Energy (NYSE: NS), told Reuters.

Another oil company CEO, Bill Klesse of Valero Energy Corp. (NYSE: VLO), thinks Eagle Ford could have an impact even beyond bigger profits.

"It's going to back out sweet crude imports into the United States, and that's going to happen by 2014," Klesse predicted, speaking at Valero's annual meeting earlier this month.

Indeed, the statistics coming out surrounding the Eagle Ford shale oil operations are impressive.

Data from the Texas Railroad Commission, which regulates energy in the state, tells an amazing story. Shale oil production 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, Klesse said, with output expected to double to 1 million barrels a day "in the next few years."

Impact of Eagle Ford Shale Oil Underestimated

Eagle Ford has progressed so quickly that a forecast of its economic benefits became outdated almost as soon as it was issued last year.

A study by the Center for Community and Business Research at the University of Texas San Antonio's Institute for Economic Development in early 2011 projected the Eagle Ford formation would directly and indirectly contribute $21.5 billion and 68,000 full-time jobs to the 20-county South Texas region by 2020.

Last week UTSA released a follow-up study.

It found the Eagle Ford contributed $25 billion to the local economy in 2011 -- $3.5 billion more than the 2020 projection.

The new UTSA study says Eagle Ford will pump about $62.3 billion into the local economy by 2021. The job creation number increased to nearly 117,000.

"We view the Eagle Ford activity as an economic opportunity of a lifetime," said Mario Hernandez, president of the San Antonio Economic Development Foundation. "The key goal is the increase in investment and jobs. And if the communities will partner with the private companies that are creating these jobs, it can be a win-win for everybody."

Growth that outruns forecasts is good news for investors. Money Morning has sorted through the many choices to zero in on five Eagle Ford shale oil stocks that could do particularly well:

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Natural Gas Industry: How Legal Troubles Could Derail this Company's Export Plans

Over the last month, we've spent a great deal of time discussing the potential for Cheniere Energy (AMEX: LNG) to export liquefied natural gas out of the Sabine Pass in 2014.

The Sabine Pass isn't the only terminal being eyed for natural gas exports. Applications for seven other exporting facilities throughout the U.S. are pending with the Federal Energy Regulatory Commission (FERC).

That includes Virginia-based Dominion Resources (NYSE: D), which wants to export more than one billion cubic feet of natural gas per day through its Cove Point terminal in Maryland.

Just this morning, The Washington Post highlighted the potential of Dominion Resources' Cove Point facility.

"Just off Cove Point on Maryland's Western Shore sits an array of empty docks. Built to accommodate massive tankers bearing natural gas from abroad, the facility saw only five ships pass through in 2011, reports Dominion Resources, the owner. None have come this year. American firms have increased their production of natural gas from unconventional shale formations so much in the past few years that they are running out of places to store it, the price has plummeted and Cove Point's expensive facilities are all but idle.

On the other side of the planet, in Japan, the price of natural gas has soared. An energy-hungry world is coping with the shutdown of Japan's nuclear reactors after last year's Fukushima Daiichi meltdown, which left the country scrambling to find fuel for backup power plants. Japanese companies are investing hundreds of millions of dollars in natural gas projects and have paid 10 times the American price for imports.

The opportunity here is obvious: The United States should export some of its bountiful stocks of natural gas to Japan and other countries with fewer supplies and high demand."

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The Natural Gas Budget Shortfall

State policy leaders around the country are coming to realize the long-term importance of natural gas exports to the health of their economies.

They are struggling to pass their 2013 budgets this year.

The recent low in natural gas prices is doing more than just hamstring production around the country. It's also slashing government budget forecasts due to the loss of tax revenue associated with natural gas sales.

So much so, that states are predicting steep decreases in revenues through 2014.

USA Today reported this week that "Energy-producing states are bracing for lower tax revenue from the plummeting price of natural gas, which is just above half of what some states forecast when they put together budgets for 2013 and beyond."

Low natural gas prices could cost Wyoming $125 million next year, and that the state will likely have to enact budget cuts of 8% for the year 2014 if prices don't recover by then. In Oklahoma, just a $1 drop in gas prices leads to a roughly $70 million shortfall for the state each year.

It's a rather staggering figure.

But Oklahoma's state Treasurer Ken Miller states that the "free market" will work itself out over the long term and natural gas prices will rise, particularly as large-scale coal-fired power plants convert to natural gas use.

More on that in a second.

As we've said before, the price rebound is inevitable. But we have to look at how we got here and where we're going to make sense of this situation.

First, the major technological breakthroughs in fracking and horizontal drilling have significantly increased the amount of unconventional resources available around the country. So much natural gas has been produced, combined with an unseasonably warm winter, that natural gas prices have slumped significantly.

This has naturally affected producers in the short-term, although midstream storage and pipeline companies remain healthy due to their contract structures as value chain suppliers.

But low natural gas prices won't last forever. Overtime, we're going to see prices begin to rise for four reasons.

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Natural Gas Reality Check: President Obama Got This One Right

In the past two weeks, a maelstrom of emails has been hitting my inbox from concerned readers, investors, academics, and even some prominent journalists.

What's got everyone so heated?

It seems a lot of people are concerned, confused, and even outraged over a recent Executive Order signed by President Barack Obama regarding the development of unconventional natural gas formations here in the United States.

The executive order, issued on April 13, calls for greater coordination in federal oversight of "fracking" - a revolutionary, yet-still-nascent process of extracting natural gas from rock bed.

Concerns stretched from sector performance questions all the way to the highly alarming and somewhat foolish argument that such an order precipitates a "government takeover of the natural gas industry."

Now, I'm overly cautious when the government announces any role in business. But when you take a close look, this announcement is actually rather benign.

And yes, I know it's easy to get caught up in the immediacy or negative impacts of a single act. But in the age of 24-hour media, we usually only hear a fraction of the real story.

The truth is there's a lot to like here.

That's why I'd like to take a few minutes today to explore the ongoing developments in this story, set a few eager minds at ease, and explain a few benefits - yes, benefits - of this Presidential directive.

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Natural Gas Prices: A Timeline for Investors... and State Budgets

State policy leaders around the country are going to realize the immense importance of LNG exports to the health of their economies as they struggle to pass their 2013 budgets this year.

The recent low in natural gas prices is doing more than just hamstring production around the country. It's also slashing government budget forecasts due to the loss of tax revenue associated with natural gas sales.

So much so, that states are predicting steep decreases in revenues through 2014.

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Natural Gas Game Changer: The U.S. Paves Way for Sabine Pass

Last week, natural gas prices fell below $2 per 1,000 cubic feet for the first time in a decade. Let's talk about what that means for you, as an investor. The oversupply of natural gas continues to swell thanks to breakthrough technologies in fracking and horizontal drilling that "unlocked" this huge swath of energy. Tack […]

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Good News for Investing in Natural Gas: U.S. Government Approves Sabine Pass Plant

That breeze gusting through the streets this morning isn't the sign of a coming storm.

That's a collective sigh of relief coming from those investing in natural gas companies after a torrid first quarter for the sector. Natural gas prices have collapsed below $2 per 1,000 cubic feet for the first time in a decade.

And that's not even adjusted for inflation...

But on Tuesday came the first positive sign in months.

The U.S. government approved the development of the Sabine Pass plant, the first natural gas export facility in the lower 48 states.

CNN Money reports:

"The Federal Energy Regulatory Commission [FERC] voted in favor of Texas-based Cheniere Energy's plan to build a giant natural gas liquefaction and export terminal at Sabine Pass, which straddles the Texas-Louisiana boarder just north of the Gulf of Mexico.

Although environmentalists have threatened to sue to stop the 500-acre, $10 billion project, Cheniere says it plans to start building before July."

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How to Play Decade-Low Natural Gas Prices

Natural gas prices remain below $2 per million British thermal units, the lowest level in 10 years. Prices will likely remain depressed for a while, but cheap natural gas now means great opportunities for long-term profits. Money Morning Capital Waves Strategist Shah Gilani joined Fox Business' "Varney & Co." to share two of his favorite […]

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Natural Gas Companies: A Contrarian Bet on Higher Prices

The decline in natural gas stocks has been anything but natural lately.

With ample stores and cheap prices, natural gas-related equities have taken a beating and continue to be battered.

While it is always difficult to call a bottom, the tide may be turning for natural gas companies despite the latest data.

The price of natural gas fell again last week after the government reported an unexpectedly large increase in supply. To date, natural gas prices have slumped to levels not seen in 10 years.

Recent Energy Information Administration (EIA) reports reveal that the energy industry continues to deliver gas at a faster rate than Americans can consume it.

U.S. supplies grew by 42 billion cubic feet in the week ended March 30, pushing the country's total supply to 2.5 trillion cubic feet. According to Platts, a premier source for energy prices, industry analysts had expected supplies to grow between 33 billion to 37 billion cubic feet.

With natural gas stores bursting at the seams, some of the nation's largest producers have announced plans to scale back production.

Jen Snyder, head of North American gas for research firm Wood Mackenzie told the Washington Post, "There hasn't been enough demand to use all the supply being pushed into the market."

Where prices go from here depends a great deal on the weather.

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How to Profit on the Natural Gas Surplus

The recent mild winter and the unparalleled potential in new shale gas production have combined to result in a depressed pricing market for natural gas.

The rise in demand for everything from electricity to petrochemical feeder stock, liquefied natural gas (LNG) exports, and even usage in vehicle fuels, will start driving that price up over the next two years.

You already know that, of course.

We've talked about it many times before.

But now there's something else on the horizon that is likely to provide a boost to investor prospects even sooner.

Utilities, one of the main beneficiaries of the gas boom, are moving to capitalize on the accelerating transition in power generation.

And in the process, two important trends are emerging that will be of interest to retail investors.

First, the low current prices and the prospect of rapid increases in extraction rates, if the market warrants, are allowing electricity managers the opportunity to plan for multi-year cost projections.

That, in turn, is propelling the intensified replacement of aging capacity with new gas-fueled plants.

As Pacific Gas & Electric Co. (NYSE: PCG) CEO Tony Earley noted this week, infrastructure investment becomes a priority when projected fuel prices are low. The system has to be upgraded and replaced in any event, as large segments of it reach the point of "retirement."

Earley also has advanced the idea that the power industry needs to speak with one voice in its dealings with regulators and policy makers.

This need for solidarity has been reflected in comments from other leaders in the power industry as well.

As policymakers increase capital expenditure spending in infrastructure replacement and expansion, we are also likely to see a renewed interest in developing a consensus on where the next "generation of generators" is going to be moving.

And one of the drivers coming onto the scene moves right into familiar - and profitable -territory, at least for us.

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The Natural Gas Act: Another Washington Boondoggle

With gasoline fast approaching $4 a gallon and heading toward $5 this summer, it's no surprise that politicians are panicking.

In Washington D.C., everything is an emergency. Legislation is always the antidote.

So now politicians are pushing the Natural Gas Act as a solution to high gas prices, rather than allowing the market to work.

Of course, none of them want to take the time to understand the true reasons why gas is going to $5 a gallon.

That would require a basic understanding of business or economics, something few in Congress seem to have.

Instead, what you can expect is the typical Washington response-a task force to investigate speculation in the oil futures markets.

U.S. President Barack Obama announced one last week without recognizing the futures markets actually improve liquidity and oil production certainty.

It's how Washington works. The Natural Gas Act is just more of the same.

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Four Natural Gas Companies Investors Can Buy Right Now

Natural gas companies are hurting - there's no doubt about it. But that doesn't mean natural gas companies are bad investments.

In fact, some of these companies are currently on the bargain rack. You just have to know where to look.

Take EOG Resources Inc. (NYSE: EOG), for instance.

Traditionally known as a natural gas producer, EOG has reinvented itself as a major oil producer.

It's still heavily involved in the natural gas market, but the company also has managed to increase its total liquid oil production by 49% to 130,000 barrels per day.

Chief Executive Officer Mark G. Papa said he expects to reach 200,000 barrels per day this year. That would make EOG the second- or third-largest oil producer in the United States.

The effects of this transformation are evident in the company's earnings.

After taking a third-quarter loss of $70.9 million in 2010, EOG reported net income of $541 million for the third quarter of 2011.

That's not all. EOG's potential for growth is outstanding, since it has huge oil shale reserves. The company is the largest oil producer in both North Dakota's Bakken Shale and the Eagle Ford Shale in South Texas.

These two shale oil fields have played a key role in ramping up U.S. oil production over the past few years. They each have an estimated 4 billion barrels of recoverable reserves.

Earlier this month, analysts from Goldman Sachs Group Inc. (NYSE: GS) raised their EOG share price target to $118, while RBC Capital Markets (NYSE: RY) analysts set their target at $119. Those targets estimates represent a 13% to 14% premium from yesterday's (Tuesday's) closing price of $104.55.

And that's just one natural gas company with a strong investment pedigree.

Here are three others...

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Natural Gas Q&A: Lies, Damn Lies, and Statistics

It has been a while since I responded to your many emails.

So, as we await the latest developments in the European debt mess, today seems like a good time to answer a few. This time around, I am addressing some of your questions and comments that deal with natural gas.

By the way, my staff and I read all of the input and feedback you send our way, and we're very grateful for it. Please email me at (I can't offer any personalized investment advice, but I can address your questions and comments in future broadcasts.)

Let's get started...

Q: I've just read recently several articles stating that the EIA has revised downward its estimate of our natural gas shale reserve potential by deciding to accept, unconditionally, the most recent U.S. Geological Survey stating that the Marcellus, Eagle Ford, Barnett, and other shale formations hold only 20% of the heretofore accepted reserves. This is an 80% reduction! This changes everything if true.

That's the question - is this bogus, or is there factual evidence to conclusively support this new estimate? ~ Howard B.

A: Howard, this reminds me of a famous statement from the 19th-century British Prime Minister Benjamin Disraeli (though the comment is also variously ascribed to Mark Twain, Alfred Marshall, and many others): "There are three ways to hoodwink the masses - lies, damn lies, and statistics."

The Energy Information Administration (EIA) - a unit of the U.S. Department of Energy - continues to wrestle with the distinction between reserves and extractable reserves.

The first is the volume of gas indicated by field tests and analysis. The second is gas available for extraction at current methods. I would also stipulate as "extractable" reserves only the volume that market conditions allow.

When you equate the two, we are still in the same ballpark.

Current estimates put no more than 20% of known reserves as "extractable." As technologies improve, that figure could improve, too.

For now, the EIA estimate falls in line with most others.

So to answer your question, nothing much has changed here, aside from some government bureaucrats wanting their figures to be more accurate.

Q: Kent, your work appears to be expanding into areas of advisement that could affect the future profitability and wellbeing of nations and their business relationships with existing partners. A delicate balancing act if there ever was one! If such arrangements are not handled carefully, could sanctions and/or military skirmishes be the outcome? Are we facing the possibilities of "gas wars"? ~ Fred P.

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Cheap Natural Gas Has Made This 85-Year-Old Technology Profitable

Although natural gas has become plentiful and cheap in the United States, using it in ways that would make it a practical alternative to petroleum, such as vehicle fuel, has proven challenging.

It's not that it can't be done. German scientists figured out how to convert natural gas to liquid petroleum products back in the mid-1920s.

Such products, particularly diesel fuel and synthetic engine oil, can be used in today's cars, trucks and jet planes today with virtually no modifications - a huge advantage over other natural gas fuel alternatives, such as compressed natural gas (CNG).

But the natural gas-to-liquid (GTL) process is expensive and requires large and costly facilities. Relatively cheap oil throughout the 20th century made GTL uneconomical for decades.

However, as the price of oil has risen in recent years, and as vast new reserves of natural gas have been discovered, interest in GTL technology has rekindled.

"With high crude prices, the economics of gas-to-liquid fuel have started to look much better," Sander Cohan, principal at energy-analysis firm ESAI Inc., told The Wall Street Journal.

It should be noted that GTL technology has nothing to do with the more familiar liquefied natural gas (LNG) process, which simply chills the gas into a liquid state for transport. GTL actually converts the natural gas into petroleum-like products, which would help reduce U.S. dependence on imported oil.

"The real prize is using natural gas to power our own vehicles," said Money Morning Global Energy Strategist Dr. Kent Moors.

Shell as Pioneer

Royal Dutch Shell PLC (NYSE: RDS:A, RDS.B) began production at its $18.5 billion Pearl GTL plant in Qatar earlier this year, with the first shipment of GTL base oil destined for lubricants arriving in Houston last month.

Shell estimates the plant will reach full production next year, converting 1.6 billion cubic feet of natural gas a day into 140,000 barrels of liquid fuels like kerosene and base oil in addition to 120,000 barrels of other products, such as condensate and liquid petroleum gas.

It already has at least one marquee customer: Qatar Airways has announced it will transition to GTL-based fuel in all of its aircraft next year.

Shell says the Pearl plant will account for 8% of its total production next year, making it the company's single biggest engine of growth. Last year Shell projected the plant would generate $6 billion a year in profit assuming oil prices at $70 a barrel. West Texas Intermediate (WTI) oil is now trading at over $100 a barrel.

Meanwhile, the price of natural gas has declined from between $6 and $7 per thousand cubic feet to less than $4 per thousand cubic feet. The more the prices of oil and natural gas head in opposite directions, the more profitable GTL becomes.

Just yesterday (Monday) Shell said it was considering building a GTL plant in the United States.

"We are looking for places where gas is cheap and [oil] products are expensive," Andy Brown, the managing director of Shell's Pearl project, said at a press briefing at the World Petroleum Congress in Doha, Qatar's capital. "Clearly the U.S. is something we're looking at."

That spread has other energy companies looking at GTL opportunities now.

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