"We don't make anything anymore" is a common lament heard in the US these days. One thing we do produce is energy. New production technology opened up an ocean of shale gas. So, it's hardly a surprise that US energy production rivals Russia as #1 in the world. What may surprise some is the fact that the US is now projected to surpass Saudi Arabia as the #1 oil producer in 2013, thanks to these very same advances.
The US Energy Information Administration is charged with educating the public on all things energy-related. It tracks virtually every aspect of energy production and consumption internationally. According to the EIA, the US surpassed all other hydrocarbon producers in total output in 2012. In fact, it's been a close race between Russia and the US for the last half decade.
The shale gas boom was largely responsible for this shift. Yet, a secondary energy boom is now just beginning, led by companies like Continental Resources, Inc. (NYSE:CLR), Pioneer Natural Resources (NYSE:PXD) and EOG Resources Inc (NYSE:EOG) that are pressing forward into liquids-rich shale using the same unconventional strategies. This lesswidely acknowledged boom is poised to make the US the #1 global liquids producer.
The Three Horsemen Returns from the three have been impressive. Continental, the laggard of the group returned 113% for shareholders over the last two years. Pioneer provided 181% returns. Rapidly growing production from two new US basins is driving these gains. The very same directional drilling and hydraulic fracturing techniques that made gas shale work now make the Bakken and Eagle Ford work.
|Oct. 7, 2011||Oct. 8, 2013||Dividend||Total Return|
The Bakken sets the table Continental was an early entry into the lucrative Bakken following its 2007 IPO. It's the largest leaseholder in the Bakken with 2012 production of 67.5 MBOEd (thousand barrels of oil equivalent per day). Bakken production growth has been a huge part of the production surge in the Lower 48. While North Dakota Bakken production topped 1 million barrels of oil per month for the first time in December of 2007, current monthly production now exceeds 25 million barrels.
Bakken success bred copycats With an eye on the Bakken's performance, everyone scouted for similar opportunities. Operating under the radar, EOG surprised many by announcing its acquisition of 595,000 Eagle Ford acres in 2010. By the end of 2012, its Eagle Ford production hit 106 MBOEd with 75% of that liquids. EOG's Eagle Ford success is hardly unique. Total industry oil production from the basin reached 607 MBbld (thousand barrels per day) in the first half of 2013 off a base of just 15 MBbld in 2010.
New life for the oldest of basins Given this success, it's no wonder that everyone's hunting for the next hot unconventional play. Surprisingly, the venerable Permian may be next. Pioneer had big success in the Eagle Ford but seems even more optimistic about the Permian. The company estimates unconventional Permian resources at 50 billion barrels of recoverable resources, making it the largest oil opportunity in the country.
Permian drilling permits issued by the Texas Railroad Commission rose 180% from 2009 to 2012 and the basin's depleting production profile has reversed trend. The Permian produced 312 million barrels of oil in 2012, up 20% from 2009 levels. Total production actually rivals the Bakken now. Considering that much of that production is still conventional, unlocking its unconventional potential could rejuvenate the basin just as it did the Williston.