Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

EOG Resources Inc (EOG), Sanchez Energy Corp (SN), Rosetta Resources Inc. (ROSE): Build Your Own Eagle Ford ETF

EOG Resources Inc (NYSE:EOG)Eagle Ford, once an obscure name only a few years ago, has the potential to become the number one shale play in the United States.

Unfortunately for investors, there are no exchange traded funds, or ETFs, heavily weighted toward the play. So I constructed my own basket of companies titled towards the emerging formation.

Attractive opportunity

Eagle Ford is growing – fast. Based on a report by the Texas Railroad Commission, March output from the formation grew 77% year-over-year to 530,000 b/d.

In fact, Eagle Ford may prove to be the biggest unconventional oil play in North America, already rivaling the North Dakota Bakken. According to the U.S. Geological Survey, initial recoverable reserve estimates exceed seven billion to ten billion barrels. That’s nearly twice the size of the Bakken.

But in addition to scale, Eagle Ford presents other advantages over the Bakken:

First – geology. Drilling costs in Eagle Ford are cheaper because the formation is shallow and brittle. A typical well costs $5.5 million versus $8 million in the Bakken.

Second – geography. Eagle Ford’s proximity to Gulf coast refineries allow producers to save as much as $40 per barrel in transit costs over Bakken producers.

Third – pricing. Production in Texas region is priced near international benchmarks like London’s Brent crude. In contrast, landlocked Bakken production is shipped by pipeline to congested terminals in Cushing, Oklahoma resulting in a big price discount.

Constructing the portfolio

In creating this fictional ETF, I narrowed the list of companies for my basket to six small and medium sized companies. Of course, this is not a exhaustive list of all stocks with Eagle Ford exposure, but only companies with best in class drilling programs or a high probability of being acquired.

First – EOG Resources Inc (NYSE:EOG) which is the largest and best positioned producer in the basin. Most of the company’s assets are in the ‘oilest’ window of the formation resulting in the most profitable operations

EOG Resources Inc (NYSE:EOG)’s drilling program has been impressive. During the first quarter, 27 new wells that came online had initial production rates above 2,500 b/d. That’s impressive for a shale play. In addition, the company boosted its estimated Eagle Ford reserves of recoverable oil from 900 billion barrels to 1.6 billion barrels by decreasing the space between each well.

EOG Resources Inc (NYSE:EOG) is by far the industry’s fastest growing independent producer with output projected to grow 28% in 2013. Management also has a track record of rewarding shareholders raising its dividend 760% over the last ten years.

Second – Sanchez Energy Corp (NYSE:SN) is the best pure-play on the Eagle Ford formation after the company was spun out of privately held Sanchez Energy Corp (NYSE:SN) Oil and Gas in 2011. Today, the company is focused almost entirely on the Eagle Ford with 95,000 net acres.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.