Will Oil Production From Tight Sources Remain Profitable?

Oil DerrickUS oil production from shale has propelled US oil production to over 7.8 million barrels per day, which is 10% of the world’s crude production. Some fear that this is only possible because of higher crude prices. However, a new study indicates that production from shale would remain profitable even if crude prices fell by $30 per barrel. In fact, it would take the failure of any further improvements in drilling technology and a broad US wide ban on fracking to make it unprofitable, which is highly unlikely.

 

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Natural Gas Prices Create US Economic Tailwind

Natural Gas CostNatural gas is a vital resource for economic growth. According to the US Energy Information Administration, 34% of natural gas is used in the production of electricity and 31% to power industry. The average cost per kWh in the US was 3.2 cents, while in the EU it ranged from 7.4 to 9 cents or nearly 3 times as much, while in Japan it was 17.5 cents: nearly 5.5 times as expensive. When consumers spend less on energy they can use the money saved to buy more stuff, helping the economy grow and raising GDP.  Energy costs are also a major factor in the cost of production, so cheaper energy means either more profit for producers or cheaper prices in the world market. Cheap gas prices in the US, made possible by new drilling techniques and the use of fracking, act as a tailwind for America and the American Economy.

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Russian Action Rewards Domestic Oil Producers

Russia Oil ExportOil exports fuel the Russian economy. Oil makes up about two thirds of all Russian exports and Russia accounts for 12% of the world’s oil supply. The recent invasion of the Crimean peninsular has the West considering sanctions against Russia. The threat of sanctions has sent oil prices up above $100 per barrel over the weekend. If buyers of Russian oil, like Germany and the Netherlands, are prohibited from buying oil from Russia, they will be forced to look elsewhere. Supply issues in the EU and Asia will keep global oil prices high. With Iranian oil already behind sanctions and many Middle Eastern oil producing nations in revolution, access to oil in the EU and Asia may soon become a worsening problem. Increases in US oil production over the past few years should keep the US somewhat insulated from losing access to oil. While higher world-wide oil prices will drive up the price of fuel and oil byproducts for the US consumer, it will reward oil companies that produce oil domestically.

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Domestic Oil Production – Good for America

As tensions with China are on the rise (primarily over access to oil in the south China Sea as we documented in June 2011), and tensions with Iran increase as they station warships off our shores, there is no doubt that oil is at the cornerstone of national foreign policy. Either you don’t have it, as is the case with China, and you will do anything to secure access to it, or you have it and you want to make sure you can keep it. The unfortunate thing about being the world’s economic power is that when America imports oil we are too often funding regimes that have a desire to do us harm. The silver lining is that US oil imports are down due to more domestic production. By investing in projects to harvest more domestic oil we are strengthening our national security by having less US dollars fund our enemies, providing needed employment for the American worker, and reducing the trade deficit.

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Fracking Our Way To A Better Environment

CO EnergyThere are a lot of environmentalist that have come out against the oil and gas industry saying that it is destroying the environment. Groups like Artists Against Fracking are getting headlines by using their clout as celebrities and their money to convince everyone that fracking is bad. These typical out-of-touch celebrities are just plain wrong. The truth is that fracking has far more benefits to their cause then the “do nothing” options. For example, fracking allows the US access to more natural gas, which is a far cleaner burning fuel then other sources such as coal. Horizontal drilling in association with fracking allows for less surface disturbance compared to standard vertical drilling. StudyFracking.com has developed a great website to helps explain how fracking is actually helping the environment, not hurting it.

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Domestic Oil is our Insurance Policy

Screen capture from "The Oil doesn't flow anymore"Domestic oil is our nation’s insurance policy in a volatile world. WWII was fought for oil. Japan entered WWII as a result of the loss of access to oil, Germany was defeated in WWII when it lost control of Northern African oil, and the Texas oil boom in the 1940 helped the US win WWII.  History has a tendency to repeat itself. World demand for oil and its byproducts is increasing while much of the rest of the world’s access to oil is declining. Countries like China are staking claim to territories such as remote islands in the South China Sea which hold the promise of oil as well as forging imperialist partnerships with rogue states like Iran to secure access to oil, all while using money from exports to America to invest heavily in building up its military, which it can use to defend and secure new oil sources.  It is time to wake up and realize that access to domestic oil production is vital to our nation’s ability to survive.

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The Truth About Fracking

Cecil Adams of Straight Dope has written a nice article, suitable for forwarding to potential investors, that explains the risk and rewards of fracking to investors in a easy to understand narrative.   By providing a balanced look (what can go wrong vs. the benefits achieved) she provides a compelling argument that fracking is necessary to support our standard of living.

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Downloadable Book For Investors

Investing eBook CoverFor quite some time our clients have asked us for a book to complement our video series. We listened to their requests and just released the eBook “The Investors Guide to Investing in Direct Participation Oil and Gas Programs”.  It is currently available at the Kindle and Smashwords eBook stores and will soon be available on all the major eBook retailers such as Apple (iBookstore), Barnes & Noble, Sony, Kobo, and Diesel eBook Store just to mention a few.  You can also download for Free at http://www.learnaboutoilandgas.com/videos.php.

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It’s Official

Developing a relationship first with your investor before showing him the goodies is a thing of the past. Gone is the requirement that you can only pitch an offering to someone with whom you have had a prior relationship. Issuers and Broker/Dealers can now jump right in and describe an offering.  If the investors like it, they can verify his accreditation before accepting his investment dollars.

 

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SEC Rules Affecting All Rule 506 Offerings

The changes to Rule 506 of Reg D will impact all offerings made under Rule 506, not just offerings made under the new advertised private placement rule. The proposals would change the filing requirements and content of Form D, provide a one-year disqualification penalty for failure to file a required Form D, and require several actions relating to materials used in advertised private placements.  Read more.

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