One of the biggest energy discoveries of the decade has been
made in our own back yard.
It's not really a new discovery at all. In fact, we've known about
the potential for years. It's just that, until now, no one's been
able to do anything about it.
But that's all changed...
Let me give you a little background on what I'm talking about. The
United States east coast is home to one of the largest natural gas
deposits known to man -- the Marcellus Shale Formation.
The Marcellus Shale is a geological formation named for a rock
outcropping near Marcellus, N.Y. The Marcellus covers some 54,000
square miles, roughly the same land area as Iowa, and is spread
over eastern Pennsylvania, New York, West Virginia and Ohio.
This region is sitting on roughly 4.359 quadrillion cubic feet of
natural gas, some 30% of which is currently recoverable.
To give you an idea of how much gas that is, the United States uses
roughly 25 trillion cubic feet of natural gas a year. With the
current usage rate, the Marcellus formation could easily supply all
of the natural gas needed in the country for half a century.
But there's a problem. In order to harvest oil and natural gas, the
rock trapping the hydrocarbons needs to be porous. This way the
hydrocarbons can easily flow from the ground to the surface.
But shale is less porous than other types of sedimentary rock
formations. Some formations are like a bucket of gravel -- pour a
gallon of water over the rocks and you can pour the water right
back out. Shale, on the other hand, is more like concrete: it's
still porous to some degree, but it's not possible to pull large
, or even gas, through it.
This has prevented exploration companies from producing in the
Marcellus region for years. But a recent technological advancement
has made extraction from shale possible.
Traditionally, oil and gas are pretty easy to get to with nothing
more than a vertical hole. The well is drilled to the anticipated
bottom of the formation and, over time, it can draw petroleum
through the porous rock, eventually draining a 10 to 40 acre area
of its crude or natural gas.
But if you drill a vertical well into a shale formation it might be
able to produce some gas for a short while, drawing from the
immediate vicinity of the well. It would be a limited vicinity,
only inches that might add up to feet rather than feet that add up
to hundreds of yards.
To solve this problem, some slick engineers from Texas expanded on
a process known as "fracking," industry slang for hydraulic
fracturing. The idea is that by pumping sand and ai down into oil
wells, you can fracture the formation, making it more porous. This
allows the well to produce a vast quantity of gas. As well, the use
of horizontal drilling has helped increase the
of shale fields.
This process has revolutionized the natural-gas business, creating
billions of dollars in investment opportunities.
In fact, land that was once selling for $1,000 an acre is now
likely to be worth as much as $18,000 to $20,000 as landmen --
oil-company representatives who pore over county plats to determine
who owns what -- camp out on card tables at county courthouses
trying to stake their claim.
The money "will change the lives of many in the county," said Chris
Lines-Burgess, the spokesman for the group of landowners in Wyoming
County, Penn. That's undoubtedly true. What's also true is the
leading companies that develop these wells will be sitting atop not
just one of the largest supplies of natural gas in the world, but
also a pile of cash.
But what does this
for you as an investor?
For investors looking for aggressive growth and can stomach the
risk, investing in a pure play Marcellus shale operator may be
Carrizo Oil & Gas (Nasdaq:
, a leading expert in horizontal drilling, may provide this
opportunity. Their largest amount of leaseholding is in Marcellus,
where they have the right to explore and develop 173 square miles
in the region.
If you don't want exposure to drilling risk, then you might be
better off with a fund like the
ECA Marcellus Trust (NYSE:
. The trust, formed by Energy Corp. of America, is designed to hold
royalty interests in 14 producing horizontal natural-gas wells in
the Marcellus region. As a trust, it is obligated to pass the bulk
of its income along to its shareholders. It's an income play with
some pretty impressive growth potential.
Action to Take-- >
It's important to remember investing in petroleum and gas carries
commodity risk, a type of downside that is absent from many stocks.
If you're not comfortable with commodity risk, these aren't the
investments for you.
But for those who can stomach the risk and the other ups and downs
that come with the energy patch, the Marcellus region offers
investors a plethora of possibilities. And with the general
consensus that our nation now has as much as natural gas as Saudi
Arabia has oil, this opportunity may be too big to miss.
In a recent issue of
I listed a half-dozen other companies in prime position to benefit
from this game-changing breakthrough. If you're not already a
subscriber, you can visit this link to watch a presentation
detailing the type of opportunities you'll find within this
Disclosure: Neither Andy Obermueller nor StreetAuthority, LLC
hold positions in any securities mentioned in this article.