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Any veteran energy investor knows the story…
In the early 1950s, Henry Bakken, a farmer in North Dakota, was
surprised to learn that a unique formation on his land was quite
valuable.
Little did he know that this formation was sitting atop an oil
reserve that's been estimated today to contain upwards of 18
billion barrels of oil.
The Bakken formation occupies about 200,000 square miles beneath
Montana, North Dakota and Saskatchewan. And it produces about
700,000 barrels of oil per day.
By 2020, production is expected to almost double to 1.3 million
barrels per day. That represents around 6% of the oil that will be
used by the United States by then - and about 1% of the oil
consumed worldwide.
But as oil production ramps up around the globe, there's one
problem all oil drillers are facing - lower prices.
The Only Way to Keep Profits From Cratering
You see, oil isn't easy to extract. The process involves
literally squeezing the oil out of shale rock (sedimentary rock
that's rich with petroleum).
It's an expensive process that requires a ton of energy. So,
while oil production is obviously a profitable business, oil prices
need to remain high to make up for the production costs, which
currently range between $55 and $70 per barrel.
And with oil prices on a downward slope, oil companies need to
figure out ways to cut costs in order to maintain high profit
margins.
On such merits, I just dug up a new opportunity that not only
benefits from lower costs, but has the potential to be an even
bigger (and more profitable) play than the Bakken formation was for
early investors.
Here's what I know so far…
Digging Up Profits in Alaska's North Slope
I'm sure you've heard the latest rumblings of shale drilling
coming from China.
But long before that opportunity plays out (if it ever does), a
few smart investors will have already had the chance to cash in on
a much bigger discovery - one that's right here in the United
States.
More specifically, my sources have clued me into some very
interesting drill results from Alaska's North Slope.
From the information I've gleaned so far, initial readings
indicate that the site could hold two billion barrels of new
reserves. But it's still early. Like with the Bakken formation
(which was also originally projected to contain two billion barrels
of oil), that number could end up being much higher.
The amount of oil isn't the only thing that has me tuned in,
though. As I mentioned above, it's going to be cheaper to produce,
too.
There are two reasons why: First of all, drilling infrastructure
already exists in the region. And, more importantly, the type of
rock in the Alaskan shale contains more limestone, which makes it
softer. This should significantly reduce energy costs associated
with extracting and processing the oil than you'd see with other
formations.
Now, I can't say too much more about it at this time. A major
oil drilling company is currently examining samples from the drill
site. And I should get solid results in a few weeks, which I'll
share with you then.
What I
can
say, though, is that the company is already in early-stage
negotiations to stake its claim through some smaller explorers that
already have a significant presence in the area. One of those
companies is a publicly traded small cap that would see its profits
- and share price - soar once it strikes a deal.
