The American Energy Renaissance has gotten alot of press. And it
should. The prediction thatwill surpass Saudi Arabia as the world's
largest oil and gas producer by 2020 is big news.
But what's truly amazing about this story is that the headlines
just keep coming.
Regular readers of StreetAuthority are by now probably familiar
with the enormous and expanding reserves of oil and gas that have
been discovered in the Bakken Shale of North Dakota, the Marcellus
Shale in the Mid-Atlantic region and the Eagle Ford Shale in
Scarcity and Real Wealth
Editor Nathan Slaughter
just gave his subscribers an in-depth analysis
of a new discovery in his home state of Louisiana: the Tuscaloosa
And now another play is ramping up in the West Texas region, a
find with so much potential that John Breyer, a geologist and
technical consultant for
Marathon Oil Corp. (
, has said it could "dwarf" the reserves already discovered in
"It's like the Eagle Ford on steroids. They haven't even begun.
We're just in the toe of this thing," Ken Morgan, director of the
Texas Christian University Energy Institute, has said.
It may be hard to imagine that new discoveries are still being
made in Texas. After all, the state is practically synonymous with
oil barons and energy riches. Companies like
Exxon Mobil (
are based in Texas, and the first Texas oil well was drilled in
But with new hydraulic fracturing (fracking) technology,
reserves once deemed unreachable are now being recovered.
The latest region undergoing horizontal exploration is known as
the Permian Basin in West Texas. This region is home to the
well-known Spraberry Field, from which 10 billion barrels have been
recovered since drilling began in the 1950s.
Though there are a number of promising new plays inside the
300-mile-long Basin, today I'd like to focus on the Cline Shale
Devon Energy Corp. (
Chesapeake Energy (
, recently reported impressive test results in the region. Devon's
wells show that the formation contains 3.6 million recoverable
barrels of oil per square mile. As the Cline is roughly 9,800
square miles in size, this works out to estimated reserves in
excess of 30 billion barrels.
These reserves could easily eclipse the Bakken (4.3 billion
barrels according to conservative government estimates) and the
Eagle Ford (3 billion barrels).
Something I should point out here is that the numbers quoted
above are subject to change, have changed often in the past and can
vary wildly depending on your source.
Still, Devon's total proved reserves stand at 3 billion barrels
of oil equivalent. And if Devon's estimations about the Cline play
come anywhere close to being accurate, then energy investors should
be taking a long, hard look at thestocks .
What's even better, Devon is trading at a reasonable 10.5 times
estimatedearnings for 2013 (compared to the S&P's 13.3).
Due in part to disappointing year-over-year earnings and the
rock-bottom price of natural gas, Devon'sshares just hit a
three-year low in December 2012 at about $51 per share. Since then,
thestock has been in an uptrend, trading around $54
Risks to Consider:
Devon is well-managed and carries very little debt. I don't see
muchdownside risk at today's prices. However, if there is a
substantial and continued decline in oil and gas prices or anuptick
in the cost of operations, then these conditions would erode
Devon'sbottom line .
Action to Take -->
I estimate that Devon will rise to retest resistance near $60, so
any price below $59 is a great entry point for investors. Once its
Cline shale play is fully developed, and when gas and oil prices
eventually rise, the stock will be poised to nearly double its
The abundance of natural gas in the United States could lead to
ainvesting in the natural gas boom, click
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