America is now home to the second biggest oil field in the world, behind only the massive Ghawar field in Saudi Arabia.
This field isn’t new. It’s been producing oil for 100 years…
But until now, much of the area was thought to be unproductive. And one of those previously unproductive areas may hold 50 billion barrels of recoverable oil.
Amazingly enough, some insiders are already whispering that this estimate could double — to 100 billion — in just a year or two.
That would make this oil field the biggest in the world, bar none.
That much oil should be music to any investor’s ears…
But even better is this: a tax-free oil “dividend” from this prolific field that can double your money in less than 3 years.
That might sound like an outrageous claim. But in this golden age of American oil production, it’s not only possible, it’s happening. Investors are collecting massive “oil dividends” from existing oil wells right now…
Holding more than 50 billion barrels of recoverable oil (and as much as 100 billion), America’s biggest oil field is producing 1.3 million barrels a day. That’s more than North Dakota’s Bakken oil field, and it’s more than the fast-growing Eagle Ford, too.
But what makes this field a bona fide cash machine is that it’s a mature oil field. For the purposes of this “oil dividend,” the drilling has mostly been done. The investment in rigs, drilling crews, and land leases is past. Now, it’s just oil flowing out and cash money flowing in…
And with these “oil dividends,” individual investors are profiting right alongside the big oil companies.
After the Oil Rush
In North Dakota’s Bakken, oil companies drilled more than 3,500 new wells in 2013. That was enough to push production from 790,000 boe a day to around 1 million boe a day. Production in the Eagle Ford followed a very similar trajectory.
All told, these two fields raised production totals by around 700,000 boe a day in 2013. Yes, that’s a lot of oil. It’s also a big investment in rigs and equipment. At between $5 and $9 million per well, we’re talking about billions of investment dollars being poured into these fields…
If oil prices cratered again like they did during the financial crisis, these Bakken and Eagle Ford companies would lose a lot of money.
But America’s biggest oil field only grew production by 93,000 boe a day. That’s a massive — and valuable — difference. And the reason is that producers simply didn’t have to drill as many wells to keep the oil flowing — and the dividend checks coming.
And remember, America’s biggest oil field is pumping 1.3 million barrels a day…
Here’s another way to judge how valuable this oil production is. Less than a month ago, a company announced that it was buying 6,700 barrels of daily oil production in this field for $950 million. That works out to $20,000 per acre.
That may sound like a lot of money. And it is. But this company will recoup its entire investment in less than 4 years… without doing a thing.
It doesn’t have to drill new wells. It doesn’t have to increase production rates. All this company has to do is let the wells it just bought pump the oil it now owns, and it will be break even on a $950 million purchase in less than 4 years.
This situation is great for an oil company. But it’s even better for the individual investor, because you can recoup your entire investment in less than 3 years.
Here’s how it works…
Thank You, Mr. Pickens
In 1979, T. Boone Pickens had a problem. The company he founded in 1956, Mesa Petroleum, was having trouble growing…
Oil prices were basically stagnant. And even though Mesa was a profitable company, it was having difficulty replenishing its reserves.
Oil is a value-add business. During the prospecting phase, incredible value can be added to land as oil is discovered and quantities are confirmed.
But once the wells are drilled, it’s hard to add value. At that point, it’s how cheaply a company can bring oil out of the ground that determines how much value it can add.
So Pickens came up with an idea: What if he sold the future production of Mesa’s existing oil wells and used the cash to acquire more oil reserves?
Not only was this a novel way to raise cash, but Pickens also found he could classify the new shares as a “pass through entity,” thereby completely avoiding corporate taxes.
Shareholders would collect the oil revenue in monthly installments, much like dividends. These payments are more like profit-share arrangements because once you own the shares, you literally own a share of the profits.
Right now, one of these oil profit share situations is paying shareholders 20% of their initial investment a year.
Yes, you read that right: 20%.
At 20% a year, if you reinvest the profit-share money, you could double your investment in 2.7 years.
Frankly, I’m surprised this opportunity exists at 20%, and I’m pretty sure it’s not going to stay there. Once investors start buying this stock and push the price higher, the percentage will go down. So you may want to look into it soon…
I’ve got the details on this 20% oil profit-share right here.
Until next time,
Until next time,
Briton Ryle
@BritonRyle on Twitter
The Wealth Advisory on Youtube
The Wealth Advisory on Facebook
A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.
