Spoiled young Saudi princes owe everything to one man.
It wasn’t some greedy executive at the head of one of the “Seven Sisters” of old — although they did have a fair hand in developing the vast oil wealth beneath Saudi Arabia’s sand dunes.
Nor do these immature heirs of the Saudi royal family truly owe their luxury to the mighty Ghawar oil field. Flushed daily with incredulous amounts of seawater, Ghawar is officially the world’s largest wishing well.
No, these kids owe it all to a man named Fred Davies.
Don’t recognize the name? I can’t say I blame you. In fact, I would go so far as to say that few people outside the oil industry know his name.
Born in South Dakota, Fred was a young, 28-year-old geologist when he went to work for the Standard Oil Company of California. In 1930, the company sent him to the Persian Gulf, where he recommended they begin drilling a test well on Bahrain.
Not only did they strike oil, but the events that followed led to Saudi Arabia’s eventual stranglehold on global oil supply.
Now, 82 years after the historic oil discovery in Bahrain, there’s another shift taking place in the power structure of the world’s oil production.
And it couldn’t have come at a better time…
Dark Omens for Saudi Arabia
Truth be told, the Saudi oil sheikhs probably thought they had a few more years before it happened.
Well, they didn’t.
During the first quarter of 2014, the United States’ oil production exceeded 11 million barrels per day. In case you’re keeping track, that’s the highest it’s been in almost 25 years.
It was also enough to surpass both Saudi Arabia and Russia.
It’s official: the U.S. has overtaken Saudi Arabia as the world’s largest oil producer.
Moreover, it’s a title that may stick with us for a while. After all, the IEA has already projected that U.S. production will increase to 13.1 million barrels per day over the next five years before plateauing.
Of course, the IEA also predicted the U.S. wouldn’t gain the top spot until 2015.
But is the news a little too good to be true?
It’s important that we put some perspective on this. First and foremost, it’s imperative that people understand the 11 million barrels per day isn’t entirely crude oil. The figure also includes both natural gas liquids and condensates.
It’s more accurate to call us the leader in “total liquids production,” not just crude oil.
Don’t think I’m trying to shortchange this accomplishment. I’m only pointing out what you won’t hear from the talking heads in the mainstream media.
To get a better look at our crude oil production, take a look at a chart of U.S. field production from the EIA (which includes condensate):
Click Chart to Enlarge
In April 2014, the U.S. produced 8.4 million barrels of crude oil per day.
Buckle up; the ride is just beginning…
OPEC Panic, Saudi Tears, and Your Profits
In the days of Fred Davies, companies took an entirely different approach to drilling oil wells. Most of the wells drilled at the time were vertical, and striking a gusher would lead to the rapid development of a field.
As you know, we can attribute every last bit of success in U.S. oil production to the tight oil plays in the lower-48 states. We can narrow that down even more today, because nearly half of U.S. oil output is concentrated in just two states: North Dakota and Texas.
Together, production from the two combined for a jaw-dropping 4 million barrels of oil per day during April.
Trust me, it isn’t a fluke.
And there’s one very specific reason why the Saudis are breaking out in a nervous sweat at night. You see, even though the Saudi kingdom holds an estimated 263 billion barrels of oil (for now, we’ll take them at their word that they actually have that much oil underground, no matter how suspicious those numbers are), the thing they fear the most is U.S. supply.
The reality is that U.S. companies are becoming extremely efficient at producing their tight oil resources. It’s all thanks to the advancements made in drilling technology.
This is also the reason why North Dakota has boosted its oil production by an average of 9,111 barrels per day every month since 2006.
More importantly, these U.S. companies are getting better at cracking the shale code with every well they drill.
Until next time,
Keith Kohl
Check us out on YouTube!A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.
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