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Our Top Shale Play

Although we credit Colonel Drake and his Titusville well with the distinction of the birthplace of the U.S. oil industry, the fact is we had been actively drilling for natural gas for more than three decades.

As you know, William Hart's 27-foot natural gas well was drilled in Fredonia, New York, during the 1820s. Now considered the “father of natural gas,” Hart was drilling about 80 miles north of the famous Drake well.

But there's another figure oft forgotten in this story...

It's more likely than not you've never heard of Preston Barmore.

Two years before Drake, Preston was drilling less than a mile away from Hart's gas well.

Even though his well was a little over one hundred feet deep, he decided to drop a small 8 lb. charge of gunpowder down the well to fracture the rock. The explosion marked the first time someone fractured rock in order to increase the flow of gas from the well...

And things haven't been the same for this sector since.

Shale Gas 101

Before running through the various U.S. shale plays, let's be clear as to why we're focusing on shale gas in the first place.

Just how important is shale gas to our overall supply? Well, this should give you a good idea:

dry nat gas production

Breaking down the numbers further, we can pinpoint how critical shale gas is to the overall scene (click table to enlarge):

gross withdrawals

Above, you can see production from shale gas wells jumped 327% between 2007 and 2011. Meanwhile, output from non-shale gas wells tapered off by nearly 20%.

In 2011 shale gas was being blamed for the supply glut, but for good reason, with plays like the Marcellus shale doubling production to approximately 7 billion cubic feet per day!

Shale Gas Investing

You might think of natural gas for use in heating, or electricity…

But we're talking about more than just electrical generation here...

Sit up and take notice, because more stories are popping up across the media spectrum every day.

Many companies are converting their vehicles to run on natural gas.

Natural gas powers more than 15 million vehicles globally, and over 150,000 in the U.S. alone. Natural gas is being used to power planes and power plants, and demand for it is increasing. 

U.S Exports 

The U.S. became a net exporter of natural gas in November of 2016.

It has been more than 60 years since we began exporting more than we import, but a few big changes put us back on the map.

With the combination of hydraulic fracturing and horizontal drilling we were able to drill for oil and natural gas that had been in difficult-to-reach spots...

Shale boomed.

And between 2005 and 2015 the U.S. marketed natural gas production jumped by 51%, and the U.S. extracted more than 28.7 trillion feet of natural gas… Thanks to those big shale plays.

Of course, it was one thing to extract the gas, but another to sell it globally. You see, for a long time the U.S. was only able to use pipelines and sell to a regional market.

But with the advent of a terminal for LNG (liquified natural gas) in Louisiana, we began exports to Brazil, Argentina, India, and China.

If you needed any other reason to stay bullish on natural gas, here is another…

Natural gas is where the money is.

We're not the only ones saying this... Even OPEC is taking notice.

I know. You thought OPEC was focused on oil... And it was... But it's been losing the oil battle to U.S. shale producers.

Here's the situation: certain U.S. shale producers can still make a profit when crude prices are trading between $40-50 per barrel (WTI Crude is currently $46.98 a barrel).

OPEC? Not so much. It’s not that it can’t pull it out of the ground cheaper, they can. It’s that it's the only source of revenue and without generous payouts to its citizens it faces revolution.

It just can’t keep up anymore.

And there’s a good chance that it knows it too, which is why we may see OPEC try to take control of natural gas.

Natural gas has emerged as the best bridge between renewables and fossil fuels, and even OPEC is waking up to it...

The world is demanding more of it, with consumption reaching 203 trillion cubic feet per year by 2040.

Saudi Arabia has the sixth biggest natural gas reserves in the world. However, the problem is that Saudi Arabia does not currently import or export natural gas, and therefore has no structures in place to start supplying it.

That may very well change in the future as Saudi Aramco shifts its focus and kick-starts more natural gas/LNG projects.

For OPEC’s natural gas ambitions to work, it’ll need to get Russia on board. After all, Russia is the world’s largest exporter of natural gas, and the second largest producer (behind the United States, of course).

Prices Will Rise

nat gas price increase

And now that natural gas prices are on the rise, it's time to take a look at a shale play that could end up being quite profitable... 

U.S. Shale Formations

But it's not enough to simply recognize that natural gas prices are making a comeback, or that major players like ExxonMobil are paying a hefty price for their own piece of the shale profits...

For individual investors, knowing the difference between the various shale formations is critical when separating the good, the bad, and the downright profitable.

The Good, the Bad, and the Downright Profitable

Where to begin?

We can pinpoint the start of the shale boom with a technological breakthrough George Mitchell used to tap the Barnett shale play back in the 1980s...

The Barnett Shale

The formation lies beneath nearly two dozen Texas counties, spanning roughly 5,000 square miles.

In case you were wondering, this is what started it all...

In short order, the Barnett became the largest onshore natural gas field in the U.S., with an estimated 40 trillion cubic feet in the ground. For the last twenty years, the formation has produced more than 12 trillion cubic feet of natural gas, and today there are over 16,000 gas wells on record in the Barnett.

However, low-price natural gas environment in 2012 took its toll, and despite hitting new production highs in 2011, the Barnett's success led a rush for companies to develop new shale plays across the lower 48 states — including a shale play sitting over 200 miles directly east of Fort Worth...

The Haynesville Shale

Consisting mostly of sedimentary rock, the Haynesville Shale play is found roughly 10,000 feet below parts of northwestern Louisiana, Arkansas, and Texas' eastern border.

If you had a dime in shale investments back in 2008, you would have made a solid profit on companies drilling in the play. The buzz over the Haynesville rose at a feverish pace.

Output quickly skyrocketed as drillers frantically tried to extract the 60 trillion cubic feet held tightly within the rock... and they were extremely successful.

According to data from the Energy Information Administration, the Haynesville overtook the Barnett as the country's highest-producing shale gas deposit back in March 2011:

Haynesville beats Barnett

Unfortunately, 2013 was a frustrating year for Haynesville operators. It was next to impossible for output to increase after watching drilling activity diminish over the year.

Both Haynesville and Barnett are tapped out… and right now, we don’t recommend them… But I can tell you something that we do recommend...

The Marcellus Formation

This formation, in particular, has the legs to last.

Marcellus Shale is still one of the hottest unconventional plays in the U.S.

This formation stretches across five states, from New York to West Virginia, with the vast majority in Pennsylvania.

marcellus 1-17

Marcellus gas production is up 14% since 2015. Forbes writes, “The Marcellus play this month will produce nearly 18 Bcf/day, which is more gas than any other nation in the world produces except Russia or the U.S. as a whole.”

monthly dry gas production

Marcellus has been a main contributor in natural gas production for the past five years, and it’s unlikely that will fall anytime soon.

It’s kinda funny that less than 10 years ago Marcellus was seen as having little natural gas potential… and now it’s leading the country in production. 

marcellus gas production

                                                       Source: EIA

Marcellus has been around for nearly 10 years, and through all that time we’ve had some highs and lows for natural gas… But Marcellus hasn’t faltered. It’s the one that can weather the lows and boom during in the highs, and right now it's your best play as far as shale gas is concerned.

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