Investing in Fracking Stocks
Thu, Sep 9, 3:46 PM ET, by Keith Schaefer, Oil and Gas Investments Newsletter
These fracking companies will pump up your portfolio…
The fracking industry should be beefing up investor portfolios for at least another year or more, says Macquarie Capital, as the industry remains undersupplied and is able to increase prices.
In a September 7 report, Macquarie said the fracking industry is running at roughly 108% capacity right now, with rigs and fracking operations going 24/7. And when you add in the fact that 10-15% of the industry is on maintenance at any given time, Macquarie says that puts the effective utilization rate at 122% of capacity.
And while the industry is going full out to add capacity - which they measure in Horsepower (HP), Macquarie estimates the industry will still be at 111% capacity a year from now.
This is great news for investors in the many fracking and drilling companies in North America. It should be one of the most profitable sectors of the energy industry over the coming 18 months, regardless of energy prices.
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One company has developed a patented technology that will drastically shake up the oil & gas industry for years to come. It will make wells vastly more economical… while solving every environmental issue pegged to fracking.
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It was interesting to read that most of the capacity - 83% – is being used to drill for natural gas, when prices are so low few producers are generating positive cash flow. As the natural gas producers finish drilling to earn their leases, Macquarie says gas drilling will fall off, but liquid rich gas plays and oil plays will pick up the slack.
Macquarie outlined several trends that are helping the fracking companies (and their stocks):
-The number of horizontal wells which use fracking is increasing - so the number of rigs drilling can stay the same but fracking use will still increase.
-Horizontal wells are drilling farther out, and increasing the number of fracks per well. It's not unusual to see 32 fracs in oil wells and 16 fracs in gas wells. These longer wells need exponentially more horsepower to complete than shorter wells.
-Reservoirs being targeted are getting deeper, which need more pressure
-Because of demand, many rigs and fracking operations are working 24/7, which is reducing the life span of equipment, and increasing maintenance time.
The industry is building capacity like mad, from 7.8 million horsepower now to an expected 9.8 million horsepower by Q3 next year, but they estimated demand to be 9.9 million horsepower. And once you include the 10-15% maintenance downtime, then the industry will still be working at overcapacity, "E&Ps will have to wait in line to get jobs done, and inventory of drilled but uncompleted wells will likely increase."
Now of course fracking is a huge environmental issue in the US, (see my story on this here) and this demand will only increase those issues. (CNN has just done a big news story on fracking - see link at bottom.) My latest oil & gas investment - and therefore the latest stock pick in the OGIB subscriber portfolio - has three compelling attributes:
1. Its proprietary technology often increases IP rates on wells by so much the customer basically gets the frack job for FREE, out of increased cash flow from the well
2. Completely eliminates one of the major environmental issues surrounding fracking
3. Macquarie's list of service companies showed it having the lowest valuation in its peer group – in every category (price to cash flow, PE multiple etc)
I strongly urge you to get behind this play alongside my Oil & Gas Investments subscribers. It very well could be the OGIB pick of the year. Every last detail on my new play can be found in my new members-only report, which you can get by following this link.
You can check out the CNN story on fracking here.
SDI Glossary: "price" Definition
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