From the prolific Bakken shale field in North Dakota to the Marcellus in Appalachia, most shale formations have one thing in common:
They’re all shallow.
Now, this designation simply refers to the thickness of the hydrocarbon reservoirs. And to qualify as shallow, the reservoir’s thickness can range anywhere from 10 feet (Bakken) to 300 feet (Eagle Ford in Texas).
The problem is that shallow reservoirs are much quicker to exhaust, meaning companies will need to develop new fields often as others “run dry.”
As you can imagine, this becomes rather costly.
And that’s one reason I’m zeroing in on the Permian Basin right now…
The Odds Are “Stacked” in Our Favor
For years leading up to the early 1980s, the Permian Basin boomed with conventional oil finds.
But following the oil price crash, supplies overwhelmed demand and much of the Texas oil businesses – including those in the Permian Basin – went up in smoke.
Amazingly, three decades later, everyone is flooding back to the Permian.
One main reason is that Permian formations are much thicker than the plays I mentioned above – between 1,300 feet and 1,800 feet. It’s like six Eagle Fords stacked on top of each other.
So, essentially, costs to operate in the region are lower.
As a result, towns in the Permian Basin are experiencing population booms like never before.
Income is soaring, with drivers and rig workers making in excess of $100,000 a year… Sales tax revenue is climbing, with towns building new municipal complexes… Rent is astronomical, too, with two-bedroom apartments going for more than $2,000 per month.
This is what a boom looks like!
Indeed, as you diversify your bets in the shale sector, the Permian Basin is the place to go.
On such merits, here are two companies worthy of your attention right now…
Permian Play #1: EOG Resources (EOG)
EOG Resources is sitting on prime acreage in the Permian Basin.
The company has boosted its reserve estimate by a factor of nine – from 65 million barrels of oil equivalent to over 550 million barrels – in its 114,000-acre holdings.
The kind of reserves that the company is disclosing puts it in the elephant category when it comes to shale plays.
In fact, we featured EOG Resources earlier this month, extolling its monstrous profitability in comparison to its peers. It’s one of the few companies that’s trading at new 52-week highs on a daily basis.
Permian Play #2: Laredo Petroleum (LPI)
Laredo Petroleum also has a lot of acreage in the Permian, and it may prove to be an even better play than EOG because it’s lesser known.
Generally speaking, LPI is a $4-billion company, with oil and gas properties that are increasing production yearly. At about half the size of EOG, Laredo’s focus is primarily on the shale plays… whereas EOG is more global in scope.
Bottom line: Shale plays are the reason that the oil and gas industry in the United States has been rejuvenated. But not all investment opportunities are created equal. If you’re looking for entry in the new, hot development plays, look to one of the two companies mentioned above as your premier options for the Permian Basin.
And “the chase” continues,