Any veteran energy investor knows the story…
In the early 1950s, Henry Bakken, a farmer in North Dakota, was surprised to learn that a unique formation on his land was quite valuable.
Little did he know that this formation was sitting atop an oil reserve that’s been estimated today to contain upwards of 18 billion barrels of oil.
The Bakken formation occupies about 200,000 square miles beneath Montana, North Dakota and Saskatchewan. And it produces about 700,000 barrels of oil per day.
By 2020, production is expected to almost double to 1.3 million barrels per day. That represents around 6% of the oil that will be used by the United States by then – and about 1% of the oil consumed worldwide.
But as oil production ramps up around the globe, there’s one problem all oil drillers are facing – lower prices.
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You see, oil isn’t easy to extract. The process involves literally squeezing the oil out of shale rock (sedimentary rock that’s rich with petroleum).
It’s an expensive process that requires a ton of energy. So, while oil production is obviously a profitable business, oil prices need to remain high to make up for the production costs, which currently range between $55 and $70 per barrel.
And with oil prices on a downward slope, oil companies need to figure out ways to cut costs in order to maintain high profit margins.
On such merits, I just dug up a new opportunity that not only benefits from lower costs, but has the potential to be an even bigger (and more profitable) play than the Bakken formation was for early investors.
Here’s what I know so far…
Digging Up Profits in Alaska’s North Slope
I’m sure you’ve heard the latest rumblings of shale drilling coming from China.
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But long before that opportunity plays out (if it ever does), a few smart investors will have already had the chance to cash in on a much bigger discovery – one that’s right here in the United States.
More specifically, my sources have clued me into some very interesting drill results from Alaska’s North Slope.
From the information I’ve gleaned so far, initial readings indicate that the site could hold two billion barrels of new reserves. But it’s still early. Like with the Bakken formation (which was also originally projected to contain two billion barrels of oil), that number could end up being much higher.
The amount of oil isn’t the only thing that has me tuned in, though. As I mentioned above, it’s going to be cheaper to produce, too.
There are two reasons why: First of all, drilling infrastructure already exists in the region. And, more importantly, the type of rock in the Alaskan shale contains more limestone, which makes it softer. This should significantly reduce energy costs associated with extracting and processing the oil than you’d see with other formations.
Now, I can’t say too much more about it at this time. A major oil drilling company is currently examining samples from the drill site. And I should get solid results in a few weeks, which I’ll share with you then.
What I can say, though, is that the company is already in early-stage negotiations to stake its claim through some smaller explorers that already have a significant presence in the area. One of those companies is a publicly traded small cap that would see its profits – and share price – soar once it strikes a deal.
Ahead of the tape,