By now, many people know there's an oil boom going on in North Dakota and South Texas. These two shales have turned around three decades of oil production decline in the U.S., and by now even the most skeptical experts agree that these plays will be around for decades.
We now understand that the world's conventional oil basins have a "source rock." And that source rock is the shale. Having said that, it should come as little surprise that there are a few other new shale plays in the U.S. besides just the Eagle Ford and Bakken.
On the above map, shale plays are represented in dark pink, with potential shale plays in orange. As you can see, there's a lot of dark pink here. Not all of it is commercially viable, though. Many of them are rich only in low-priced natural gas and are therefore not economically attractive at this time. So let's look at three other shale plays that are both commercially viable and ramping up production. Finally, we will identify one dominant player for each of these shales.
Drilling the Rust Belt
Eastern Ohio might be the last place you'd expect to see oil being drilled. But alas, the Utica Shale saw its first test wells in 2012. After some (but not all) have provided oil and gas liquids, test wells were soon followed by commercial drilling.
The company with arguably the best acreage is Gulfport Energy (NASDAQ: GPOR ) (NASDAQ: GPOR ) (NASDAQ: GPOR ) , it holds 136,000 net acres. While many big players have had disappointing test well results with mostly dry gas, two-thirds of Gulfport's Utica wells are liquids dominated, with oil a majority of production in eight of the 17 wells. Natural gas liquids and condensate, which fetch higher returns than dry gas, are also a significant portion of Gulfport's production.
This year Gulfport is growing production by the triple digits, from about 7,000 barrels of oil equivalent, or BOE, to more than 15,000 BOE. Management estimates the Utica shale to have between 1.3 billion and 5 billion barrels of recoverable oil. Gulfport's net probable reserves stand at just under 18.2 million BOE. This gives Gulfport at least five years of reserves at 2013 production rates. That period could increase, if unconventional recovery technology continues improving. But, trading at 3.2 times book, Gulfport is a bit pricey.
The oily parishes
Central Louisiana is believed to be on the same rock formation on which the Eagle Ford sits. That was the rationale for the original upstream companies exploring the Tuscaloosa Marine Shale. Those initial test wells told a good story: A production "cut" of at least 90% oil every time a well was drilled, and production rates similar to the average Eagle Ford or Bakken well, with some core wells even showing superior production results.
The biggest producer and acreage holder is Goodrich Petroleum (NASDAQOTH: GDPM ) (NASDAQOTH: GDPM ) (NASDAQOTH: GDPM ) . At 320,000 net acres, with much of it in the "core" of this new play, no other player in the Tuscaloosa comes close to Goodrich. Goodrich is seeing 50% to 60% internal rates of return on its wells at current prices. Lower drilling costs will raise these numbers to levels as high or possibly even higher than the Bakken. But, at eight times book value, Goodrich is no bargain, yet, its recent share offering may lower the price to a more agreeable level. If so, consider that a buying opportunity.
New oil from old places
The biggest shale oil field of all could be in a basin that has been producing for almost 100 years. That's what Pioneer Natural Resources (NYSE: PXD ) (NYSE: PXD ) (NYSE: PXD ) believes. In fact, with the unconventional oil it believes to have found in the Permian Basin of West Texas, Pioneer estimates the Permian to now be the world's second largest oilfield at 50 billion recoverable barrels.
Pioneer has been in the Permian since the early 80s and holds 900,000 net acres and over 7,000 producing wells. But with its estimated additions of shale oil, Pioneer believes it has more than 35,000 potential wells and 3 billion barrels of recoverable oil equivalent available. If that's the case, Pioneer could truly be one of the best opportunities of our time. Like the other two names, however, the "secret" is already out.
Pioneer trades at four times book, no bargain by any means. Still, at 3 billion barrels under its Permian acreage, Pioneer's market cap values this at only $10 per barrel. So perhaps this stock should be a lot higher.
I believe all three of these companies are interesting opportunities, but like most stocks in this market, none of them is in the bargain bin. In fact, all of them have run up by double digits in just the last few months, so nobody would blame you for waiting to get in. Don't lose sight of the big picture -- each of these names could go a lot higher in the coming years.
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