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The US Oil Boom Is Far from Over: Part 2

File:John D. Rockefeller 1885.jpg

Source: Wikimedia Commons

Some cry out for "Peak Oil," claiming U.S. oil production is about to reach its ceiling. I recently wrote an article explaining why I disagree and focused on several things: large drilling inventories, new plays to be discovered, deeper laterals, and utilizing downspacing to increase reserves and potential drilling locations. This is just part of the argument -- there is still plenty more to be said.

The Arctic
The Arctic's potential for oil and gas production is huge, massive, colossal even. The United States Geological Survey estimates that the Arctic holds ~90 billion barrels of crude oil, with ~58 billion of it in North America. The U.S. has six of the 18 major Arctic fields (not including Russia), which means it will be able to cash in on the huge potential. This provides an OPEC style growth runway for U.S. oil production. 

Crude is just part of the equation; the USGS estimates that there is ~412 billion barrels of oil equivalent in the region, including 1.67 trillion cubic feet of natural gas, and 44 billion barrels of NGL. ~435 trillion cubic feet of natural gas and ~16 billion barrels of NGL are in North American territory. Canada, which has 11 of the major fields, and the U.S. see huge production potential in the area.

Royal Dutch Shell (NYSE: RDS-A  ) is investing back into the Alaskan Arctic after leaving it in 1991 due to declining production rates. In 2005 Shell bought back into Alaska through the Beaufort Sea and in 2008 bought exploratory leaseholds for the Chukchi Sea. Shell sees as much as 8.2 billion barrels of oil and 27.6 trillion cubic feet of gas in the Beaufort Sea alone.

Imagine the potential: If just one play could yield that much oil and gas, then more is sure to come in other areas. Shell is smart to take advantage of such a huge opportunity, because oil prices aren't heading lower anything soon. The Arctic offers a huge growth runway for American oil production and a strong counterpoint for those who believe in Peak Oil.

The Arctic is just one of many plays America has the potential to see continued production from -- the Gulf also has some promise.

Big discoveries down south
The Gulf of Mexico has seen a flurry of new discoveries in recent years as oil companies drill down deeper to find good ol' crude.

Anadarko Petroleum (NYSE: APC  )  has set its sights on the Gulf, with one of its prospects recently giving investors good news. In the Shenandoah field Anadarko's Shenandoah-2 appraisal well yielded great results. Previously Anadarko had seen the play having ~300 million barrels of oil equivalent, but now it's estimating that number could be two to three times that.

The Shenandoah field is part of the massive Lower Tertiary trend, which is a very hard play to navigate but holds an enormous amount of treasure. Those who are able to successfully navigate its deepest areas reap big rewards. Some analysts see the amount of recoverable oil at 15 billion barrels of oil equivalent, which is a substantial increase over the ~4.8 billion barrels of recoverable oil equivalent that the EIA predicted in 2010 for the whole of the Gulf.

When wells like Shenandoah-2 give us insight into the Gulf's hidden treasure, those estimates seem to be coming closer and closer to fruition. Increasing recoverable reserves is a good sign, but America needs more than reserves to boost production. America needs output!

Anadarko is doing just that, turning reserves into higher levels of production. Anadarko plans to begin production from its Lucius project, which will pump out 80,000 boe/d beginning in 2014. In 2016 production from the Heidelberg project will begin, and it also will pump out 80,000 boe/d. This is a significant boost to help propel America closer to energy independence.

Anadarko can't do it all by itself of course, so big old ExxonMobil (NYSE: XOM  ) is going to help out. In 2011 Exxon found one of the biggest discoveries in the area since 1999. The Hadrian field has 700 million barrels of recoverable oil equivalent in it, but as drilling continues that number could go higher, just as it did for Anadarko.

Final thoughts
The US energy revolution is far from over. While plenty of focus is directed to onshore shale plays, and for good reason, investors can't forget two of America's biggest fields. The Arctic is full of energy, and higher oil and gas prices justify exploration in the frigidly cold region.

In the Gulf of Mexico exploration companies have become more daring and are drilling deeper into the area to find recoverable resources. It can cost over $100 million to drill a well ~30,000 feet deep to find oil, so you have to be either big or bold to do so.

America's energy revolution is far from over, and the amount of oil and gas that can be recovered from these two plays alone show just how far we can go. Add in domestic shale plays and the growth runway is long indeed.

How else can you invest in the American energy boom?
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 

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  • Report this Comment On October 27, 2013, at 11:47 AM, Ghung wrote:

    "Some cry out for "Peak Oil," claiming U.S. oil production is about to reach its ceiling. "

    Uh... US crude oil production peaked in 1970. Kind of skipped that part. High decline rates of current plays, especially fracking-dependent plays, will ensure that the US won't exceed the production we saw decades ago.

    That said, more ambitious plays may well represent profit opportunities as long as oil prices stay at historically high averages, and as long as our economies can support such high prices. These higher risk opportunities are also indicative of a 'scraping of the bottom of the barrel', so to speak. These seem like important considerations that shouldn't be ignored, except perhaps, by fools.

  • Report this Comment On October 27, 2013, at 1:39 PM, callumturcan wrote:

    In 1970 it hit 9.637 million barrels a day of crude, but that number will surpass 10 million barrels a day somewhere between 2020 and 2040 according to the US Energy Information Agency, which would be 2.5 million bpd higher than today. So no production hasn't peaked and booming shale plays with cash margins of over $50 a barrel is definitely not scrapping the bottom of the barrel. While your joke is cute I did factor in high shale depletion rates if you had read the first article you would have known that. Others see that level being hit earlier, but regardless that would be a record for America and would mean that you are wrong. Here are the links:

  • Report this Comment On October 27, 2013, at 1:41 PM, callumturcan wrote:

    10 million bpd would be ~350,000 bpd higher than in 1970, meaning peak oil hasn't arrived yet.

  • Report this Comment On October 27, 2013, at 1:50 PM, Oilvet wrote:

    Peak oil was a wet dream of a couple of Shell oil geologists as they retired. Any one in the patch who believed there morons was also nuts.

    These washers as we call most geologists ( they just take up space) seemed to over look the obvious hat 3/4 of the world had not been explored or new technology that would be developed to increase oil production . Hell I retired almost 20 years ago and knew these predictions though loved by the enviro whacko industry were pure BS!

  • Report this Comment On October 27, 2013, at 2:20 PM, amvet wrote:

    Crude oil production has increased in the US for two reasons, shale oil production and the change in the definition of crude oil.

    "Crude oil" now is defined as crude oil + NG liquids + refinery gains + added chemicals + (sometimes) biofuels.

    If you use the old definition of crude oil, peak production is long past.

    Global crude consumption is now around 90 million bpd. Useing a conservative production decline rate of 6% per year, the globe needs 5.4 million bbls per day of new production per year to stay even. (One interesting detail, our EIA reports that Texas oil production is 40% more than the Texans say it is.)

    The current big sales pitch is that we are awash in oil, my opinion is that we are more awash in BS.

  • Report this Comment On October 27, 2013, at 3:43 PM, callumturcan wrote:

    To Oilvet I completely agree with you, I think there still is plenty of oil left in areas we haven't even though of testing yet. Russia is exploring the Kara Sea which could house 37 billion boe and the Permian Basin, a play once left for dead, is possibility the second biggest play in the world with 50 billion boe. These are just two of many plays around the world that we have just begun or are going to start developing. To amvet, I tried to break down the reserve mix for the plays I could. I would estimate that in the Gulf Anadarko and Exxon see a 90-95% crude production mix like other wells in the area.

  • Report this Comment On October 27, 2013, at 4:40 PM, Ghung wrote:

    @callumturcan - I never rely on long term EIA estimates since they've often been wrong and usually get revised downward. You also ignore rising costs of production, declining net energy in many of these 'bottom of the barrel' oil sources and society's net benefit from increasingly more expensive-to-produce, lower quality oil. Majors are walking away from what can be best described as marginal plays with questionable profits.

    New technology didn't make much of this new production happen; 100 dollar oil did. Of course, if you expect economic growth to return to 4+% real growth, perhaps our economy can continue to support oil at prices 4X higher than little more than a decade ago. It seems we're already robbing Peter to pay Paul's fuel bill.

    Then there's the developing world's wont to bid up the price of all of these energy sources, and major oil producing countries' tendency to keep more of their (often static or declining) production to support their own domestic growth... It doesn't matter how much oil they produce; it matters how much they export.

    Will there be profits in oil production over the next decade? Absolutely. Will these investments be a sure thing? Far from it. Conventional oil production is peaking, no matter how we shuffle the deck. What keeps this thing going is our utterly complete investment in fossil fuels, and societies will be making other arrangements, either by choice or by default.

  • Report this Comment On October 27, 2013, at 8:21 PM, Canismaximus wrote:

    I am in my mid 30's, and clearly remember an assembly my grade school called together in my 1st grade year. it was required for students and optional for parents. It was about peak oil and the coming apocalypse and how to prepare for Armageddon. Basically somewhere in the late 90's the planet was supposed to be dead and pretty much all human civilization wiped out. Hell of a thing to lay on a 5 year old.

    Then the whole in the Ozone crowd took over a few years later.

  • Report this Comment On October 27, 2013, at 11:36 PM, Ghung wrote:

    Yeah, westerners are impatient; prone to underestimating the amount of inertia in our systems. Their overreaction obscures the long view. Then, again, contraction confuses a lot of folks.

  • Report this Comment On October 28, 2013, at 9:36 AM, jrkirk wrote:

    Recovering the deeper oil in the Gulf at depths of over 30,000 ft, required development of special ceramic proppants that would not crush or breakdown at these tremendous pressures. As far as I know, only one company makes the proppant that works at this depth, and that would be Carbo Ceramics, symbol CRR. If I am wrong, am sure someone will straighten me out here soon.

  • Report this Comment On October 28, 2013, at 12:07 PM, callumturcan wrote:

    Ghung China's oil consumption has gone up from 4.5 million bpd in 2001 to 9.2 million bpd in 2011, while production went from 3.2 million bpd to 4.4 million bpd. This means that China is a large importer of crude oil and petroleum products, which gives upside pressure to crude oil prices. I don't know how you can say that technological innovation isn't changing the energy landscape, just look at downspacing, pad drilling, and Carbo Ceramics proppant which allows for drilling in the Lower Trend of the Gulf, which is 30,000 feet below the surface and holds 15 billion barrels of crude. Global oil production is going up, and non-OPEC nations are leading it upwards. Just look at what has happened in the past few years. I'll trust the EIA and E&P commentary over your non-statistical assumptions any day.

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