The Motley Fool Previous Page

Why U.S. Energy Independence May Not Last Long

Bob Ciura
December 7, 2013

Soaring oil and gas production in the United States has led industry analysts to declare we're about to embark on an era of true energy independence. Indeed, there's plenty of evidence to support the idea that energy independence for the United States is right around the corner. Thanks to technological advancements that have enabled production from previously inaccessible sources of energy, it's easy to see why investors are excited.

This would represent a major catalyst for a host of U.S.-based oil companies that focus on domestic exploration and production, including EOG Resources (NYSE: EOG), Kodiak Oil & Gas (NYSE: KOG), and Hess Corp. (NYSE: HES). However, the verdict is still out on how long newfound oil fields in the U.S. can last. This makes depletion rates a key consideration for investors over the next several years.

The soaring production levels of several U.S. regions
The U.S. Energy Information Administration reports rising levels of production and development across the United States. Areas seeing unprecedented oil and gas activity include onshore fields such as the Bakken shale in Montana and North Dakota and the Eagle Ford play in Texas. These areas will play huge roles in the U.S. inching closer to energy independence. The U.S. Energy Information Administration expects total oil output in the Bakken region to reach 1 million barrels per day as early as next month.

This is why EOG and Kodiak are both placing great emphasis on Bakken oil. EOG generated 10% growth in total production in 2012, and expects double-digit production growth from 2014 through 2017. Much of this growth is due to the company's focus on the Bakken region. In the Bakken core area, EOG holds 90,000 net acres, and average 30-day oil production has surged 50% year to date to more than 1,300 barrels per day.

Meanwhile, Kodiak is devoting the vast majority of its capital expenditures this year to Bakken development to complete 75 new wells, on top of the 62 wells completed last year. As of the beginning of the year, estimated proved reserves were 95 million barrels of oil equivalent with a projected pre-tax value of nearly $2 billion.

For its part, Hess is the third-largest oil producer in North Dakota. Hess recently grew production from its own Bakken operations by 14%, to 71,000 barrels of oil equivalents per day, with plenty of further room for growth. Hess has brought 122 new wells online at Bakken this year, which should fuel growth for the next few years.

Eagle Ford has already crossed the million-barrels-per-day mark. The EIA reported that total production from the Eagle Ford formation reached 1 million barrels per day in August, and is poised to grow even further in the months ahead. Eagle Ford production is even more impressive when you consider that the region didn't even begin meaningful production until 2009.

EOG grew oil production in the Eagle Ford region by 64% through the first nine months of the year. EOG is the largest acreage holder in the oil-producing area of the field, where its reserves are an estimated 2.2 billion barrels of oil equivalents.

Why investors should temper their expectations
As the saying goes, something that seems too good to be true usually is just that. Unfortunately, U.S. energy independence may not last long. While the U.S. is expected to surpass Saudi Arabia and Russia to become the world's top energy-producing country by 2016, it's not expect