Energy & Commodities
Back in 2008, hardly anyone had heard of the now-famous Bakken Shale in North Dakota.
When the USGS released its assessment that year, reporting that North Dakota and Montana’s Bakken formation held 3 to 4.3 billion barrels of technically recoverable oil — roughly 25 times more than its previous estimate in 1995 — it was only a matter of time before the play became the darling of the U.S. oil industry.
It was as if a sudden massive oil discovery took place at the time, with investors suddenly realizing the kind of value the play truly held.
But the truth is that we already knew there were billions of barrels up for grabs in the Williston Basin… and we’ve known it for quite some time.
The discovery of oil in North Dakota actually took place 62 years ago!
Shale 2.0: It Begins…
A year ago, I talked a little bit about the first exploratory well drilled by Amerada Petroleum Corp. on Clarence Iverson’s farm in Tioga, North Dakota. It soon became the first commercial oil well in the state.
Two years later, a geologist named J.W. Nordquist formally described the Bakken as a prolific source rock with oil migration into surrounding rock reservoirs.
Unfortunately, the oil locked in the Bakken couldn’t be extracted using conventional means, and companies all but wrote off the formation, only attempting to extract oil there as a last measure.
Oh, how the times have changed… Things really started taking off after the USGS assessment I just mentioned.
And like I said above, we already knew these tight oil formations held a jaw-dropping amount of oil-in-place.
The only issue was how to effectively extract it.
Look, my readers and I have had a front-row seat to the first stage of the United States’ tight oil boom. Now it’s time to double down on what’s going to drive this boom forward.
And now is the time to buy…
Deeper, Cheaper, More Productive
Things were much different in the early days of the shale boom, just as Harold Hamm and friends were still making a name for themselves in the Bakken.
And for the last few years, I’ve been telling readers time and again that the next stage of the shale boom won’t come from a massive discovery.
It’s technology that will drive us forward.
And since 2008, that’s precisely what has happened.
In fact, U.S. drillers are getting better at tapping our tight oil resources with each new well they drill!
Don’t believe me? Well then, we can just let the numbers do the talking…
Why Technology Will Save the Energy Sector
Last week, I noted how the average production per shale well in four key fields has increased considerably over the last eight years.
So if the combination of horizontal drilling and hydraulic fracturing was what kick-started the tight oil boom, what’s next?
When it comes to developing these tight oil resources, our biggest concerns are both the time and money it takes to drill and complete these wells. One of the first advancements we’ve seen was a move towards pad drilling, which allowed companies to drill multiple wells on a single location. The company simply had to disassemble the rig, move it over the new spot, and then rinse and repeat.
And now, these operators are taking it a step further…
One of the next game-changers that immediately come to mind is “walking rigs,” which I believe will soon become a common sight on these fields. Here’s a quick video from Patterson-UTI Energy (NASDAQ: PTEN) that explains this new technological advancement.
The differences between the new rigs being deployed today and the first-generation rigs is staggering. Below, you can see just how efficient the new rigs have become since 2011:
Ever wonder why the rig count has dropped precipitously since the summer of 2014, yet production continued to climb? The simple answer is that the rig count is quickly becoming disconnected from the total amount of feet drilled by oil wells.
Over the last six years, the number of “Generation 3” rigs in the field jumped by 60%, each one far more efficient than its predecessor.
That, dear reader, is why investors still have faith in the most prominent tight oil plays — including West Texas, where my readers and I recently uncovered a tiny $1 oil company.
In fact, these guys have another huge advantage over other shale plays… and you can learn exactly what it is right here.
Until next time,
Keith Kohl
James Turk: “The inevitable finally happened.” “The Greek financial system is collapsing. We can’t say yet that it has “collapsed” because we are not there yet. The collapse is just beginning. At this time, we do not know where all the pieces will fall…”.
Is this the only trade this week while Europe and Greece debt issues play out.
Long $USD
UPDATE: If the market prices in a GREXIT then that makes the Eurozone more healthy, so it seems, which is good for the Euro. DXY down, then EURO up. The week will be a wild one, it can change on a dime!
Investing Quote…
..”Don’t take action with a trade until the market, itself, confirms your opinion. Being a little late in a trade is insurance that your opinion is correct. In other words, don’t be an impatient trader”…
Jesse Livermore
The minute you get away from the fundamentals – whether it’s proper technique, work ethic, or mental preparation – the bottom can fall out of your game.
Basketball Legend Michael Jordan.
..”Money couldn’t buy friends, but you got a better class of enemy”..
Spike Milligan
…“To me, the ‘tape’ is the final arbiter of any investment decision. I have a cardinal rule: Never fight the tape!”…
Martin Zweig
..”A market is the combined behavior of thousands of people responding to information, misinformation and whim”..
Kenneth Chang
– See more at ReadTheTicker
Since the October rally ended, the SPX formed what looked like an “extended distribution phase” in the form of a rounding top. This is even more apparent on the Dow Jones Composite Index. Early June, it dropped below its 100-DMA, it slightly breached its December low, but rallied. A second attempt was made to break through which also failed. The rallies found resistance at the 100 MA and last week, a third attempt at breaking the bottom trend line also failed … or did it?
With Greece’s default the Dow Jones index is completing its rounding top/descending triangle pattern by finally making a new low. A Monday morning opening gap to the downside could be the perfect way to end this formation. If so, this could be the beginning of the correction which has long been expected.
Current Position of the Market
SPX: Long-term trend – Bull Market
Intermediate trend – Waiting for confirmation that the ending diagonal is complete.
Short trend – Neutral
Greece’s decision to hold a referendum on July 5 and not to accept the final offer made by its creditors resulted in a Greek debt default and is currently unsettling to markets. Should that be the case, SPX should follow suit by extending last week’s decline.
This could be the end of the 7-year cycle we talked about, closing its grip on the market by applying pressure which is increasing gradually every week.
USA markets will be closed on July 3. It will therefore be a shortened holiday week of trading. My current concern now is whether or not World equity markets will resume a 10% correction down or more. This period of a cycle that we work with has a very high historical correlation to 10% or greater reversals in the DJIA. The question is whether that decline has already started.
We defer to our models for the confirmation of this move and any other future moves.
Gold fell to a low of 1167.10 on Friday, June 26. . This may be important because Silver fell to a low of 15.45 on Friday, June 26, well below its low of the past three months.
Something big may be in the works. It is ironic that the Greek debt default, the lack of a conclusion of the USA/Iran negotiations and The Supreme Court’s decision to uphold Obamacare subsidies of The Affordable Care Act are ALL historical events occurring at the same point in time is not a random act.
This decision upholding the IRS rule giving all Americans access to premium tax credits, millions of Americans can breathe easier today knowing that there is access to health care.
I believe that The Supreme Court validated President Obama’s massive power grab, allowing him to tax, borrow, and spend $700 billion that no Congress ever authorized. This establishes a precedent that could let any president modify, amend, or suspend any enacted law at his or her whim. President Obama has already creative secret deals that Americans are not yet aware of. I fear that these unchecked political power in the Executive branch will be misused again and again by the President.
At this time, we are currently experiencing a new “socio-politically-economic” revolution. The passing of this Affordable Care Act (aka Obamacare) will continue to bankrupt the county and many of the people in it. It is only affordable for some in terms of lower premiums. The other side of the coin is that deductibles are so high that many still cannot afford health care under this Act. For them, it is anything but affordable.
The yield on the benchmark 10 year note closed last week at 2.26%. This week’s close was 23 bps higher at 2.49%. The 30 year bond yield closed the week at it 2015 high of 3.25%. Current financial market conditions with low levels of interest rates have resulted in negative yields for some Treasury securities trading in the secondary market. Negative yields for Treasury securities most often reflect technical factors in the Treasury markets related to cash and repurchase agreements markets and are at times unrelated to the time value of money.
We had a confirmed signal to exit the ETF “TLT” on June 3, 2015 at 118.39. Today, its current prices 115.23, I am expecting this price to go lower.
-
I know Mike is a very solid investor and respect his opinions very much. So if he says pay attention to this or that - I will.
~ Dale G.
-
I've started managing my own investments so view Michael's site as a one-stop shop from which to get information and perspectives.
~ Dave E.
-
Michael offers easy reading, honest, common sense information that anyone can use in a practical manner.
~ der_al.
-
A sane voice in a scrambled investment world.
~ Ed R.
Inside Edge Pro Contributors
Greg Weldon
Josef Schachter
Tyler Bollhorn
Ryan Irvine
Paul Beattie
Martin Straith
Patrick Ceresna
Mark Leibovit
James Thorne
Victor Adair