How to Double Your Money in the Next Great Texas Oil Field

 How to Double Your Money in the Next Great Texas Oil Field  

By Matt Badiali.

"When this is all over, I think I'll buy myself an airplane…"

Last month, I spent several days driving along the coastal plains of south Texas… much of it with one of the most successful independent oilmen in the country.

Like most Texans, my guide on the trip was a natural risk-taker… and an eternal optimist. And while a lifetime of hard work and drilling success has brought him considerable wealth, it's this region of south Texas that has him contemplating "personal airplane" levels of wealth.

I spent about two weeks in the area… inspecting drill sites, looking at wells, and reviewing data from drill logs. My other tour guides were a bunch of genuine Texas wildcatters. Collectively, these guys probably have 100 years of experience scouring the Texas plains for oil and pumping out what they find. They've gone through plenty of booms and busts. It takes a lot to turn their heads.

And in this region – the Eagle Ford shale field – they all think they've found the greatest payday they'll ever hit.

As you've probably read in these pages, the Eagle Ford is a huge shale formation that begins near the Mexican border and sweeps 400 miles northeast almost to Houston. It's best known as Texas' "oil kitchen." Buried more than 12,000 feet underground, oil from the Eagle Ford leached out over the centuries into the more porous limestone above it, creating some of the most prolific oil reservoirs in the Gulf of Mexico basin.

Drilling shale formations like the Eagle Ford for the natural gas trapped inside has been the most important trend in the U.S. energy sector over the last decade. Developing the tools to extract shale gas is singularly responsible for an explosion of U.S. natural gas reserves. Now, oil and gas explorers are applying those tools to the biggest shale formation in Texas.

This play is new enough that it's difficult to offer a reliable estimate on how much oil and gas it holds. But consider independent explorer Petrohawk, which kicked off the discovery. It had no production here in 2008. Today, it's producing more than 63 million cubic feet of natural gas and 1,000 barrels of liquids (like butane and gasoline) per day.

Also… two of the early drillers in the region, Pioneer National Resources and EOG Resources, believe their assets hold 1.2 billion and 1 billion barrels, respectively. If Pioneer and EOG are correct in their assessments, this field could produce 5 billion to 10 billion barrels through its lifetime. That would make Eagle Ford the third-largest oil field in the U.S. today.

At one point during my visit, an oncoming semi was so big it forced us up on the side of the dirt road. We had to drive into the sunflowers to avoid a collision. The truck was moving a huge new drill rig, one of the many flooding into southeast Texas.

In March, 43 rigs drilled wells in Eagle Ford. That's up to 61 drilling there today. Nearly the entire fleet (91%) is in use. There just isn't any spare capacity. More rigs need to come into the region, and they will. In the Haynesville shale up in Louisiana, one in four rigs sits idle. In the Barnett, just up the highway in Fort Worth, one in five rigs is out of work. I expect some of those rigs to make the trip to south Texas over the next few months.

The land rush is on. Men and equipment are flooding into the area. Big operators have hundreds of thousands of leased acres. India-based Reliance Energy just spent $1.3 billion (roughly $10,000 per acre) to partner with Pioneer National. Giant oil companies like Shell and ConocoPhillips are working side by side with big independents like Petrohawk and EOG. Nearly all own hundreds of thousands of acres here.

My favorite way to invest in this idea is through companies with lots of unexplored, undeveloped acreages under ownership or lease. Petrohawk, EOG, and Pioneer all own or lease substantial portions of the Eagle Ford. I also recently told my S&A Resource Report subscribers about two companies that throw off huge dividends, yet could skyrocket in price because of their Eagle Ford land positions.

I told my readers to get in soon. One of the oilmen I rode with said the Eagle Ford will easily be the biggest discovery of his more than 30-year career… and maybe the largest in the history of the U.S. oil industry.

Good investing,

Matt Badiali