Don’t worry, we haven’t just been sitting around here at Gumshoe HQ, waiting for the Fifth Coming … in fact, although I may have an itchy “buy” finger to upgrade my own iPhone when this new one becomes available next week, I’ve spent the day looking into something completely different.
Porter Stansberry has been blanketing the e-waves with his pitch about the renaissance in US energy production — a presentation video that lays out his case for why US oil production will surpass Saudi Arabia’s and lead to an end to imports (surpassing the Saudis isn’t quite as dramatic as many folks think — the US has long been the second or third largest oil producer in the world along with the Saudis and Russians, it’s just that we’re the only one of the huge producers that consumers far more than we produce), and how dramatically the shale oil and gas resources that have been unlocked by horizontal drilling and hydraulic fracturing will change the economic picture for the United States. It’s an interesting pitch, though his long screeds tend to go several steps beyond the “we think this is the trend” — so his previous “end of America” pitches implied that the death of the dollar as a reserve currency would lead to an almost uninhabitable country, and this one makes us think that the return of cheap and abundant oil will make Rockefeller and Hunt-like billionaires and lead to another wave of unprecedented prosperity.
Which isn’t to say that the trend or the idea might not be interesting or worth considering for your investment strategizing … but you don’t necessarily have to follow the idea all the way down the rabbit hole, there is a lot of unpredictable future out there that might not follow the logic you see laid out before you. There are, after all, lots of really smart people in every era, and few if any of them have ever been able to consistently predict the real wholesale changes that occur over time.
The basic premise of Porter’s presentation is that “America’s New Oil Boom” is going to make investors rich by cutting prices — with a fairly long explanation of the sometimes counterintuitive premise that lowering prices is what makes billionaires (it’s not the only way that fortunes are made, of course, but the idea that constant innovation and price cutting that drives much higher adoption or consumption, even as it reduces margins, is a profitable way for businesses to grow dramatically is a real and tested one, for everyone from the early oil barons to today’s tech kingpins).
He goes on to highlight a few of the ways to invest profitably based on this idea:
- Focus on owning assets versus owning stocks in most cases (that’s just an argument for bonds over stocks when you’re talking about speculating on beaten down natural gas producers — you know that gas will again become more valuable, but that value will likely be tested through bankruptcy or asset sales with the crushing that the stocks have taken). One example he gives is ATP Oil & Gas, which was in rapid decline until it filed for bankruptcy a few weeks ago (after Porter wrote this, it sounds like), and which has valuable assets whose value will pass through bankruptcy to the bondholders, presumably, in one form or another.
- Buy companies that will profit from the infrastructure buildout for natural gas export.
- Buy companies that will profit from lower cost natural gas, particularly those who profit by generating electricity from gas and thereby getting higher margins than coal burners.
Those are all broad themes I’ve looked at from time to time over the last couple years — sometimes in response to teaser ads from Stansberry and others, such as the many pitches for Westport Innovations (WPRT) or the various LNG tanker companies (like this one, for example), sometimes just in exploring ideas for the Irregulars as in this older article, and I’ll get into sniffing out some of the specific ideas in future notes if folks are interested … the basic pitch that oil and gas are cheaper in the US than elsewhere, and that profits will be made on that differential, is a logical one and worth continued exploration.
But later on in his pitch he talks about the “Secret Shale” as a way to profit from getting in early on continually emerging new shale oil exploration territories, and I do feel twitchy whenever anyone calls something a “secret,” so I figured I’d sniff that one out for you first.
Here’s how Stansberry introduces that idea:
“Based on the experts we’ve interviewed and the research we’ve done ourselves, we believe there are more than 20 billion barrels of recoverable oil in at least five major shales in the U.S.: the Bakken in North Dakota, the Eagle Ford in Texas, the Marcellus in Pennsylvania, the Monterey Shale in California and… perhaps the richest of all… a new Texas shale that’s just been announced by one of the largest oil and gas firms in the U.S. We learned the details about this new shale from one of our most trusted sources.
“We’ll tell you all about it in this presentation… but for now, just think about what this means:
“Each of these five new shale oil fields – every single one, by itself – would be the largest oil field ever discovered in America.
“Over the next several years drilling and production will prove out these new shale fields. As that happens, America’s proven reserves of oil will soar, from only 15 billion barrels to more than 100 billion barrels, making America the world’s leading producer.”
So that’s what caught my eye — after the early days of the Bakken oil rush, everyone wants to be “in early” on a new shale area when the land gets acquired somewhat more cheaply, before the reserves are well known. So what is this “new shale”?
Well, Porter doesn’t come right out and say what it is, of course — for that he wants you to subscribe to his letter and get the “special report” — but he does hint away enough that we can sniff it out for you. Here’s more of the enticement:
“What very few people in the investment world know right now is that there’s about to be a major new shale play that’s only now being staked out by the major independent oil companies in the U.S.
“Based on information I have from Cactus and other industry insiders, it appears this new field could become th