The shale gas revolution in the United States just keeps getting better - especially if you know the best energy stocks to buy now.
This past spring the research group Potential Gas Committee raised its estimate of potential recoverable U.S. natural gas reserves significantly.
The group increased its 2010 estimate by 25.6% to 2,384 trillion cubic feet of gas. That is double the estimate of just 10 years ago.
The Potential Gas Committee said the increase in the estimate for U.S. gas reserves was mainly due to one factor. It re-evaluated the potential of U.S. shale gas plays in the Appalachian basin and particularly the Marcellus Shale formation in Pennsylvania.
The U.S. Energy Information Administration (EIA) also sees huge potential in the Marcellus.
A few weeks ago it revised the gas reserve estimate for the area. The EIA more than doubled its estimate to 31.9 trillion cubic feet of natural gas - about one-fourth of the country's total shale gas reserves.
And, this story gets even juicier for investors hunting for the best energy stocks to buy now...
Why the Marcellus Offers Energy Stocks to Buy Now
The Marcellus story goes far beyond potential reserves. Natural gas production from the Marcellus in Pennsylvania and West Virginia is also exceeding expectations.
Energy analysis company Bentek says that output this year is up nearly 50% from 2012 levels.
In the first six months of this year, Pennsylvania gas production from the Marcellus was roughly 1.5 trillion cubic feet. Bentek forecasts that total output for 2013 will be 3.2 trillion cubic feet of natural gas, the equivalent of 550 million barrels of oil.
Bentek went on to say that this higher production from the Marcellus more than offsets decline in other shale gas fields around the country.
Vikas Dwivedi, an analyst at Macquarie, told the Financial Times that the Marcellus has "almost single-handedly been making up for the small declines everywhere else in the country."
Macquarie should know... it is the country's fourth-largest natural gas marketer.
The production numbers should also put to bed one argument that anti-fracking activists were using in the region just a couple years ago. Their argument was that the energy companies were vastly exaggerating the potential of the Marcellus, so it really wasn't worth drilling.
Turns out the energy companies vastly underestimated the gas contained in the Marcellus. No one was forecasting it would become the nation's most productive natural gas field.
Marcellus Shale Efficiencies
Yet, many investors remain turned off by the Marcellus because wellhead prices in Pennsylvania are so much lower - sometimes less than one-third - of Henry Hub natural gas prices.
But that will change as more infrastructure is built, particularly pipelines, to carry the gas to the energy-hungry major cities in the Northeast. That will remove the current problem of stranded gas.
Any investors skipping over the Marcellus are also ignoring several other important factors...
Companies drilling in the Marcellus are enjoying both relatively low costs of drilling and the bonus of a lot of natural gas liquids that the field produces.
Tom Murphy, director of the Penn State University Marcellus Center for Research & Outreach, told the Associated Press that the number of drilling rigs in Pennsylvania is dropping. But that's only because companies have learned more efficient methods of drilling in the Marcellus, "so fewer rigs are drilling more wells."
Standard & Poor's Credit Analyst Carin Dehne-Kiley agrees. She said in a report, "The increased use of specialized technological capabilities... has really sparked development of this resource."
Marcellus Shale Stocks
The abundance of the resource and the increased efficiencies used in extracting these resources should be good news for the companies drilling in the Marcellus.
Two such companies are Cabot Oil & Gas (NYSE: COG) and Range Resources (NYSE: RRC).
Cabot Oil & Gas controls 20,000 net acres in the Marcellus, with gas output now up to 1.2 billion cubic feet per day. It plans to allocate 65% of its capital spending budget this year to the region.
The company is expanding its drilling plans there despite the current low gas price in Pennsylvania. The Financial Times relates that Cabot's CEO, Dan Dinges, told investors last month that a typical Marcellus well for the company provides a "120% return."
That is very profitable, and should only improve as the aforementioned infrastructure improves.
Range Resources is a major player in the Marcellus Shale, with approximately 1 million net acres. It has such a large position because it believes the region offers the best economics of any large-scale play in the country.
The company expects to grow its production in the area by 20% to 25% a year. Not surprising then, Range is allocating more than 75% of its capital budget to the Marcellus.
To companies like Range and Cabot - and to investors who play into these shale stocks to buy now - the Marcellus Shale is the gift that keeps on giving.
Editor's Note: The next phase of the shale revolution is underway. Investors that know who the key players are will make a killing. This free Shale Oil Investing Exclusive will put you in the know and give you best energy stock, hands down.
Related Articles:
- Financial Times:
Estimate of US Gas Resources Rises 26% - Financial Times:
Frantic Fracking Sends US Natural Gas Prices Into Freefall - Washington Post (AP):
Marcellus Shale Gas Production Rising Faster Than Predictions, Having National Impact - Reuters:
S&P Examines Marcellus Shale Impact on U.S. Gas Industry - Cabot Presentation:
Cabot Oil Gas Investor Presentation - Range Resources:
Operations/Marcellus Division
The full article is reserved for Money Morning subscribers.
To continue reading, sign up now. It's absolutely free.
Credit: Money Morning - Only the News You Can Profit From http://feeds.moneymorning.com/~r/moneymorning/jOLe/~3/4K0vLH6_8cM/
