Gains from the Shale Revolution
In the 1960s, the Russians tried to frack shale oil... with a nuclear bomb.
No kidding. Apparently, they drilled down around six miles... and BOOM!
They then had to wait a year or so for the radiation to fall to “acceptable” levels to see if the nuclear blast stimulated the shale rock enough to release the oil.
Oh, they got oil alright.
It's reported that pressure was so high, the wells suffered massive blowouts that covered entire Siberian forests in oil. They had to burn off huge quantities of natural gas that were released, lest they smother the citizens of Siberia.
I'll admit, I was a little disappointed to find out the United States tried something similar...
Operation Ploughshare was a 20-year program to see if nuclear bombs could have any practical uses. One of the first ideas was to bomb-blast a harbor into existence in Alaska. It was scrapped out of concern for the native population —and the fact that nobody would use a harbor there anyway.
Some people thought we could widen the Panama Canal with nukes; others though we should just nuke a new canal in Nicaragua...
Fortunately, Operation Ploughshare ended in 1977, after 27 blasts and a cost of $770 million.
It just goes to show you the world has been trying to figure out how to get shale oil and gas out of the ground for a while now.
And in fact, American companies have gotten pretty good at it.
24 to 140 Billion Barrels of Oil
24 billion barrels is a lot of oil.
With U.S. oil consumption running somewhere between 18.5 and 19 million barrels a day, 24 billion barrels would keep America going for three and a half years.
The 24 billion barrels I'm talking about lie in North Dakota's Bakken shale oil field.
But if you looked at production rates ten years ago, this oil might as well have been on the moon, for all the good it was doing us. Even just a few years ago, the Bakken was thought to have only one or two billion barrels of recoverable oil.
Technological innovation turned the Bakken from a curiosity into a veritable goldmine.
And it's going to do the same thing for other shale oil fields around the world.
Investors stand to make boatloads of money as these “oil-tech” companies bring previously unrecoverable oil to market.
One such company was trading around $27 a couple years ago, before it made a huge run to $180 a share. Another pioneering “oil-tech” firm traded as low $3 a share in 2009. It was eventually bought at $35 a share.
That's just a sample of the kind of gains some of these stocks are making.
And the profits will keep coming as new shale field are discovered.
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American Technology, Global Shale
The U.S. Geological Survey thinks there are between 80 and 140 billion barrels of shale oil in West Siberia. Much of that is in the Bazhenov field.
While the Bakken's pay areas (where the oil actually sits) are around 30 feet thick, the Bazhenov's pay areas are 90 feet thick. And in terms of acreage, it may be 20 times bigger than the Bakken.
But of course, like U.S. oil companies ten years ago, Russian oil companies don't “do” shale oil.
That's why they are partnering with the U.S. companies that have the know-how to develop these shale oil fields.
And it's not just in Russia...
A recent discovery in Australia's Arckaringa Basin may hold 103 billion barrels of shale oil. Or it may hold 233 billion barrels. This discovery is so new, no one really knows how much oil will be found in this 32,000 square mile basin.
But it is highly likely that one of the handful of companies in the world that knows how to get at this shale oil will be asked to help.
And that will give U.S. investors a front-row opportunity to make a bundle on Australian oil.
Because it will be these American “oil-tech” companies that are invited to share in some of the biggest oil discoveries in the world.
The exploitation of shale oil and gas has only started...
We are in the second inning of what will be a 20-year bull market for shale plays.
Until next time,
An 18-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He also contributes a weekly column to the Wealth Daily e-letter. To learn more about Briton, click here.