July 3rd, 2013
by Tony Daltorio, MoneyMorning.com
The latest annual Statistical Review of World Energy from energy giant BP PLC pointed out how the U.S. energy landscape has changed in just a few short years - which changes how to invest in oil for maximum profits.
In the Review, BP said that the expansion of both oil and natural gas production in the United States was the fastest in the world in 2012.
In fact, U.S. oil production in 2012 grew at the quickest pace since BP began keeping track of the global oil scene in 1965.
The increase of about one million barrels per day was due, of course, to the exploitation of unconventional sources such as shale and tight oil.
The New Market Opportunities for Investing in Oil
Money Morning Global Energy Strategist Dr. Kent Moors thinks that WTI crude oil prices will remain in a narrow trading band between $85 and $100 a barrel in the "near term."
But instead of limited profit potential, according to Moors this "restrained period of volatility in oil prices" is generating specific opportunities here in the United States away from the major oil companies.
He thinks investors should look at -
"Companies that actually have better regional exposure, positioning, and have basins in which they can generate oil and gas at a less price at the wellhead."
That takes us to one of the most prolific U.S. regions for oil and gas production: the Bakken.
According to the U.S. Geological Survey, the Bakken and Three Forks formations, which span parts of North Dakota, South Dakota and Montana, hold more than double the recoverable crude oil than estimated just five years ago.
The latest estimate says there are 7.4 billion barrels of recoverable oil in the two formations. The U.S. Geological Survey added that the formations also hold 6.7 trillion cubic feet of natural gas as well as 530 million barrels of natural gas liquids.
North Dakota reported that oil producers in the Bakken shale formation increased their total oil output to a record 727,149 barrels a day in April. This production level represents an increase of 33% from April 2012.
For energy profit hunters looking for how to invest in oil, just check out the companies that are increasing production, courtesy of the Bakken, like these two producers: Continental Resources (NYSE: CLR) and Whiting Petroleum (NYSE: WLL).
Continental Resources is among the top 10 in petroleum liquids production in the U.S. That is thanks largely to its industry-leading lease holding position in the Bakken. The company plans to triple production and proved reserves by the end of 2017 through expansion in the Bakken as well as fields in Oklahoma.
Whiting Petroleum is the number two oil producer in North Dakota with its large acreage position in the Bakken. It also operates one of the biggest enhanced oil recovery projects in the U.S. at its North Ward Estes field in Texas' Permian Basin.
How to Invest in Oil in 2013: Midstream Opportunities
Another oil investing opportunity that Moors likes is the midstream sector.
Midstream companies perform an extremely important function. They provide the link (through pipelines, storage facilities, etc.) between 'upstream' fields such as the Bakken and 'downstream' functions such as refining, processing and distribution.
The midstream market segment is largely dominated by companies that operate as master limited partnerships (MLPs). Many master limited partnerships today trade on the stock exchanges just as regular stocks.
The difference is that MLPs allow profits to flow through directly to the partners, without paying corporate tax. Investors buying a MLP will receive a fixed percentage of the partnership. This usually translates directly into a higher than average dividend, sometimes significantly higher.
Moors favors those MLPs that are beginning to emerge, which are expanding into more midstream activities and/or are focused on a specific product such as propane.
There are myriad of choices here. One example is Calumet Specialty Products Partners L.P. (Nasdaq: CLMT). The company is a leading refiner and processor of specialty hydrocarbon products. Its product line includes a full line of naphthenic and paraffinic oils, aliphatic solvents, white mineral oils, petroleum waxes, petrolatum and hydrocarbon gels.
For investors looking for broad exposure to the MLP sector, you can invest in oil through exchange-traded funds.
MLPA's portfolio consists of 30 master limited partnership companies involved mainly in the U.S. midstream energy sector. It charges a management fee of 0.45%. MLPJ has 24 MLPs in its portfolio that cover the small cap segment of the MLP space.
This is just a small sampling of how to invest in oil in 2013. Moors has uncovered a number of oil-related investments that have - over the past couple of years - delivered triple digit gains.
That's why for more detailed, frequent guidance on how to invest in oil in 2013, Money Morning members have been signing up for Moors' Energy Advantage service. Just go here to learn more about his latest oil investing plays.