How to Profit from the “Shale Oil Bubble”

6a010535f73ca8970c010536a3fa6c970c-320pi

It’s true: French, Japanese, and Chinese energy companies cannot seem to get their hands on a big enough slice of U.S. shale oil deposits these days.

However, that doesn’t mean this investment frenzy is evidence of a “shale oil bubble.”

Instead, it’s a classic sign of an investment trend – one that will continue throughout 2012 creating an opportunity for investors to profit.

Consider that in just the past two weeks:

  • French oil major Total S.A. (NYSE ADR: TOT) invested $2.3 billion in Chesapeake Energy Corp.’s (NYSE: CHK) Utica Shale operation in eastern Ohio.
  • China Petroleum & Chemical Corp. (NYSE ADR: SNP), spent $2.2 billion for a 30% stake in five Devon Energy Corp. (NYSE: DVN) shale projects.
  • And Japan’s Marubeni Corp., a commodities trader, agreed to pay $1.3 billion for a stake in Hunt Oil Co.’s Eagle Ford shale property in Texas.

The Reality Behind the Shale Oil Bull Market

That’s a clear sign to investors that interest in shale deposits among foreign energy companies is beginning to heat up.

And to hear the mainstream media tell it, these companies are overpaying for access to U.S. shale deposits.

In fact, they claim that has led to astronomical valuations and the formation of a “shale oil bubble.”

But that that perception is actually only half right: While the value of shale deposits has skyrocketed, the reality is that the higher prices are fully justified based on the increasing demands for oil and gas.

What’s more, the foreign companies that are paying top dollar for access to U.S. shale assets aren’t just paying for access-they’re also paying for expertise.

“Foreign majors needaccess to technology andexpertise, as well as being able to putsome portion of reserves on their books,” said Money Morning Global Energy Strategist and Editor of the Oil & Energy Investor Dr. Kent Moors. “For that they are quite prepared to farm in for a minority position in development projects.”

In return, U.S. energy companies get the investment dollars needed to develop costly and complex reserves.

These foreign investments also give U.S. companies the money they need to acquire more land leases and increase their odds of hitting an especially productive gas or oil reservoir known as a “sweet spot.”

That, Dr. Moors says, is where the “bubble” talk comes from.

“U.S. operators cannot afford to under-commit and that has led to an inflation in land prices,” Moors said. “Those prices are nowrather out of proportion toa NYMEX gas price of $2.60 per 1,000 cubic feet and hugestorage volume dueto amild winter.”

Still, the demand curve for gas will eventually move up as a result of increased usage in electricity generation, replacement of crude oil in petrochemicals, and a renewed emphasis on liquefied natural gas (LNG).

These energy companies, therefore, are taking a medium-term view. In short, they believe that once demand and prices begin to rise, these higher land values will be justifiable.

So where do investors fit in?…

“Shale Oil Bubble” Fears are Overblown

Investors can profit from this frenzy by looking for prospective takeover targets in the energy sector.

According to Subash Chandra, an analyst specializing in energy stocks for Jeffries Group Inc., the stocks to watch are SM Energy Co. (NYSE: SM) and Oasis Petroleum Inc. (NYSE: OAS).

“With independents being bought out, these two have the credentials that buyers are looking for,” Chandra told SmartMoney.

Another oil sector analyst, William Featherston of UBS AG (NYSE: UBS), screened 40 potential takeover targets for the best combination of desirable characteristics. Traits that would appeal to the big oil suitors include untapped energy deposits and the financial ability to extract those deposits.

Featherston agreed with Chandra’s choices, and came up with several more: Texas-based Anadarko Petroleum Corp. (NYSE: APC), Houston-based Cabot Oil & Gas Corp. (NYSE: COG), and Southwestern Energy Co. (NYSE: SWN).

For investors who’d like exposure to the entire group, there’s also an exchange-traded fund (ETF), the Powershares S&P SmallCap Energy Portfolio (Nasdaq: PSCE). Those who want to cast an even wider net can try the IQ Global Oil Small Cap fund (NYSE: IOIL), which also includes small oil companies outside the United States.

Meanwhile, Money Morning’s Moors advises investors to look for small companies that already are operating successful oil shale fields, have good prospects for expansion, and are well managed financially.

“On average, we will once again find that small companies that satisfy these criteria tend to produce higher return for investors than larger vertically integrated oil companies,” Moors said.

Moors also advises investors to not overlook the most promising players in the oil industry, the midstream providers, which are involved in the transportation and storage of oil, and particularly Master Limited Partnerships (MLPs).

“The market will produce a rising number of pipeline, processing, gathering, and storage facilities mergers, with the position of MLPs and the equity issuances from them, becoming even more decisive,” said Moors.

Will The Stock Market Crash In 27 Days?

This little-known market timing indicator just gave an unmistakable signal of where the market is headed next!

Click Here to See If The Market Will Crash In 27 Days!



Your Guide to Financial Freedom

We’re in the midst of the greatest investing boom in almost 60 years. And rest assured – this boom is not about to end anytime soon. You see, the “flattening of the world” continues to spawn new markets worth trillions of dollars; new customers that measure in the billions; an insatiable global demand for basic resources that’s growing exponentially ; and a technological revolution even in the most distant markets on the planet.

And Money Morning is here to help investors profit handsomely on this seismic shift in the global economy. In fact, we believe this is where the only real fortunes will be made in the months and years to come.

The bottom line is this: With U.S. influence slipping, and the dollar declining as well, investors who think too narrowly about this transformation will face years of meager returns. But those who embrace this new global reality can make themselves very wealthy.

Consider what the World Bank and the prestigious McKinsey Global Institute recently concluded in their yearly reports on global finance; # From 2005 to 2010 alone, worldwide wealth will soar from $118 trillion to more than $200 trillion – with the newly capitalist markets of Asia and Europe accounting for the biggest share of that gain.

# Over the next 25 years, America’s share of the worldwide economic pie will slip from 28% to 24%… # Even as Asia’s share almost doubles ;which means it will account for a whopping 55% of the global economy by 2030.

Unfortunately, without guidance, few investors will be able to capitalize on this once-in-a-generation opportunity with knowledge and safety.

That’s where Money Morning comes into play;

You see, one sad fact remains true on Wall Street: If you’re not a partner in, or client of, a major investment bank – or if you don’t have a securities portfolio worth $5 million or more – you are most likely out of luck.

The big brokerage firms are making a killing on the global boom. Yet Wall Street reserves the timeliest information – and the best profit opportunities – for its partners or wealthiest clients.

And the Securities and Exchange Commission doesn’t help the everyday investor much either. The second sad fact is this: While you can buy any U.S. or Canadian stock you want, the SEC prohibits you from purchasing many of the available international stocks.

The reason: Foreign companies that haven’t registered with the SEC are off-limits to most U.S. individual investors.

And with Sarbanes-Oxley discouraging foreign firms from listing their shares on U.S. indexes, fast-growing companies from abroad have had little incentive to care!

Yet Money Morning can help change all this for investors intent upon making sizeable, steady and safe gains – and who want to capitalize on the biggest profit opportunity we’re likely to see in our lifetime.

We exist to even the playing field; to help you reclaim control of your own financial destiny. Our worldwide research staff includes former investment bankers, international financiers, emerging markets specialists and veteran financial journalists.

Our experts know that certain capital flows essentially act as a “leading indicator” of future profit opportunities. These are opportunities that you won’t be reading or hearing about anywhere else. Each weekday morning, in a readable style you can digest in just a few minutes, you will reap the benefits of our research and expert experiences. Indeed, Money Morning will bring you:

# The latest reports on China, Japan, Emerging Europe, and the other global hot spots where most investor wealth will be created in the months and years to come… # Reports on companies you’ve likely never heard of – even though they’re poised to sell billions worth of their wares to “new middle class” customers around the world… # Information on the U.S. companies shrewd enough to cash in on this boom in global;

# The latest developments in banking, interest rates, foreign investment and other global investing topics; # Advice on how to invest in currencies, precious metals, commodities and energy

# Inside news on the hottest investments, including water, uranium and private equity… # And news on rules and regulations, financial trends and strategies – and any other “market intelligence” that you will need to become a shrewd-and-successful investor in the greatest global investing boom most of us will ever see.

And it’s all delivered directly to you – and at no charge.

Here’s to securing your financial freedom in the new global economy.

Good Investing,

Mike Ward