The result of these new, reliable drilling methods is that growth and profitability are more transparent in resource plays. It has become easier to value companies.
The other driver is technology .
Unconventional, horizontal wells allow large amounts of oil and gas to be produced for the cost of one well. It’s a simple formula to grasp: more oil + less cost = better return = more profit . The companies with the most experience and expertise using these new and evolving technologies will be the quickest to benefit from increased demand during the coming boom. Those companies should be the best performers. The oil and gas E&P companies in our country are the most technically sophisticated globally at both finding and producing new sources of oil. They’re years ahead of the rest of the world using these new technologies. They will be the first to react when demand rises and prices move up. But what companies will benefit most? The best businesses are those that have land and infrastructure in known oily basins like the Bakken Shale in North Dakota, the Eagle Ford Shale in South Texas, and the Permian Basin in western Texas and southeastern New Mexico. The Permian Basin has a competitive advantage over the others. It contains many reservoirs of shale oil and tight-sand oil. In many places, these are stacked one on top of the other. This allows a company to access many formations from one piece of land. And the cost to produce oil in the Permian Basin is the lowest of all the regions. Drilling and operating wells there is profitable, even at $50 a barrel... In many spots, it’s profitable at $40 a barrel. (That beats many traditional oil exporters, like Russia, where it costs $70 to get a barrel Given current technology, the U.S. holds about 58 billion barrels of recoverable shale-oil resources today.
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