How to Build Your Own Fracking ETF: Part 1
Dec 17th 2013 9:30AM
Updated Dec 17th 2013 9:32AM
Why pay fees when you can do it for free? With just a little guidance, you can invest in the New American Economy. America's fracking revolution has gotten people so excited that even the CIC (China Investment Corporation) is extremely bullish on the U.S.
Don't set guidance unless you plan to beat it
With ambitious plans to triple 2012 production by 2017, Continental Resources has been spearheading several new fracking techniques to reward investors with more drilling locations and higher margins.
An example of Continental Resource's commitment to new technology is its Hawkinson downspacing pilot project up in the Bakken. Continental Resources was able to successfully bring 11 new wells online all in the same area, on top of three existing wells already producing in the unit.
If Continental Resources can increase the number of wells it drills on one pad, then it can fully tap into each bench of the Bakken and Three-Forks play. North Dakota and Montana are home to these formations, which are stacked on top of each other. Utilizing downspacing enables companies like Continental Resources to have several wells pumping out crude from each bench, which boosts the amount of recoverable oil -- not a bad way to maximize your assets and bottom line.
In 2014, Continental is going to go through with three additional pilot tests to try out further downspacing techniques.
So where is Continental on its plans to triple output over five years? Well it grew production by ~38% year over year in its latest quarter, which puts it on track to beat guidance. If Continental Resources grew its output by 38% a year, it would increase output by more than six-fold over five years. While Continental most likely will see production growth slow down over the next few years, it's still nice to see it beating guidance for high levels of growth.
SCOOPin up the cash
One little-known play that Continental Resources has been quick to exploit is the Southern Central Oklahoma Oil Province. Over the past year Continental Resources has bestowed onto investors ~300% output growth from the region, with output clocking in at 20,070 boe/d in its latest quarter versus 5,108 boe/d last year. Looking into the future, Continental Resources is deciding to charge full steam ahead by increasing its rig count in SCOOP from 12 to 15.
So what does all this mean? Well clearly Continental Resources has had some explosive growth in the past, but its best years may just be ahead of it. As such, this is a company worthy of your new fracking focused ETF.
You gotta spend more
Since when is spending less money a problem? Well apparently for Pioneer Natural Resources it is, as management cited the recent build in its cash pile. Over the past quarter Pioneer Natural Resources added $44 million to its cash position, increasing it to $744 million. When you factor in that the cash from its $550 million Alaska divestiture is about to roll in, investors are wondering why Pioneer Natural isn't doing more with its cash.
It seems that Pioneer Natural's management has woken up and smelled the roses, because coming February 2014 it looks like they plan to at least double their rig count in the Spraberry play, located in the Permian Basin. With Pioneer's additional cash, it plans on increasing its rig count from five to possibly 10 or more in 2014 when the new budget is announced.
Why should investors care? Because some see the Spraberry-Wolfcamp play being the second biggest oilfield in the world. If you are an up and coming E&P player, wouldn't you want to stick a big flag down in an area expected to produce an additional 2 million barrels of oil over the next several years? As companies like Pioneer Natural pump out Spraberry-Wolfcamp's estimated 50 billion barrels of oil equivalent, a flurry of new pipelines will pop up (as some already have) to cater to Pioneer's needs.
Last quarter Pioneer missed production guidance, which it blames on pad drilling, delays, and an assortment of other excuses. Don't let that damper your view of Pioneer Natural Resources though; this is a company positioned to capitalize on the biggest oilfield in America while maintaining a strong balance sheet.
Pioneer Natural is planning to put its cash at work back in the lower 48, which is good news for investors. Alaska holds plenty of potential, don't get me wrong, but a company like Pioneer should focus on what it knows best, Texas shale. Pioneer's strategic shift makes this a company worthy of your new self-made ETF.
While advertisements on financial and political TV shows will try to sell you an ETF, at a price of course, there is no reason why you can't build your own ETF focused on growing your portfolio. Fracking is the future of American energy, and these two players are definitely worth adding to your new fracking ETF to play the New American Economy.
Invest directly in America's energy resurgence
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free.
The article How to Build Your Own Fracking ETF: Part 1 originally appeared on Fool.com.Callum Turcan has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.