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James Stafford

James Stafford

James Stafford is the Editor of Oilprice.com

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Clean Oil That Only Costs $20

Oil

The United States is in the midst of an energy revolution.

Oil production has risen by 5 million barrels per day (bpd) since 2010, an increase of nearly 100 percent. New technology, particularly techniques in shale oil drilling, has opened up vast new opportunities for oil and gas companies.

The proof is in the numbers. In 2017, the United States averaged 9.3 million bpd. This year, the EIA predicts that U.S. oil and gas production will reach record levels, averaging 10.3 million barrels bpd to surpass the record reached in 1970 (9.6 million bpd).

In 2019, the EIA expects U.S. production to average 10.8 million bpd, which will allow the U.S. to rival Saudi Arabia and Russia as the world’s largest oil producer.

If there’s one big reason for the U.S. energy revolution, it’s that new technology has allowed American companies to beat the competition

Thanks to such innovation, a barrel of oil produced in the U.S. can cost as little as $20 to produce.

Not even OPEC could stop the host of American shale drillers, who persevered through a global production glut and historically low prices from 2015 to 2017, and who have now emerged victorious.

But the shale revolution is starting to reach its limits. With shale production likely to peak shortly after 2020, investors are looking for new, innovative technologies that will break new barriers to output.

Companies like Petroteq Energy Inc. are pioneering new approaches to energy extraction. While OPEC producers stick to the tried-and-true methods, American companies are exploring new horizons, watching production costs fall and profits shoot through the stratosphere.

Related: OPEC Unfazed As Rivals Boost Oil Output

A key area where advancements will be made is in oil sands, a sector most companies had left for dead. Thanks to Petroteq and other innovative firms, the technology to unlock clean, cheap oil sands could soon fuel the next chapter of the U.S. energy revolution.

Oil Sands: the Alternative Unconventional

Oil sands are deposits of bitumen, a thick and viscous substance that can be refined into petroleum products.

The potential trapped within oil sands deposits is staggering: the Canadian tar sands deposits in Alberta is estimated to contain 165.4 billion barrels.

In the United States, large deposits of oil sands bitumen remained untapped. In Utah, for instance, there are bitumen deposits totaling 30 billion barrels.

However, three things are holding back oil sands exploitation: cost, political opposition and environmental risk.

Producing from oil and tar sands had always been a costly enterprise. When prices fell in 2015, companies began divesting from their tar sands investments, cutting and running from oil that was now too expensive to produce.

In 2017, oil giant Royal Dutch Shell completed its divestment from the Canadian tar sands. After entering the unconventional drilling field several years before, Shell concluded that the cost to continue investment in Canadian tar sands was simply too high.

Other companies have done the same: investment in Alberta tar sands fields was dumped by Marathon Oil, Statoil and other companies.

Low prices and rising concerns over the “dirty” nature of tar sands production, which is believed to be one of the most carbon-heavy methods of energy production, fueled an exodus.

Oil sands gained a bad reputation as the dirtiest source of energy, which fueled a political backlash. News coverage of Canada’s oil industry has lately focused on how tar sands production is dirty, costly, destructive and ultimately non-economical. Opposition to new tar sands projects inside the U.S. has risen in recent years.

But that trend may be reversing. Despite divestment, bad press and lower-than-average prices, oil sands production will increase in 2018.

Unlocking Potential

Advances in oil sands technology, and efforts to make the process cleaner and cheaper, means that the sector could be poised for a turnaround.

Petroteq Energy is pioneering safe and clean methods for unlocking oil sands assets. The company has two patents on technical methods for extracting oil sands in a way that avoids producing waste materials.

The company produced 10,000 barrels from its production facility in Utah in 2015 using its brand-new technology, and now it’s upgrading a second facility in Utah to increase its production capacity.

The company’s goal, according to CEO Alex Blyumkin, is developing “sustainability.” Proprietary methods allows Petroteq to extract oil sands without producing excess waste. By utilizing blockchain technology, the company cuts down on production costs and allows oil sands production to be more streamlined.

Petroteq has already found interested partners in Mexico, where it has signed a lucrative deal with national energy company Pemex for its blockchain-based management platform.

Other companies are getting in on the action as well. By following Petroteq’s lead, unconventional drillers are taking a second look at oil sands production.

Question of Cost

What made shale drilling in the U.S. so successful was the question of cost. At a time when oil prices were plummeting, American drillers used new technology to radically cut costs and maintain competitiveness. By 2017, shale drillers had reduced cost by as much as 42 percent.

Today, the average cost of a barrel of fracked oil varies between $20 and $50. That might look like a lot compared to cheap oil from Saudi Arabia or Kuwait, where per-barrel costs can be as low as $10.

But that doesn’t take into account “social costs” that OPEC states have to consider. The plunge in oil prices after 2015 placed immense pressure on OPEC states, which all depend on oil exports to maintain fiscal equilibrium.

Middle Eastern oil producers have endured immense pressure, while Venezuela was thrown into political and economic chaos by the drop in prices.

Social costs, according to a study by the Oxford Institute for Energy Studies, will increase the cost of OPEC oil in the coming years. While U.S. shale drillers can operate profitably with prices at $50 per barrel, OPEC countries ideally want $70 or even $100 a barrel to sustain their economics. This gives U.S. producers a massive competitive edge.

Now, thanks to technological advances from Petroteq and other companies, oil sands could be as profitable and as cheap as shale.

Through cleaner methods and blockchain-based management, Petroteq can produce for as little as $20 a barrel.

Related: U.S. To Become Net Oil And Gas Exporter In 5 Years

Petroteq’s methods can be licensed anywhere, and could release the billions of barrels locked inside oil sands deposits all across the American West.

If its technology catches on, oil sands could be the next big play in the U.S. energy revolution, ensuring American oil dominance for years to come.

Honorable mentions:

Parsley Energy Inc (NYSE:PE): Parsley Energy is a major player in the Permian shale play. The company’s assets are primarily located in the Midland and Delaware basins. Specializing in acquisition, development and exploration of unconventional oil and natural gas reserves, Parsley Energy trades around a modest $23/share and has an impressive $7.2B market cap. The company’s management is second to none which will give investors confidence in moving forward.

Experts see U.S. oil production rise quickly as rigs are being added and Parsley is one of the companies that stands to benefit.

Kosmos Energy Ltd (NYSE:KOS): Kosmos is a company which focuses on oil and gas exploration, development, and production in emerging areas offshore West Africa. With assets in Ghana, Mauritania, and Senegal, the company already has a strong portfolio.

But the real draw for investors is the licenses it carries for potential exploration in Sao Tome and Principe, Suriname, Morocco, and Western Sahara. Moving forward, this is definitely a company to keep an eye on.

Seadrill Ltd (NYSE:SDRL) Seadrill is a company that offers services relating to everything offshore. As an offshore drilling contractor, Seadrill is a go-to for companies rushing to complete their deepwater projects. As offshore regains its popularity and new finds are ready to be developed, Seadrill has a wealth of resources to complete, maintain, and nurture these projects.

Seadrill’s share price has fallen sharply last year, but with new operations in the Middle East, Southeast Asia, Northern Europe, the United States, and South America, this oilfield services company is one to watch.

Diamond Offshore Drilling Inc (NYSE:DO) Diamond Offshore Drilling is a Houston-based oilfields services company with contracts in Gulf of Mexico, South America, Australia, Southeast Asia, Africa, the Middle East, and Europe, the company is well represented across the world.

Its fleet includes 24 offshore drilling rigs, 19 semisubmersible rigs, and one jack-up rig. With a large footprint in the industry and a number of assets, Diamond Offshore is a reputable and secure pick for investors, especially as offshore projects regain popularity.

Pioneer Natural Resources (NYSE:PXD): Pioneer Natural Resources is another oil and gas exploration and production company whose main operations are primarily located in the Permian Basin, Eagle Ford, West Panhandle, and the Raton field.

The company also owns interest in eight gas processing plants and nine treatment facilities. With a huge amount of prime real estate in South and West Texas, Pioneer has consistently shown that it is investing wisely which will surely pay off for shareholders.

Enbridge, Inc. (TSX:ENB): Enbridge is based in Canada’s oil sands capital Alberta, is an energy delivery company focusing on transportation, distribution, and generation of energy. Operating in the United States and Canada, Enbridge owns and operates the largest natural gas distribution network in Canada and the longest crude oil transportation system in the world.

As crude prices and production continue to rise, companies like Enbridge are crucial in getting the product to the consumer.

Cenovus Energy (TSX:CVE): This is one of the most actively traded stocks on the TSX, and it’s taking a beating right now because of announcements that it will sell between $4 billion and $5 billion of assets and cut up to an additional $1 billion in costs over the next three years. The retirement announcement of CEO Brian Ferguson hasn’t helped share prices, either. But there is opportunity in this downtrend.

Canadian Natural Resources Ltd. (NYSE:CNQ, TSX:CNQ): Another big market mover for TSX oil and gas, this company is one of the big players in Canadian oil sands. Analysts expect strong Q4 earnings and a rising production. The company  is down quite a bit right now and represents a good buying opportunity.

Husky Energy Inc. (TSX:HSE): Husky, a major Canadian player has surprised analysts in Q3, and has been the oil sands ‘top pick’ among many analysts.

It’s now moving forward with pipeline repairs that led to a leak in Saskatchewan that hurt profits and reputation hard. But rising oil prices and a fair valuation make this Canadian oil company a company to keep on the radar.

By. James Stafford

NOT AN INVESTMENT ADVISOR. Oilprice.com is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.

RISK OF INVESTING. Investing is inherently risky. While a potential for rewards exists, by investing, you are putting yourself at risk. You must be aware of the risks and be willing to accept them in order to invest in any type of security. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell securities.

RISK OF BIAS. We often own shares in the companies we feature. For those reasons, please be aware that we are extremely biased in regards to the companies we write about and feature in our newsletter and on our website.

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  • Evan Bedford on February 13 2018 said:
    It's clean 'cause it's cheap?
  • Eulenspiegel on February 14 2018 said:
    With all these companies producing 20$ shale oil:

    Where are the dividends?
    I thought producing oil is about making money, not loosing money. And at 20$ costs with 50-60$ price tag these companies should earn tons of money.

    Block chain is only a buzzword - in inner company paper works it brings nothing, it's only for fuzzy multiple company networking.
  • Kishore Kumar on February 14 2018 said:
    American shale has given a tough competition to OPEC mafias. Long live American shale.
  • Jim Shrevesman on February 14 2018 said:
    US shale is unlikely to peak until after 2030, perhaps 2040. Even then the decline will be slow. Peak demand for oil is likely to hit hard well before that time.
  • Tony on February 16 2018 said:
    I will start to believe that America is a serious Oil Producer, until he stop to import 13 Millions of Oil Barrel every day !!
  • Lee James on February 19 2018 said:
    Maybe the best title for this article is: "Relatively clean oil that costs as little as $20."

    The U.S. shale industry is still a relatively high-cost producer in the world. Cost varies tremendously in shale, depending on the play and the exact location within a play. One reason shale looks attractive in the U.S. is because U.S. conventional oil has become so expensive and foreign oil is politically complicated. We hesitate with deep-water and arctic gambits. Even a lot of conventional lower-48 plays involve higher-cost oil recovery method.

    I feel like our shale industry has had undue emphasis placed on in-your-face volume production, over profitability. For many reasons, we need to check our tendency to bow to short-term profit -- and especially to check if it is only the appearance of profit.

    We must not lose sight of big-picture and long-term industry prudence. What is our likely and best energy future?
  • franklin on February 19 2018 said:
    How about Torchlight Energy (TRCH)? Fracking their first well in the Orogrande Basin as we speak, and have 133,000 contiguous acres there. True wildcat story.
  • Pole on May 01 2018 said:
    Wow, We must not lose sight of big-picture and long-term industry prudence. What is our likely and best energy future?

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