Buried on page 8 of yesterday’s Tulsa World newspaper was the following quote:
“The … Basin may have 16 billion to 40 billion barrels of oil recoverable from horizontal wells depending on how many layers prove productive, according to a report last month by Investment Technology Group Inc.”
40 billion barrels of light, sweet crude… that should be music to any investor’s ears.
But even better is this: a tax-free oil “dividend” that can double your money in less than 3 years.
That might sound outrageous. But in this golden age of American oil production, not only is it possible… it’s happening right now.
With as much as 40 billion barrels of oil, this basin is America’s biggest. And it’s producing 1.3 million barrels a day – more than North Dakota’s Bakken oil field, and more than the fast-growing Eagle Ford, too. In fact, it’s producing more oil than any other field in America.
But what makes this field a bona fide cash machine is that it’s a mature oil field. The drilling has mostly been done. The investment in rigs, drilling crews, and land leases is past. Now, it’s just oil flowing out and cash money flowing in…
And individual investors are profiting right alongside the big oil companies.
After the Oil Rush
In North Dakota’s Bakken, oil companies have drilled at least 3,590 new wells in 2013. That was enough to push production from 790,000 boe a day to around 1 million boe a day. Production in the Eagle Ford followed a very similar trajectory.
All told, these two fields raised production by around 700,000 boe a day in 2013. Yes, that’s a lot of oil. But it’s also a big investment in rigs and equipment. We’re talking about billions of investment dollars being plowed into these fields…
If oil prices cratered again like they did during the financial crisis, these Bakken and Eagle Ford companies would lose a lot of money.
But America’s biggest oil field only grew production by 93,000 boe a day. That’s a massive – and valuable – difference. And the reason is that producers simply didn’t have to drill as many wells to keep the oil flowing.
And remember, America’s biggest oil field is pumping 1.3 million barrels a day…
Here’s another way to judge how valuable this oil production is. Yesterday, a company announced that it was buying 6,700 barrels of daily oil production in this field for $950 million. That works out to $20,000 per acre.
That may sound like a lot of money. And it is. But this company will recoup its entire investment in less than 4 years… without doing a thing.
It doesn’t have to drill new wells. It doesn’t have to increase production rates. All this company has to do is let the wells it just bought pump the oil it now owns, and it will be break even on a $950 million purchase in less than 4 years.
This situation is great for an oil company. But it’s even better for the individual investor, because you can recoup your entire investment in less than 3 years.
Here’s how it works…
Thank You, Mr. Pickens
In 1979, T. Boone Pickens had a problem. The company he founded in 1956, Mesa Petroleum, was having trouble growing…
Oil prices were basically stagnant. And even though Mesa was a profitable company, it was having difficulty replenishing its reserves.
Oil is a value-add business. Once the wells are drilled, it’s hard to add value. It’s how cheaply a company can bring oil out of the ground that determines how much value it can add.
So Pickens came up with an idea: What if he sold the future production of Mesa’s existing oil wells and used the cash to acquire more oil reserves?
Not only was this a novel way to raise cash, but Pickens also found he could classify the new shares as a “pass through entity,” thereby completely avoiding corporate taxes. Shareholders would collect the oil revenue in monthly installments much like dividends. But these payments are more like profit-share arrangements because once you own the shares, you literally own a share of the profits.
Right now, one of these oil profit-share situations is paying shareholders 20% of their initial investment each year.
Yes, you read that right: 20%.
At 20% a year, if you reinvest the profit-share money, you could double your investment in 2.7 years.
Frankly, I’m surprised this opportunity exists at 20%, and I’m pretty sure it’s not going to stay there. Once investors start buying this stock and push the price higher, the percentage will go down. So you may want to look into it soon…
I’ve got the details on this 20% oil profit-share right here.
Until next time,
Briton Ryle
@BritonRyle on Twitter
The Wealth Advisory on Youtube
The Wealth Advisory on Facebook
A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.
