Peak oil, the belief that the US is running out of domestic oil or natural gas, is increasingly being discredited - meaning it might be time to take a look at small or mid cap domestic oil producers like Brigham Exploration (NASDAQ: BEXP), Crimson Exploration (NASDAQ: CXPO), Earthstone Energy (NASDAQ: ESTE), Encore Energy Partners LP (NYSE: ENP), Gasco Energy (AMEX: GSX), Kodiak Oil & Gas (AMEX: KOG) and Northern Oil and Gas (AMEX: NOG) plus American Liberty Petroleum (OTC: OREO) – an exploration stage oil company focused on Nevada. Moreover, the recent events in the Middle East and North Africa should also send a clear message to American politicians, oil companies and investors alike about the need to look for oil and natural gas domestically and in pro-oil states (besides Alaska and the Gulf Coast states) that also lack the “not in my back yard” attitude.
The Trouble With Peak Oil
M. King Hubbert first created and used the models behind peak oil back in 1956 and he did accurately predict that USA oil production would peak some time between 1965 and 1970. However, Hubbert along with the anti-oil ideologues that followed him who have taken a more strident and doomsday approach when it comes to future oil production did not anticipate that human ingenuity along with technology would allow for the discovery and exploitation of vast new reserves of both conventional and unconventional oil or natural gas. Just consider some of the following facts or estimates:
- Large oil reserves can be found on the US outer continental shelf and these oil reserves (much of which are restricted) are estimated to hold 100 billion barrels of oil and natural gas. In fact, exploiting these reserves would slash the $500 billion the US sends overseas to pay for oil imports each and every year. However, only 15% of these reserves are currently exploitable with much of this being located off the coasts of oil friendly states like Alabama, Louisiana, Mississippi and Texas.
- The Canadian oil sands, a combination of sand, water and oil found mostly in the Canadian province of Alberta, are believed to contain 1 trillion barrels of oil while another 1 trillion barrels are believed to be trapped in rocks located in the states of Colorado, Utah and Wyoming. All told, the US is estimated to have around 1.5 to 2.6 trillion barrels of oil reserves. However and according to Peter Huber, the co-author of "The Bottomless Well,” just the oil sands of nearby Alberta alone may contain enough hydrocarbon to fuel the entire planet for over 100 years.
- In 2009, Occidental Petroleum Corporation’s (NYSE: OXY) announced the discovery of between 150 million and 250 million gross barrels of oil equivalent (BOE) reserves within an outlined area in Kern County, California. Approximately two-thirds of Occidental Petroleum’s discovery is believed to be natural gas while the entire discovery may be the largest new oil and gas discovery made in California in more than 35 years. Moreover, Occidental Petroleum California proved reserves already stood at 708 million BOE at the end of 2008 and represented approximately 24% of the company’s worldwide reserves.
In other words, the peak oil theory, at least in our lifetimes, is starting to look like all of those doomsday predictions about the end of the world is coming.
Which Oil Companies are Major Domestic US Oil Players?
So which oil companies are focused on exploiting domestic US oil or natural gas in pro-oil states? Occidental Petroleum, which has a market cap of $81 billion, is the number one oil producer in the Permian Basin (West Texas and southeast New Mexico) plus it’s the number one natural gas producer and the number two oil producer in California on a barrels of oil equivalent basis. However, Occidental Petroleum is also active in the Middle East, Libya, Bolivia and Colombia – areas that in recent years have become synonymous with political or social instability. Moreover, the State of California is not exactly known for being either politically stable or friendly to big oil companies thanks to its “not in my backyard” attitude.
In addition, Anadarko Petroleum Corporation (NYSE: APC) with a market cap of $40 billion is another independent oil and natural gas stock that has a major focus on domestic US oil exploration and production in the Rocky Mountains region, the southern USA, the Appalachian Basin, Alaska and deep water areas of the Gulf of Mexico. However and like Occidental Petroleum Corporation, Anadarko Petroleum Corporation is also a global player that is active in Brazil, China, Indonesia, New Zealand, Algeria, Ghana and East and West Africa.
Hence and for more domestic US oil plays, investors will need to look at some of the following small or mid cap oil and natural gas stocks that do not have exposure to risky or exotic locales and operate in oil friendly US states but have also given investors a mixed performance since the start of the year:
- Brigham Exploration (NASDAQ: BEXP). Based in Austin, Brigham Exploration is focused on the Bakken and Three Forks formation (underlying parts of Montana, North Dakota and Saskatchewan). On Friday, Brigham Exploration fell 0.11% to $36.38 for a market cap of around $4.27 billion. Brigham Exploration also has a 52 week trading range of $21.15 to $37.87 and has gained around 33% since the start of the year - in large part due to the October announcement that Norway based Statoil ASA (NYSE: STO) will acquire the company at a price of $36.50 per share.
- Crimson Exploration (NASDAQ: CXPO). Based in Houston, Crimson Exploration is an independent energy company with properties in Texas, Louisiana and Colorado. On Friday, Crimson Exploration rose 2.95% to $2.79 for a market cap of $126 million. Crimson Exploration also has a 52 week trading range of $2.00 to $4.73 but has fallen over 5% since the start of the year. Otherwise, investors should note that oil now accounts for 55% of Crimson Exploration’s revenue while 3Q2011 also produced net income of $0.5 million verses a net loss of $3.8 million for the same period last year.
- Earthstone Energy (NASDAQ: ESTE). Based in Denver, Earthstone Energy is an independent oil and gas company active in North Dakota, Montana, Colorado, Texas and Wyoming. On Friday, Earthstone Energy closed at $14.50 for a market cap of $25 million. Earthstone Energy also has a 52 week trading range of $10.50 to $25.25 and has fallen almost 3% since the start of the year. Severe flooding in Montana and North Dakota during the spring and summer resulted in lower production levels for Earthstone Energy but both revenue and net income was up for the first half of the fiscal year.
- Encore Energy Partners LP (NYSE: ENP). Based in Fort Worth, Encore Energy Partners is a limited partnership with properties and oil and natural gas reserves located in four areas: 1) The Big Horn Basin in Wyoming and Montana; 2) The Permian Basin in West Texas and New Mexico; 3) The Williston Basin in North Dakota and Montana, and 4) The Arkoma Basin in Arkansas and Oklahoma. On Friday, Encore Energy Partners rose 1.45% to $19.60 for a market cap of just over $900 million. Encore Energy Partners also has a 52 week trading range of $15.10 to $25.48 but has fallen around 13% since the start of the year. In July, Vanguard Natural Gas, LLC and Encore Energy Partners agreed to merge whereas ENP would become a wholly-owned subsidiary of Vanguard. The merger is expected to be completed this month.
- Gasco Energy (AMEX: GSX). Based in Denver, Gasco Energy is focused on locating and developing hydrocarbon resources in the Rocky Mountain region. On Friday, Gasco Energy fell 0.63% to $0.204 for a market cap of around $34 million. Gasco Energy also has a 52 week trading range of $0.15 to $0.63 but the stock has fallen about 42% since the start of the year. In addition, Gasco Energy recently reported a net loss of $1.3 million verses a net loss of $5.3 million for the same period last year.
- Northern Oil and Gas (AMEX: NOG). Based in Minnesota, Northern Oil and Gas is focused on the Rocky Mountain Region and specifically the Bakken and Three Forks formations. On Friday, Northern Oil and Gas rose 5.31% to $23.58 for a market cap of around $1.49 billion. Northern Oil and Gas also has a 52 week trading range of $13.25 to $33.98 but the stock has fallen 13% since the start of the year. Last week, Northern Oil and Gas reported a sixfold rise in revenue to $69.1 million while net income surged from $987,226 for 3Q2010 to $28.6 million.
- Kodiak Oil & Gas (AMEX: KOG). Based in Denver, Kodiak Oil & Gas is focused on oil and natural gas reserves in North Dakota and Montana as well as the Green River Basin of Wyoming and Colorado. On Friday, Kodiak Oil & Gas rose 4.90% to $7.71 (at its 52 week high) for a market cap of $1.61 billion. Kodiak Oil & Gas also has a 52 week trading range of $2.43 to $7.88 and has fallen just over 1% since the start of the year. During the 3Q2011, Kodiak Oil & Gas surged 263% while income from core operations surged 637%.
What is American Liberty Petroleum (OTC: OREO)?
Based in Bakersfield, California, American Liberty Petroleum (OTC: OREO) is focused on overlooked or undervalued onshore domestic oil resources that can be exploited with new technologies. And although American Liberty Petroleum is headquartered in oil producing but also famously anti-oil California, the company is focused on the pro-resource extraction state of Nevada.
Specifically, American Liberty Petroleum is focused on two Nevada oil prospects:
- The Gabbs Valley Prospect is located on the 26,000-acre Cobble Cuesta structure - a structure that is estimated to represent oil reserves of 4+ billion barrels. However and if only a fraction of the estimated reserves are found in the Cobble Cuesta structure, it will still be among the largest oil accumulations in the western US.
- The Kibby Flat Prospect consists of 7,270-acres in the Monte Cristo basin and represents an estimated ultimate recovery (EUR) of as much as 669 million barrels of oil.
Hence, American Liberty Petroleum could have a big advantage over other domestic oil players as it will be able to extract oil in the oil and mining friendly state of Nevada and then send it across the border so that “not in my back yard” Californians can still drive their SUVs – without having to feel guilty about spoiling pristine California.
Nevertheless, its still important to remember that American Liberty Petroleum is still in the start-up and exploration stage but the company does have a market cap of around $131 million and an experienced management team – meaning at the very least it’s a company to watch.
The Bottom Line About Peak Oil in the US
Clearly, there is still plenty of domestic oil both onshore and offshore to be discovered and exploited in the US by companies like startup American Liberty Petroleum and more established players alike – so long as the US government or state governments do not lock it all up into national parks or try to restrict production in other ways. This also means that investors do not necessarily need to be looking at oil companies operating in risky and politically unstable places like Africa or the Middle East as domestic players like Brigham Exploration (NASDAQ: BEXP), Crimson Exploration (NASDAQ: CXPO), Earthstone Energy (NASDAQ: ESTE), Encore Energy Partners LP (NYSE: ENP), Gasco Energy (AMEX: GSX), Kodiak Oil & Gas (AMEX: KOG), Northern Oil and Gas (AMEX: NOG) and American Liberty Petroleum (OTC: OREO) may produce the next big gusher for investors.