A Canadian leader in the shale gas revolution
The explosion in shale gas is leading a revolution in energy, says this U.S. analyst, and that’s good news for a major Canadian energy stock.
Hour by hour, the vast oil spill in the Gulf of Mexico is turning into a disaster of epic proportions.
This is bound to make it a little tougher for offshore drillers to count on relaxed safety regulations, at least in North America.
This misfortune will not stop the drive for energy.
But it may add more voices to the ever-growing choir that is calling for alternative sources of energy.
There are mixed motives for joining the choir. Some are simply looking for cleaner energy. Others think security first. They fear North America’s reliance on oil from the Middle East, Venezuela and other potentially hostile sources.
Among the latter we find reformed wildcatter Mr. T. Boone Pickens and the editor of a U.S. advisory we often consult, Richard C. Young’s Intelligence Report.
Whatever the motives may be, our first question must be, what are the best opportunities for investors?
For Mr. Young, the number one answer is shale gas. And that answer includes his favourite Canadian energy stock.
Legends in their own time
Shale gas is not difficult to find, but it’s hard to get at. It is only due to a technological advance known as hydraulic fracturing, or “hydrofracking,” that gas can be extracted from many shale fields in sufficient volumes to make it pay.
And this means that a lot of shale gas that lay trapped in the rock for centuries is now bursting onto the scene.
The names have become legends in their own time — the Barnett shale (much of which lies under the city of Forth Worth), the Haynesville shale in northwest Louisiana and Texas, and the Marcellus shale that runs from West Virginia to New York State.
Serious exploration at Haynesville began two years ago, says Mr. Young, “and it quickly emerged as the country’s hottest area for natural gas exploration.”
Two of the companies that served as pioneers in Haynesville are on his Master List of recommended stocks. One is Anadarko Petroleum (NYSE-APC), an independent oil and gas firm. Its shares are trading lower today ahead of the release of its quarterly report on Monday — its earnings estimates are higher than Wall Street’s.
The stock is at $65.08 and yields 0.5 per cent on a $0.36 dividend.
Really big time
The other company is Mr. Young’s “highly advised” EnCana Corp. (TSX/NYSE-ECA). EnCana, of course, is Canada’s leader in natural gas. EnCana has also taken a hand in the Marcellus shale, whose largely untapped natural gas is clearly of “gold-mine proportions,” says the editor.
And now it may be heading into the one of the greatest deposits of them all, right here at home.
EnCana and Exxon Mobil (NYSE-XOM) have both moved north (at least from Mr. Young’s point on the compass) to the Horn River in British Columbia.
“Exxon reports that its Horn River shale gas wells are five times the size of average wells in Texas’s Barnett shale. This would put Horn River wells on scale with Louisiana’s Haynesville shale wells,” says the editor.
“We’re really talking the big time here.”
As the work at Horn River goes forward, we find the shares of EnCana trading at $33.56. They yield 2.4 per cent on the dividend of $0.80.
EnCana’s stock has been as high as $36 and as low as $27 over the past year as the company has spun off its oil interests and dealt with the creeping price of natural gas.
Today, the price has dropped below $4 per million British thermal units on a report from the U.S. Energy Department stating that there should be ample stocks of industrial fuel for the year ahead.
Still, shale represents “a massive revolution in the gas fields of North America,” in Mr. Young’s opinion. Most people remain unaware of the shale revolution, he adds, but that leaves “a wide open playing field of opportunity” for informed investors.
He also states that the Energy Department is “far too modest” in its assessment that shale gas will account for half of U.S. gas demand within two decades.
This U.S. analyst is sure that shale gas is the fuel of the future — and just as sure that one Canadian company will be leading the way in this brave new world of natural gas.
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