Where did all the drillers go?
Today's Financial News - Posted April 8, 2009
Investors are looking to the oil and energy industry once again. Unfortunately, the roulette style of investing will not lead to success this time. For the real profits, you have to time your moves and invest wisely.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): My, oh my, what difference a year can make. This time last year, the folks lucky enough to live in the rural highlands of my home state of Pennsylvania were devising all sorts of ways to spend their newfound money. Now, they are wondering where everybody went.
Thanks to the hordes of natural gas and crude oil trapped in the Marcellus Shale formation, landowners in Pennsylvania, New York, Ohio and West Virginia were bombarded with door-to-door oil company representatives as producers worked to lock in as many mineral rights as they could.
The offers started at a couple thousand dollars per parcel, but as word spread, the landowners quickly realized the value of their signature. They held off for more and more money. Rumors of contracts worth hundreds of thousands of dollars turned the ears of investors across the nation.
But now that crude prices have been trimmed by a hundred dollars or so per barrel, the folks expecting to get rich quick are wondering where the contracts went.
Unfortunately, it may be a long, long time before these small-town producers open their wallets once again.
Where did all the money go?
While there were handfuls of publicly traded oil producers working in the area, one of the most prominent Marcellus Shale mineral rights owners is Chesapeake Energy (NYSE:CHK). Its share price over the last year tells the same story the ambitious landowners are living.
Along with so many other oil-related companies, Chesapeake’s shares reached their peak in July of last year. Ever since, the stock has been under terrible pressure. The 52-week spread between prices is downright horrific, $74 during the summer, $9.84 by fall.
The industry now looks like somebody hit that gaudy “reset” button Hillary Clinton has been carrying around. The slate has been wiped cleaned.
But now that the investors are eyeing an eventual economic turnaround, what does the future look like for these daring drillers willing to expand into high-priced regions?
It doesn’t look good.
It will be a long time until the profit window (where extracting costs are less than revenue) opens once again. In the meantime, those nasty Big Oil producers will be honing their technology, expanding their operations and working at unleashing the big deepwater pockets of crude they so desperately want to tap.
If they find success, they will keep oil levels cheap and force the little guys to remain on the sidelines, picking up whatever scraps they can find.
It is a good time to be investing in oil, but you have to make the smart choices. When prices are this cheap, it is no time to buy the speculative and volatile companies. By the big guns at a discount and rake in the rewards as the economy turns around.
Most importantly, keep those drillers out of my backyard.
Next Article: Inflation or Deflation: Wher is gold headed?
Be the first to leave a reply.
Your comments are welcome
Follow TFN via RSS or Twitter |
 |
 |
 |
Advertisement
Latest Headlines
- The Big Picture for Sinobiopharma, Inc. (SNBP)
- Beazer Homes USA, Inc. (BZH) and Hovnanian Enterprises, Inc. (HOV) up despite horrid housing news
- The FDA catalyst: 2010 moves in MannKind (MNKD), Roche Holding (RHHBY), Acorda Therapeutics (ACOR) show it still works!
- Steepest drop since Feb. 2009: Here we go again!
- Is the silver run over? Coeur d’Alene Mines (CDE), Silver Wheaton (SLW), Alto Group (ALTO), Hecla Mining (HL), Endeavour Silver (EXK) close down