'They've ring fenced me'...

'They've ring fenced me'... When we started writing about shale... Two million barrels a day in Eagle Ford by 2020... How oil producers are sneaking around the export ban... The end of quantitative easing... Why Jeff Clark says a correction is imminent... Your last chance to watch Jeff's free webinar...
 

 It all started with the declaration... "They've ring fenced me."

 

In early 2010, Porter was fishing in Panama with our friend and oilman Cactus Schroeder... We were on an Atlas 400 trip. And Cactus was excited about some activity going on around his property in Texas. Some big oil companies had started drilling around his land in an area in southern Texas... And they were seeing great results.

 

Cactus believed this patch of land could become the largest oilfield in the U.S. It was called the Eagle Ford Shale.

 

We know how things turned out since then. But it's fun to revisit the original research we published on the U.S. shale boom. Even Porter admitted in the April 2010 issue of Stansberry's Investment Advisory, "I am not an oil and gas analyst."

 

Mind you, his subscribers are enjoying their 197% gains in Targa Resources, 88% in Energy Transfer Equity, and 59% in Dominion Resources, to name a few of the energy winners in the portfolio.

 

 As Porter wrote in that issue...

 

I expect Eagle Ford to yield more than $2 billion in oil and gas by 2013 and to increase steadily for at least 20 years. These numbers mean Eagle Ford will probably produce hundreds of billions worth of oil and gas over the next 30-40 years.   I know these numbers must sound like pie in the sky. After all, U.S. oil production fell every year from 1991 until 2009. The decline led some pretty smart folks to declare we'd reached "peak oil." They believed onshore oil production would continue to decline until there was literally no oil left. I never believed any of that nonsense. I knew eventually prices would rise enough to support the development of new technologies for finding more oil and extracting it more efficiently. Not surprisingly, that's exactly what has happened.   New seismic technologies allowed prospectors to find liquid hydrocarbons in shales, even though the plays are deep and narrow – 12,000 feet down and usually only a few hundred feet thick. To efficiently drill these finds requires so-called "horizontal drilling," where rigs first must bore down to the oilfield and then veer sideways through it. The combination of these new technologies is releasing huge amounts of liquid hydrocarbons in the Eagle Ford.

 

 The Eagle Ford (and other shale plays around the country) has revolutionized the global energy landscape. Oil production in the Eagle Ford has risen from 411,000 average barrels per day (bpd) in July 2013 to 1.5 million bpd in July 2014. That's $141 million in daily production at current crude prices.

 

And production could hit 2 million bpd by 2020. S&A Resource Report research analyst Brian Weepie wrote more about the Eagle Ford's potential in yesterday's Growth Stock Wire.

 

 The U.S. is now the world's largest energy producer... and it could become even bigger.

 

Thanks to the success of hydraulic fracturing (or "fracking"), total U.S. oil production has soared to about 8.5 million bpd since 2011.

 

We told you all about it well before the mainstream media caught on.

 

 But skeptics say the boom won't last. It's true that production from shale wells typically falls 60%-70% in the first year, compared with a 50%-55% production drop from traditional wells in the first two years.

 

The U.S. Energy Information Administration (EIA), for example, predicts oil production will continue through 2019 before flattening.

 

 But oil companies are working to make the wells more productive... And new wells are pumping out five times more oil and gas than the largest wells were a decade ago, according to the Wall Street Journal.

 

According to the EIA, the number of rigs drilling in the U.S. is flat, but production is rising.

 

 With all the new production... Washington is facing growing pressure to ease the 40-year oil export ban of unrefined crude.

 

The U.S. has been exporting refined products (including jet fuel, gasoline, and propane) for 60 years. But today, light, crude oil – the majority of domestic production – is piling up in storage. We're producing more than we can use.

 

And U.S. oil producers want to export the excess oil, which is keeping domestic prices down. Consumers, backed by the refiners (who turn crude into gasoline, kerosene, etc.), are lobbying to keep the export ban, claiming it lowers energy costs within the U.S.

 

The Obama administration is reviewing the policy and is determining whether U.S. refineries can absorb rising supplies.

 

 In the meantime, domestic producers are finding ways around the ban. Stansberry's Investment Advisory analyst Dave Lashmet explains the situation...

 

Shale oil is a very light form of crude oil. The U.S. has the capacity to refine 15 million barrels per day of imported and domestic oil, but most of that capacity is limited to heavier crude. Adapting these refineries takes years and it's expensive.   So there's a huge lag now... That has meant we are producing more light crude than we can reasonably use. That's cutting the price of domestic oil, and some of it is simply being stored. The problem with storage is that more oil will keep stacking up behind it. There's a bottleneck. One pressure relief valve is exports.   Here's how this seems likely to play out... Wet natural gas includes natural gas and natural gas liquids, plus condensate. The condensate includes natural gasoline. Under U.S. law dating back to the 1970s, condensates pumped from oil wells are defined as crude oil and cannot be exported without being processed.   A few eastern Texas oil companies have been able to convince the U.S. government that condensate – which has been split between natural gasoline and "other" – is a refined product. The net effect is that super-light crude oil run through such a splitter is export-grade, restoring the value to U.S. oil production and relieving the bottleneck on U.S. refineries.

 

 Splitters are a cheaper option for processing oil than building new refineries. Products run through splitters generally require further processing. But it's a way for U.S. companies to get around the export ban by creating a "refined" product.

 

According to the Financial Times, companies are planning or constructing new splitters in the Gulf of Mexico that would process about 445,000 barrels daily... That's a 5% increase in the area's total refining capacity.

 

 The U.S. is on the path for energy independence and crude oil exports. At first, this will be a swap where the intake limitations of U.S. refineries demand shipping light crude abroad. Within 10 years, we may have positive exports and no imports.

 

If this doesn't happen, the refinery bottleneck will shutter the U.S. shale boom. That bottleneck increases our dependence on the Middle East and Venezuela, increases domestic fuel prices, and eliminates valuable exports that restore the U.S. trade balance.

 

 Another small coup for Porter's research team...

 

As fracking gained notoriety, so did the propaganda saying fracking was responsible for contaminating the water supply.

 

Documentaries like Gasland and Gasland 2 showed images of rural dwellers lighting tap water on fire. It was a great show... and a compelling argument. But it was all false. Porter discussed the propaganda documentaries in the July 16, 2013 Digest Premium...

 

The problem is... nothing in the movie is actually true. It's a gigantic jumble of falsehoods, assaults, and aspersions. The fact is, there isn't a single example anywhere in the world of shale oil and gas fracking contaminating water supplies.   The reason for that is because the shale oil and gas fracking is going on at 5,000 feet or more below the surface of the earth. Water wells and aquifers are usually between 100 and 500 feet below the surface. So there's half a mile of impenetrable rock between one and the other.

 

 This week, the Department of Energy (DoE) agreed with us...

 

DoE scientists just completed a two-year study at a fracking site in western Pennsylvania using tracer fluids and seismic monitoring.

 

On Monday, they released the results of the study... and found that hydraulic fracturing does not contaminate drinking water.

 

The report concluded that chemical-laced fluids used to free gas stayed 5,000 feet below drinking-water supplies.

 

Another report published in the Proceedings of the National Academy of Sciences drew the same conclusion. Avner Vengosh, a Duke University scientist involved with that study, said the report found that faulty well construction – not fracking – caused pollution.

 

 Switching topics...

 

Yesterday, the Federal Reserve said it will make its last $15 billion of Treasury and mortgage-bond purchases in October. Then quantitative easing (QE) – which has been pushing the bull market higher and higher – will end.

 

The Fed initially launched QE to combat the subprime crisis. Now, it has $4 trillion of government and agency debt on its balance sheet. It will let that debt mature without reinvesting the proceeds.

 

In a statement, Federal Reserve Chair Janet Yellen said the Fed will keep rates low for a "considerable time." She's still worried the economy and unemployment in particular aren't healthy enough. The Fed said in its official statement...

 

On balance labor market conditions improved somewhat further, however the unemployment rate is little changed and a range of labor market indicators suggests that there remains significant underutilization of labor resources.

 

The Fed also upped interest-rate expectations from a previous range of 1%-1.25% to a revised estimate of 1.25%-1.5% by the end of 2015.

 

 The end of QE and start of rising interest rates are two reasons S&A Short Report editor Jeff Clark says we're headed for a major market correction...

 

In Jeff's live webinar – airing tonight – he will share three things you will see happen before any crisis... And he'll tell viewers how to profit from the upcoming event.

 

 In particular, Jeff is bullish on gold and silver today. In an update to S&A Short Report subscribers this morning, Jeff noted yesterday's down move for gold stocks... and explained why they aren't likely to stay this oversold for long.

 

 As we've repeated many times in the Digest... We're in the midst of a bull market. But we know it won't last forever. You need to prepare yourself for the upcoming downturn by following your trailing stops and staying conservative.

 

I highly recommend tuning into Jeff's webinar. Again, it's completely free. But you have to sign up before 8 p.m. Eastern tonight. We won't be showing any replays of the event later. You can learn more about tonight's webinar and sign up by clicking here.

 New 52-week highs (as of 9/17/14): Berkshire Hathaway (BRK), CVS Health (CVS), Discover Financial Services (DFS), ProShares UltraShort Euro Fund (EUO), KLA-Tencor (KLAC), Leggett & Platt (LEG), Eli Lilly (LLY), Altria (MO), PowerShares S&P 500 BuyWrite Fund (PBP), ProShares Ultra Health Care Fund (RXL), Steel Dynamics (STLD), Union Pacific (UNP), and short position in Washington Prime Group (WPG).

 

 Our inbox filled up with e-mails from subscribers weighing in on the great share buyback debate. We've included some of our favorites below. Let us know which side of the argument you side with at feedback@stansberryresearch.com.

 

 "As an accountant, I was amused (sort of) by his comment on the 'accounting chicanery' involved in buybacks. I hope Mr. Workman understands that, generally speaking, such chicanery does not originate with the people in the finance and accounting department. As a person goes through the grueling five full years of schooling requisite for CPA certification, he or she is constantly battered with the principal of not only is it unethical and immoral to actually do something improper, it is not proper to even appear to do something unethical or immoral. The range of activities disallowed by the AICPA quite often involve things most of us would perceive as interference in one's personal life.

 

"An accountant's 'raison d'être' is to take raw data and translate it into information that helps management run the business more effectively and efficiently. Good to excellent accountants do that primarily by telling management what they should hear, not what management wants to hear. As is always true in this world, there will occasionally be not a bad apple, but a truly rotten apple in the accounting barrel. Thus the strictness regarding actions that even give a hint of unethical or immoral behavior. With accountants, if it even looks a little bit off, it is a no-no." – Paid-up subscriber Don Green

 

 "If you borrow from a bank, you are beholden to pay a fixed interest rate, If you raise the same money through the issue of shares your obligation (question) is to pay a dividend, The cost is in the directors control. If the purpose of the capital raised to enhance profit then depending on the ability to increase profits it should be kept within the company. For an outside investor or shareholder all they are interested in is that the share they hold has a greater return on capital than he can achieve as a small investor in his/her private capacity. Cash held in the company earning less than the return on capital is a waste of potential profit. All that cash does is give the director the feeling of comfort.

 

"By buying back shares the directors will have fewer shares to service with dividend, which means they can increase dividend payment, that dividend increase will filter into a higher price for the share. There is NOT a set rule for whether a company should buy back shares or not or find another investment that is performing, or pay a higher dividend; generally I would like to see the company buy back shares when the public have pushed the shares to under value. Something the INSIDER, the director, should be very well aware of." – Paid-up subscriber Ray Preen

 

 "Give me a dividend any day. Share buy-backs should be outlawed. As you have yourself said many, many times, company executives are very bad at managing money. How do we know that they are buying their own shares back at the right price? Just give the money back to the share-holders and let us figure it out for ourselves." – Paid-up subscriber Ravi

 

 "[Buybacks are] great for younger folks not needing the monthly or quarterly income and looking for growth. Bad for older folks who are investing for income to live on. Unfortunately, the trend seems to be buy backs which tend to reduce dividend income." – Paid-up subscriber Al Crisp

 

Regards,

 

Sean Goldsmith

September 18, 2014

 

This brand-new technology will change our lives...

 

At the recent Stansberry Conference event in Los Angeles, 3D Robotics CEO Chris Anderson discussed the incredible technological advances we're seeing today.

 

In today's Digest Premium, he explains how one new technology is allowing everyday people to become inventors in the comfort of their own home...

 

To subscribe to Digest Premium and receive a free hardback copy of Jim Rogers' latest book, click here.

This brand-new technology will change our lives...
 

Editor's note: At the recent Stansberry Conference event in Los Angeles, 3D Robotics CEO Chris Anderson discussed the incredible technological advances we're seeing today. In today's Digest Premium, he explains how one new technology is allowing everyday people to become inventors in the comfort of their own home...

 

 

 We're going through an extraordinary period of change where the Internet's innovation model is being applied to everything else. One small example is 3D printing. I (Chris Anderson) have five children. They are growing up with these, and it is a fantastic, mind-blowing exercise for them to have the ability to fabricate anything in their home.

 

In the same way that personal computers changed many of our lives, my kids are growing up with 3D printers. They're learning that they can make anything they can imagine. Maybe they will become digital designers or architects or the next generation of inventors. I don't know. But I know that bringing one of these into my home and letting my kids experiment with it was transformative for them.

 

 In 1986, Apple released the first consumer laser printer. It cost about $3,000. It created desktop publishing, among other things. Desktop publishing took an industrial act – factories buying ink by the barrel, rolls of paper on railway cars, unionized factory workers, etc. – and made it available to regular people in their own homes.

 

It got people to think, "If I could publish, what would I publish?" Initially, we made a dog's breakfast of fonts for incredibly ugly church newsletters and lost pet posters. But we started to get better at it quickly.

 

 Ten years later, we had the next transformation, when we took the word "publish" and put it on a button in a web browser. Now we can not only create, but we can distribute. With the click of a button, you can reach as many people as the biggest media companies in the world.

 

What's fascinating is that we didn't do the same thing as the New York Times or CNN. We published different things. It unleashed a torrent of creativity and energy, because the barriers to entry in communications had fallen.

 

It's not about the invention of publishing. That happened 30 years ago. Factories have been using digital production methods for a long time. It was about the introduction of the personal, the desktop, the small, and the cheap.

 

 The 3D printer allows us to make a few of something. But how can we compete with factories? The answer is cloud manufacturing. If you have an iPhone or iPad, you can download a program called 123D Design from Autodesk for free.

 

You can design an object, upload it to a cloud 3D-printing service, and if you like it, you can upload it to a site like Alibaba where you can get factories in China to make it in any volume you want. They take PayPal and credit cards.

 

I've done this, and it's amazing. You sit there and you say, "I've invented something. I have created a prototype. I think I would like to make 1,000 of them and sell them." You press a couple more buttons, give them your credit-card number, and 10 days later, a pallet shows up at your door.

 

That's what I mean by lowering the barriers to entry for manufacturing. In the same way that Mark Zuckerberg can start Facebook in a dorm room, you now see this generation creating consumer products by using these extremely cheap web-based manufacturing and prototyping models.

 

– Chris Anderson

 

 

Editor's note: Chris gave a fascinating presentation at our Stansberry Conference event in Los Angeles, where he led a live demonstration of 3D printing and discussed the future of drones. Our event in Los Angeles was world-class, and we're hoping to top it next month in Nashville. Porter will discuss a new business he's launching... And he has an outrageous surprise planned for the event. You won't want to miss it. To reserve your "early bird" ticket before we raise prices, click here.

This brand-new technology will change our lives...

 

At the recent Stansberry Conference event in Los Angeles, 3D Robotics CEO Chris Anderson discussed the incredible technological advances we're seeing today.

 

In today's Digest Premium, he explains how one new technology is allowing everyday people to become inventors in the comfort of their own home...

 

To continue reading, scroll down or click here.