Exxon Mobil (XOM) and many of the other large exploration and production companies have a global vision as they continue to invest in shale oil exploration and production. There will always be political fallout when it comes to extracting oil from the ground and there will always be a battle here between conservationists and the large corporations. But I believe oil from shale is here to stay. Let's take a look at what is projected for this industry in the future and what some of the companies like XOM and ConocoPhillips (COP) are presently investing in.
Shale Oil
For those of you who do not understand how shale oil works, it is sedimentary rock that contains materials called "kerogen" that are released as petroleum like liquids when the rock is heated in a chemical process called pyrolysis. This process takes the "kerogen" converting it into synthetic oil and gas that can be used as a fuel upgrade. The refined fuel from this process can be used for the same purposes as those that are derived from crude oil. Even though shale oil can be found worldwide one of the largest deposits are found in the United States. The region of (Colorado, Utah, and Wyoming) is known as the Green River Formation. It has an estimated oil resource of 1.2 trillion barrels with about 800 billion recoverable. These estimates are three times greater than all the reserves in Saudi Arabia.
Oil from shale could claim up to 12% of the total global oil production, it has this potential and could lower the cost of oil up to 35% per barrel by 2035. This is one of the reasons that XOM is investing in shale oil. Not only can the global economy experience lower oil prices but this new industry could create new business models for gas and oil companies as well as shift the GDP for entire countries.
John Hawksworth, chief economist at PwC had this to say about the potential for shale oil production on gross domestic production:
"These effects could build up gradually as shale oil production rolls out across the world to produce an estimated rise in global GDP of around 2.3-3.7 per cent in 2035. This would be roughly equivalent to adding an economy the size of the UK to total global GDP in that year."
ConocoPhillips is teaming up with Canacol, out of Canada to explore regions of Colombia for shale oil. The country is becoming a very attractive region for gas and oil companies to do business in South America. In fact, oil production in Colombia has grown by 40% between 2009 and 2011 whereas neighbors like Venezuela and Ecuador has not been as accommodating and growth has either been miniscule or flat. Any shale oil found in the deeper wells will be divided between the two where COP will get 70% and Canacol will get 30%. This is a good move for COP; the company is spending more of its resources and energy on the exploration of shale oil in the Western Hemisphere while it rids itself of less productive assets in places like Nigeria, Algeria, and Kazakhstan.
Exxon Mobil recently purchased most of BNK Petroleum's assets in the Tishomingo Fields of Oklahoma for $147.5 million so that it could continue in its exploration as well as pay off debt. Most of the American exploration and production companies have a large enough war chest to develop and explore oil rich shale regions on a huge regional level. And that's why these companies are looking to jump ahead in what will be a global shale race as years progress.
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Technically Speaking
As I observe Exxon Mobil's chart, it appears for the last 4 ½ months it has been in a symmetrical consolidation pattern. The crescendo to this pattern looks like it might be happening soon. The last three weeks the stock has continued to move sideways. The stock is prone to large daily move and presently appears to be moving right in the middle of the middle Bollinger band with no sign of favoring up or down. As I look at the RSI indicator and the MACD, I come up with the same conclusion because both indicators are moving right in the middle; neutral. The only favorable signs have is a slight bullish lean in the 40 day moving average. Other than that the stock is fully neutral right now.
I believe Exxon Mobil, along with the other major exploration and production companies will open up a whole new industry in the shale oil business. In the years to come we will watch the evolution of crude oil drilling slowly evolve into a new industry of extracting oil from shale. This will keep these companies profitable for decades and they shall remain a good investment for growth and income investors.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
