Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:
The Energy Boom Is Just Starting by Joseph Dancy
Summary: Declining gas inventories and rising U.S. demand tip the scales heavily in favor of the energy investor; inventories currently cover less than 21 demand days, their lowest level in 50 years. The last new U.S. refinery was built over 30 years ago, meaning frequent equipment failures and ongoing supply issues. One play on "creaky [U.S.] refining infrastructure" is Matrix Service Company (NASDAQ:MTRX), which repairs oil refining equipment. Globally, the IEA says oil demand will grow 1.8% in 2007, and Barron's says supply will be hard put to keep up with that kind of growth. One company that has the ability to rapidly boost production is Arena Resources Inc. (ARD), which managed to boost oil and equivalent production by 76% y/y. Natural gas supply is also declining as new technologies are enabling producers to empty wells at unheard of paces, driving annual decline rates from 14% in 1990 to a present 31%. Companies that help producers extract gas from unconventional sources like shale, sands and coalbeds stand to gain, as unconventional supply has risen from 22% in 1990 to a present 56%. They include: OMNI Energy Services Corp. (OMNI) [seismic], Pioneer Drilling Co. (PDC) [drilling], and Natural Gas Services Group Inc. (NYSE:NGS) [compression]. Interoil Corp. (NYSE:IOC) has nine million acres under license in New Guinea, making it an interesting play on liquefied natural gas.
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