Infrastructure Investing: Building Long-term Value

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"Soon, companies will push production even further with petro-fracking."

A few days ago, I told you that major energy companies will start expanding in 2011, to the tune of $500 billion in oil and gas exploration.

And if you think that the last three months have been good for energy stocks, that's just a drop in the bucket over the long run.

For some, failure is not an option.

Drawing Battle Lines

Montana, for example, has been green with envy over North Dakota's breakout success in the now-famous Bakken oil story, and the state fully expects the shale fever to take grip this year.

This week, Montana's governor is showing that optimism. His budget director estimated state tax revenues will be $120 million higher during the next two years. In case you were wondering, North Dakota's oil tax revenues brought in a hefty $613 million.

There appears to be a developing theme: preparing for the long haul.

And it isn't restricted to just the Bakken, either. . .

Petrobras broke its previous records for its monthly, annual, and daily oil production. By developing Brazil's offshore fields, the company's annual production increased to a tad over two million barrels per day.

And while we're on the subject of offshore—a topic that has been touchy ever since BP's debacle in the Gulf of Mexico—the Wall Street Journal recently reported the Obama administration is about to give the go-ahead for more than a dozen companies to continue deepwater drilling.

These companies already had approval when the drilling ban was put in place.

So much for the moratorium. . .

Another Way to Invest in the Future

How can we not be bullish on energy?

The fact is Canada and the United States are preparing for the long run.

These are just a few of the headlines to cross my path recently:
  • Koch Pipeline recently got shareholder approval to build a 120,000 bbl/d pipeline into Karnes County, Texas. The pipeline will connect the Eagle Ford shale drillers with Corpus Christi. Then again, the company is also planning to add more than 140,000 bbls/d of pipeline capacity in the Eagle Ford formation. . .

  • Also looking to expand its projects in South Texas, Regency Energy Partners announced expansion plans—adding 200 MMcf/d to their gathering system in the Eagle Ford shale.

  • Two weeks ago, Canada's National Energy Board gave the thumbs up for the construction and operation of the Mackenzie Gas Project. The 457-km pipeline will carry natural gas liquids to across Northern Canada and will cost an estimated $16 billion.

  • Oneok Partners, L.P. are shelling out nearly $240 million in the Woodford shale and Granite Wash plays over the next 18 months. The investment will add approximately 230 miles of NGL pipelines.

  • And then we have Enbridge's Northern Gateway project. The $5.5 billion project would send crude oil from the oil sands to a terminal near Kitimat, as well as shipping natural gas condensate back East. The pipeline would allow China direct access to the oil sands. The project isn't without a few snags, the most recent opposition coming from Canada's First Nations.
Believe me, dear reader, these headlines could go on. . . and on.

Building Long-Term Value

It pays to invest in infrastructure.

Don't believe me?

Take a look at just a few of the pipeline profits worth the wait:

chart

I realize that every investor has their own cup of tea; the thought of holding onto a stock for more than five years would send several of my day-trading friends into an epileptic shock. . .

Still, if you aren't bullish on energy of any flavor—be it oil, natural gas, solar, wind, or nuclear—then you may want to re-evaluate your position.

Of course, improving the infrastructure is just part of the long-term equation.

During the last few decades, oil and gas companies have been trying to unlock the massive reserves that were previously thought to be unrecoverable.

We all know the story. . . Within a matter of years, drillers figured out how to tap those vast shale deposits. And the last thing we want to do is underestimate technology. . .

Now, it's a matter of improving that technology.

Soon, companies will push production even further utilizing a highly specialized technology known as petro-fracking. Already used in nearly every major shale formation across North America, word is spreading like wildfire.

It's only a matter of time before the herd catches on. And those who wait for that will be too late.

Until next time,

Keith Kohl
Editor, Energy and Capital

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