Fracking: The Modern Day Gold Rush

First developed in 1947, hydraulic fracturing (fracking) remained an unheard-of tactic for extraction until it was used in the Barnett Shale Basin in 1998. The process works by pumping fracturing fluids–like slickwater, gel or foam–into a wellbore at a sufficient enough rate to fracture the rocks below. When these fractures occur, the operator injects proppants into the well to prevent the fractures from closing when the fluid pressure is reduced. And finally, oil and gas leaks from the fractures into the well for extraction. This overnight success has investors looking for the best ways to play the newly abundant natural resource market [for more commodity news and analysis subscribe to our free newsletter].

The Fracking Rush

Just as in the 1849 California rush, there were some early pioneers who found the first traces of this black gold mine. Halliburton (HAL), Schlumberger (SLB), and Baker Hughes (BHI) already had the resources to become early adopters to fracking and ran the sector for a number of years. However, waves of independent energy companies have entered the market, looking to take a piece of this lucrative business for themselves. The Wall Street Journal reported that “the big three companies’ share of the North American pressure-pumping market fell to 63% in 2012 from 85% a decade ago,” as each small firm makes its own dent in the market share.

While big names in oil and gas still maintain a strong hold on the market, there are a number of new firms asserting themselves into this highly competitive field [also see How Crude Oil Traders Manipulate The Market]:

  • FrackingNabors Industries Ltd. (NBR)Currently headquartered in Bermuda with the majority of operations are in Texas, this S&P 500 component drills for oil and natural gas all around the world.
  • Patterson-UTI Energy Ince (PTEN): With over 300 marketable land-based oil and natural gas drilling rigs within the U.S. and Canada, this growing firm experienced a setback earlier this week after a number of analysts downgraded the stock.
  • Basic Energy Services (BAS): Besides providing a range of drilling operations around the central U.S., another key piece to BAS’s business is contract oil well construction  [also see The Uncertain Future For Coal].

The Dangers of the Rush

Part of the allure driving investors towards natural gas is its low price tag. Prices took a massive hit since the recession and are currently very cheap, but they may not stay down for long. While the increased supply from fracking has certainly had something to do with curtailing the price of natural gas, if prices were to jump, it could hurt a lot of companies.

If prices were to rise, consumers would likely cut back on their intake, as they could switch to alternative sources for their energy needs. If this were to happen, major companies like Halliburton, may be able to shrug off the shift, but smaller firms that have dedicated a significant amount of assets to fracking could be in for a world of hurt.

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Disclosure: No positions at time of writing.

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Commodity HQ is not an investment advisor, and any content published by Commodity HQ does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities or investment assets. Read the full disclaimer here.

One Response to “Fracking: The Modern Day Gold Rush”

  1. [...] Kinder Morgan Inc. (KMI): Another MLP, Kinder Morgan posted earnings of $0.27 per share; analysts had estimated EPS at $0.31. Revenues, however, were reported at $3.7 billion, in line with estimates [see  Fracking: The Modern Day Gold Rush]. [...]

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