August 2014
by Shawn Reynolds, Co-Portfolio Manager

The unconventional resource shale oil story in the U.S. is clearly being recognized by the stock market: Exploration & Production stock prices are up. However, these companies are being rewarded «in advance» for some of their reserves that are not yet proven. Proving those reserves, leading to production, will entail a massive amount of drilling, a quantum leap more than is currently being undertaken. The opportunity awaiting the oil service companies is similarly huge.

U.S. Petroleum and other Liquid Fuels Supply by Source, 1970-2040

Source: EIA, Annual Energy Outlook 2014 Overview

Over the past year, the technology of fracking has been enhanced, expanded and optimized. Horizontals are now longer and the service intensity of the hydraulic fracturing has increased. That is, more fractures per length of horizontal. As the number of fractures has increased, so too, as a result, has the requirement for both more fluid and proppant, i.e. sand or ceramic materials. These, in turn, need more trucks to transport them, more facilities to recycle them and more plant to utilize them. All these are provided by the oil services companies.

About the Author:
Mr. Reynolds joined VanEck in 2005 as senior analyst focusing on energy, and currently serves as co-portfolio manager of Van Eck's natural resources strategies. Prior to joining Van Eck, he was employed at Petrie Parkman & Co. as an energy analyst covering U.S. oil and gas exploration and production companies. From 1991 to 2001, Mr. Reynolds covered North American, European and global energy companies out of New York, Australia and London with Goldman Sachs, Lehman Brothers, and Credit Suisse First Boston. Prior to his career in finance, Mr. Reynolds worked at Tenneco Oil Company from 1987 to 1989 as an exploration geologist.

Mr. Reynolds received a bachelor's degree in engineering from Cornell University in 1985, a master's degree in petroleum geology from the University of Texas, Austin in 1987 (Phi Kappa Phi), and an MBA in finance from the Columbia Business School in 1991 (Beta Gamma Sigma). In 2000, he was chosen as The Wall Street Journal's «Best on the Street» for E&P stock selection, and was recognized as «Best Up and Comer», E&P Sector, for Institutional Investor magazine's 1999 All-America Research Poll. Mr. Reynolds has also authored several technical geology articles published in periodicals such as the American Association of Petroleum Geologists.

The article above is an opinion of the author and does not necessarily reflect the opinion of MV Index Solutions or its affiliates.