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The Next American Oil Boom

By Matt Badiali, editor, S&A Resource Report
Friday, April 14, 2006

There’s a new source of oil in the American West.

Today, this gigantic oil deposit sits idle — untapped — inside more than 16,000 square miles of a special kind of rock under Wyoming, Colorado, and Utah.

There’s an interesting story about this rock.  It’s about a cowboy who spent all summer building a cabin for the winter.  He chinked the cracks with mud and built a big fireplace out of local stone.  The first cold night, he built a roaring fire, and the stones of his fireplace burned down the cabin!

The cowboy built his fireplace out of oil shale... Oil shale is full of kerogen, which is like immature oil.  You can’t blame the old cowboy... at first glance, oil shale looks like an ordinary black rock.  It feels grainy to the touch and... greasy.  But as he found out the hard way, oil shale is full of crude oil...

And although you don’t hear much about oil shale, this form of “unconventional oil” has the potential to be one of America’s major sources of petroleum for the next few generations. 

I’m writing to you today because knowing how to invest in oil shale could make you great returns in the next few years.  But first, let’s go over a quick history of oil shale.

The first recorded use of oil shale in America is by the Ute Indians, as they described it as “a rock that burns.” 

In the U.S., oil shale begins to look attractive every time conventional oil gets expensive.  In the 1850’s, early oil shale entrepreneurs were upstaged by the first oil well in Titusville, Pennsylvania.  After all, why mess with squeezing oil from rocks if the stuff will gush from a hole in the ground?

In the 1940s, renewed interest in oil shale was crushed by the unlimited potential of nuclear energy and the discovery of huge oil fields in the Middle East...

As a result of the price spikes of the 70s, oil shale became a serious business among the majors... modern-day boomtowns sprung up as a result of renewed oil shale interest.  But as booms and busts go, the price of oil dropped soon after, and by 1991, the last major company pulled out, with no return to show for the massive amount of capital spent.

There’s a good reason people keep returning to the oil shale deposits... The reason?

This area - the Green River Formation - contains 2 trillion barrels of oil.

It can be difficult to imagine such massive amounts of oil. Below, I’ve included a page of the Energy Department’s report that puts those reserves in perspective... and the money that can be made.

As you can see from the table, you could even add together all the oil in the Middle East — and our reserves would still come out on top — 3-TIMES LARGER.

When asked about America’s least-publicized oil supply, Utah Senator Orrin Hatch said:

The amounts of oil are staggering. Who would have guessed that in just Colorado and Utah, there is more recoverable oil than in the Middle East?”

This past January, the government proceeded with the next step in the process. Three companies were each given 160 acres of the government's oil-rich land.

The company with the cheapest, most environmentally sound drilling method will be granted full access to the government's oil mother lode. 

Combine all this with stubbornly high oil prices, and a new American oil shale boom may be on.

Good Investing

Matt Badiali





Market Notes


OIL REFINER STOCKS AT NEW HIGHS… THANK NIMBY!


DailyWealth has a name for people who complain about high fuel prices, then turn around and hinder the production of American oil and gasoline…

We call them Congress.

We’ll stay out of the debate of drilling in northern Alaska and the coast of Florida… but we’ll point out that America’s ridiculous NIMBY (Not In My BackYard) policies have prevented a new oil refinery from being built on US soil for thirty years.

Thanks to those policies, America has less refining capacity than it did 25 years ago. Combine that lack of capacity with strong oil prices and you get expensive gasoline. 

Maybe ethanol will help, but for now, it’s high oil prices, high gasoline prices, and healthy margins for oil refiners like Valero Energy (VLO).  Valero’s stock price reflects all of this, and hit a new high this week:

The past two years in the blue chip of oil refining, Valero Energy:



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