Over the past several years, advances in hydraulic fracturing and horizontal drilling have unlocked massive oil and gas resources formerly trapped in shale and other “tight” reservoir rocks, completely reconfiguring the US energy scene and (for a time) throwing international markets for liquefied natural gas into an oversupply. Not only did the US unseat Russia as the world’s leading producer of natural gas, but the country also managed to grow its oil output for the first time in decades.

The Energy Strategist has followed this investment theme since 2006, booking a number of substantial gains along the way.

But a recent report from the Environmental Protection Agency (EPA) attributed groundwater contamination in Pavillion, Wyo., to hydraulic fracturing, prompting concern that the government would ban or severely curtail this practice. Rather than jump to conclusions, I sat down and read the report; suffice to say, the EPA’s study is riven with inconsistencies and documents a unique situation that simply doesn’t reflect realities in large-scale US shale plays. Even if the EPA’s report had merit, the prospect of any job-killing regulation in the current political and economic environment is slim to none.

In this issue, we focus on two of our favorite oil-rich plays: the Bakken Shale in North Dakota and the Permian Basin in west Texas. We expect our favorite operators in these regions to post solid production and earnings growth in coming years.

In This Issue

The Stories

1. The recent report issued by the US Environmental Protection Agency may link hydraulic fracturing to groundwater contamination, but the study is riven with internal inconsistencies and doesn’t reflect the situation in the nation’s prolific shale oil and gas plays. Don’t expect the findings to lead to restrictive regulations on fracturing, especially in the current economic and political climate. See A Fractious Debate.

2. The Bakken Shale remains the nation’s preeminent shale oil play. See Bakken Bits.

3. Advanced drilling techniques and technologies have revitalized the oil-rich Permian Basin. This region has something for everyone: reliable production from established, low-cost plays and promising unconventional plays that should ramp up in coming years. See Big Perm.

The Stocks

Continental Resources (NYSE: CLR)–Buy in Energy Watch List
Kodiak Oil & Gas (NYSE: KOG)–Buy in Energy Watch List
Oasis Petroleum (NYSE: OAS)–Buy < 36 in Aggressive Portfolio
EOG Resources (NYSE: EOG)–Buy < 125 in Growth Portfolio
Union Pacific Corp (NYSE: UNP)–Buy in Energy Watch List
ONEOK Parthers LP (NYSE: OKS)–Buy in Energy Watch List
TransCanada Corp (TSX: TRP, NYSE: TRP)–Buy in Energy Watch List
Chevron Corp (NYSE: CVX)–Buy < 105 in Conservative Portfolio
Occidental Petroleum Corp (NYSE: OXY)–Buy < 100 in Growth Portfolio
Linn Energy LLC (NSDQ: LINE)–Buy < 40 in Growth Portfolio
Concho Resources (NYSE: CXO)–Buy in Energy Watch List