It isn't necessary to find good energy stories and solid dividends in oil patches on the other side of the globe, says Bryan Perry of Cash Machine.

By year-end, all US military personnel will be out of Iraq, and the newly formed Iraqi security forces will be tasked with keeping the peace, protecting the oil fields, and repelling attacks from enemies of the state.

This marks the conclusion of US military presence in Iraq since 2003. It also serves as a rather unpopular topic of political discussion, especially given the election year that's fast approaching.

But, then again, war is never a popular topic to stump on during an election year.

Should civil war or an incursion happen before November 4, 2012, then the blood spilled, the hundreds of billions of dollars spent, and the forfeiture of oil reparations to pay for the war will paint this seemingly clever political maneuver as selfish and foolish.

That's the risk a president takes, however, when he doesn't listen to the military tactics of his generals. This type of political posturing is just one of the reasons it would behoove America greatly to rapidly expand its domestic onshore energy policy.

The benefits of doing so are both numerous and blatantly clear: Thanks to the technological advances and new drilling techniques such as horizontal drilling and hydraulic fracturing, US oil production is at its highest level since 2002. The Energy Information Administration (EIA) reports that production of crude oil rose by 3% last year alone, which is an average of roughly 7.5 million barrels per day.

Recall that I recently told you about oil production in Texas, which peaked in 1974 and was, until recently, on a steady decline. In 2008, production of crude reached a low of nearly one million barrels per day. But it has jumped 20% since then, to 1.2 million barrels per day, thanks to an industry-wide focus on the Permian Basin and the Eagle Ford Shale formations in west and south Texas, which are now undergoing a renaissance.

Other vast domestic oil and natural-gas deposits in the US that were at one time too costly to pursue include the Bakken Oil Field in North Dakota, the Wattenberg Field in northeast Colorado, and the Marcellus Shale Formation in Western Pennsylvania. Technological drilling developments have opened the flood gates for drilling there and causing what can only be called as an American oil boom.

These previously untapped areas represent modern day buried treasure and are in the nascent stages of development. Can you smell that? It's the scent of opportunity-and money.

So vast is the Bakken Shale formation that a major play there, Continental Resources (CLR), recently estimated that the company has drilled only about 15% of the wells that will be needed to develop the entire Bakken formation.

Lane Riggs, a senior VP at Valero Energy Corp. (VLO), one of the nation's largest refiners, said that his company processed 37,000 of oil per day from the Eagle Ford Shale in the second quarter of 2011 alone. And Anadarko Petroleum (APC) announced it had discovered what it believes will be 1 billion to 2 billion barrels of oil in the Wattenberg Field, which would earn it the label as the largest oil discovery in more than 40 years.

Suffice to say that, collectively, America's oil production will double over the next decade. The world markets have recognized America's new oil boom as well.

Take the two types of crude oil that are used as benchmarks in oil pricing: First, is Brent North Sea Crude, which, as the name implies, is sourced from the North Sea. It is used to price European, African, and Middle Eastern oil that is exported to the West.

Next is West Texas Intermediate (WTI), or "Texas light sweet," which is the underlying commodity of the New York Mercantile Exchange's oil-futures contracts.

Up until mid-2010, the two pricing indexes traded within $3 of each other. But as of early 2011, WTI has been gradually trading at a widening discount to NSB, to where the disparity reached a 30% discount this past October.

The reason is due to a sizable and sustainable increase in domestic onshore oil production that grows every day.

And it doesn't stop there. President Obama recently shelved the Keystone XL pipeline, which was set to deliver oil from the tar sands in Alberta to Cushing, Oklahoma and many similar refineries along the Gulf of Mexico at an initial rate of 435,000 barrels per day, until after the election.

It is again another politically inexpedient move to delay this project, which already has three years of environmental impact studies supporting its construction. Not to mention the fact that tabling the project removes the creation of more than 20,000 high-paying US jobs.

Again, Obama didn't want to polarize his alternative energy-loving, rich voter base in what is shaping up to be a highly charged and close presidential election. So, labor gets thrown under the bus as a result of this political tradeoff.

As you can tell by now, I think the anti-fossil fuel policy embraced by the current administration is wrong on several fronts, especially in the wake of budget debacles like the Solyndra meltdown and 90% of all other solar companies getting priced out of the market by China.

As far as energy policy is concerned, as a nation, we need to develop both green-energy technologies as well as onshore oil and gas exploration.

One day, fossil-fuel reserves will run dry. It's just a fact, and it argues strongly for renewable energy. On this point, I fully agree.

But if all the stars lined up for solar, wind, geothermal, hydro, algae, and biomass, the capacity of all these renewable sources of energy won't replace 10% of America's energy needs by 2025. That data is from the EIA, and it fully supports why we need to move full speed ahead with onshore oil and gas exploration.

Let's put it into perspective:

  • Domestic onshore oil and gas exploration and production creates tens of thousands of high-paying, high-quality jobs, and it's the best catalyst for restoring GDP growth in America.
  • Onshore E&P alleviates the risk of massive deepwater oil spills, like the BP (BP) disaster in the Gulf of Mexico.
  • It drastically reduces America's dependence on foreign oil imports, which in turn leads to a large scale-down of military exposure in the Middle East, which in turn allows huge savings for the national budget and brings down the unemployment rate.

It all makes sense to me, and that's why I've recommended the Cushing MLP Total Return Fund (SRV), ETRACS 2X Monthly Leveraged Long Alerian MLP Infrastructure Index (MLPL), SandRidge Mississippian Trust (SDT), and SandRidge Pemian Trust (PER) as high-income pure plays for a 2012 investment theme.

Related Reading: