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What's Beyond Fracking?

10/07/2013 9:00 am EST


Neil George

Editor, Profitable Investing

Today, Neil George, editor of By George, discusses the hot-button topic of oil fracking and explores alternative companies that offer alternative solutions.

SPEAKER 1:  My guest today is Neil George.  Thanks for joining us.  Neil thanks for being here.  It’s so good to see you again.

NEIL:  Nancy, it’s a pleasure.  I’m always thrilled to be on the network. 

SPEAKER 1:  Thank you.  Let’s talk about your recent columns about beyond fracking.  I mean fracking is kind of a hot spot with people these days.

NEIL:  It has been Nancy and a lot of people are making a lot of money, a lot of oil companies, especially smaller and mid-size firms have gone into areas throughout the country and therefore have been able to extract a lot more oil and gas.  A lot of these companies are in the master limited partnerships, MLPs.  They have been generating a lot of income, helping out investors, but at the same time, Nancy, we’ve also had a lot of concerns over some of the potential environmental impacts…

SPEAKER 1:  The transportation of it.

NEIL:  Well we have transportation of it, we also have the idea of fracking is potentially causing some seismic activity in Ohio.  The EPA has recently released a study looking at some of the methane contamination of ground water wells in Pennsylvania and while it’s not necessarily conclusive yet, there are enough concerns that people need to be thinking about the liability and the potential liability of what’s happening in the fracking market.

SPEAKER 1:  Plus it uses a lot of water, right?

NEIL:  It uses a lot of water and as we’ve also been seeing a lot more discussion, even though many parts of the U.S., particularly back in the east, have been seeing a tremendous amount of rain throughout so far this year, other parts of the country, particularly in the west and through the Colorado river basin have seen a lot of drought.  We’ve seen a dramatic drop in river traffic, and so as a result water is still very much one of those mispriced resources that are causing concern.  So the idea, if we can look at fracking and say okay that’s done well but we basically can also look at the idea that fracking is not necessarily the ultimate form of extracting oil.

SPEAKER 1:  Nor the only.

NEIL:  And nor the only.  There’s another way.  That is a technology that came from the 1970s that I think is going to replace a great deal of what the fanfare has been surrounding the fracking industry.

SPEAKER 1:  And what is that?

NEIL:  Well Nancy, the idea that if you call fracking is not a new technology, even though many of us see the near-term effects more recently, the idea that there is another technology that came out of the 1970s.  You remember 1974, although you were probably a little tike at that point.

SPEAKER 1:  I was just three.  I lied.

NEIL:  The idea of that in 1974 we had the OPEC Oil Embargo and in response to that the Nixon Administration put a price cap on oil and therefore we created a lot of scarcity, the long lines at the gas station, and odd and even purchasing rights.  It was a bad time, but the idea in the legislation there was a little bit of a loop hole in which Nixon told the oil companies if you find more oil that you don’t know about right now you can charge whatever you want for it and therefore a few oil companies including Amerada Hess and Occidental put their scientists out in the field and they said how can we get some more oil and they came up with this way of injecting carbon dioxide into various shale and rock formations and rather than breaking things up the C02 effectively kind of crept through into the various crevices of the rocks and the clay formation and it basically lubricates the oil, if you can picture this, therefore the oil just sort of seeps out from the cracks.

SPEAKER 1:  It’s not so thick.

NEIL:  Not so thick but back then the problem was it also brought a lot of water up to it and therefore you had this oily watery mix that was unusable.  They kind of said okay this was a great idea.  It didn’t work, let’s try something else.  Fast forward into the last few years.  There have been a handful of companies that have been experimenting with the so called de-watering of oil because there are other naturally oil formations that also have a lot of water with it, and because of that newer technology people have now gone back to what Amerada Hess and Occidental did back in the 1970s and now are starting to experiment with the CO2 extraction process.  The idea that we’re starting to see some of the first fields that are occurring in Texas and in through New Mexico and so forth and also potentially parts of Oklahoma with some of these newer field technologies and the idea that U.S. agencies kind of track the amount of oil that’s produced are saying this could potentially be significantly higher than our existing production.  It will be multiples of what we’re seeing in the fracking part as far as contributing to oil supplies.  This is going to be quite big.

SPEAKER 1:  And you don’t have the problems with fracking.

NEIL:  And you don’t have the problems.  On top of that, the idea that we can take CO2, which some people consider a pollutant and basically place it in the ground and gets more out of it, we’re going to make a lot of people happy that are believers in that whole global warming thing.

SPEAKER 1:  Sure and who are the leaders in that?

NEIL:  Well Nancy the key thing is that all of us create CO2.  I’m doing it right now speaking to you and I apologize for that, but the idea that CO2 is both a naturally sourced as well as its produced out of smokestacks.

SPEAKER 1:  Right, greenhouse gases.

NEIL:  Greenhouse gases, and so the idea is you want to look at companies that are involved in the extraction and the delivery process.  One of my favorites right now that is in the forefront of this industry is Kinder Morgan Energy Partners.  KMP is the symbol.  It’s a master limited partnership, pays about 6.4%, so it’s a dividend payer as well and it also has pipelines that deliver natural gas and oil, but what they also have is Arizona.  There is a massive dome of naturally occurring CO2.  They’ve hooked up a pipe to that and put that pipe into the fields that are using this now in Texas and they’re extracting every little molecule out of this thing and pumping it over.

SPEAKER 1:  Very interesting.

NEIL:  It’s basically working quite well.  They also are partnering with Southern Corp, the utility down in Georgia and so forth, along with Siemens to put some equipment on top of their smokestacks and build it, extract it, and process it, and pipe it.

SPEAKER 1:  Interesting.

NEIL:  And therefore they’re also working on getting some carbon credits from the Europeans and some goodwill with the EPA, and then lastly there’s one of the companies in the refining business and I know refiners had a good run now where there’s a little bit of concern right now, but Valero, VLO, the company is working some of their other operations along with Air Products Company to be able to in the refining process you create CO2 and so they can effectively capture that CO2, again get carbon credits, and be able to turn around and deliver that into the oil industry.  Those are some of the key players in this industry and I think a lot of your viewers are going to be learning more about in the coming year, but you can get in now and I think I would start with KMP first.

SPEAKER 1:  Wonderful.  Thank you, Neil.

NEIL:  Thanks Nancy.

SPEAKER 1:  Thanks for being with us on the Video Network. 

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