Fracking : the new promise land of the fossil fuel industry in the US

In a little less than a decade, the fracking industry totally reshape the US oil and gas sector allowing the US to become one of today top producer of fossil fuels around the world. As such, it appears interesting from an investing standpoint to study this still booming industry and understand how this method known since the last century suceed to reshape the global oil production since 2007.

First, what is fracking ?

Fracking is the process of drilling into the earth before directing a high pressured water mixture onto the rock in order to create little cracks in the bituminous shale and allow the extraction of fossil fuels. More pratically, the process is usually carried by using teleguided tungstene carbide drills in order to drill horizontally across the bituminous shale and then release across it a high pressured mixture containing various chemicals depending on the area geology and also a certain amount of sand in order to ensure that the craks performed in the shale doesn't refract soon after the end of the fracking process.

The fracking development in the US

During the XXth century, the US became the world top consumer of oil and vastly exploit their natural resources in oil and gas to the point where domestic resources were not sufficient anymore leading to major issues such as dependancy toward middle-east producers and dramatic impacts of fossil fuels prices on the american economy. Having to deal with this critical situation, many energy companies such as Mitchell Energy started, in the early 2000s, to struggle to find financial investment but luckily that's when the fracking process came into the picture. Indeed, soon after the financial crisis of 2007, Mitchell energy made a disruptive discovery in the drilling process allowing for the first time to unload the potential of the fracking method for the exploitation of natural gas in Texas and New Mexico at a sustainable price, paving as such the way for the development of the fracking industry in the US. However, the process put into place by Mitchell energy and other pionner fracking companies has not been the only key element to the tremendous development of the US fracking sector since 2007.

Indeed, several factors came into play in order to make of the US a safe haven for the fracking sector :

- First, the land is owned by private landlords which were free to engage in deals with energy companies in order to exploit the natural resources lying underneath their land.

- Second, the structure of the american economy and more particularly it's bankrupcy code allowed the US shale industry to be somewhat resilient to the price fluctuations and trough restructuration programs gave to many companies the sufficient timelapse to adapt to the new reality of the market and cut their drilling cost once under attack of the OPEC during the period 2015 -2017.

- Third, the US have at disposal a significant amount of shale reserves that can be exploited in the years to come.

So, what now ?

As we can deduce from our previous developments, the US fracking industry is here to stay and is actually booming while still in its technological infancy. So, for investors, the actual state of the market appears like a great opportunity to get in before the rush by investing on specific companies because at the opposite of conventional oil and gas drilling process, the fracking is much more safer in term of ROI thanks to its process and most companies are now implementing digital solutions in order to improve their cost efficiency. Accordingly, it could be interesting to look more deeply into companies which are actually at the forefront of the digital innovation in the US drilling industry such as the ones below :

- Robotic Drilling Systems which is developing a fully electric and robotic drill floor for fast, seamless and fully unmanned operation of pipes and tools which can help reducing rig time and operating costs.

- Repsol which in collaboration with IBM is bringing cognitive computation to its upstream business in order to be able to process varied data sets more fluidly and carry out target analysis to increase field productivity and minimize exploration risks.

- BP which trough a partnership with Silicon Microgravity is currently developing super specialized sensor improving oilfield reservoir surveillance and potentially the yield of its conventional reservoir by up to 2%.

- Apache which with the help of Ayata is planning to use predictive analytics to anticipate critical equipment failures and increase its efficiency.

- Schlumberger which is introducing the use of wearables based on Google Glass to improve the safety and productivity of its field employees.

Also, it can still be interesting to invest on big US players of the oil and gas industry which are also investing in the fracking industry such as Devon energy, ExxonMobil Corp, ConocoPhillips, Chevron Corp ...

Disclaimer : The information contained in this article relies on my personal beliefs, and the information and/or documents contained do not constitute professional investment advice.