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The most exciting aspect of investing in shale oil and natural gas is the incredible growth potential that the industry exhibits. The reserve estimates produced by industry experts are constantly being increased as technology improves and new, undiscovered areas of shale formations are discovered at a torrid pace. The industry is populated by vast amounts of small, independent exploration and production companies that are primed for rapid growth as they increase their output levels by leaps and bounds. To put things into a little more perspective, take for example a company that has successfully drilled and completed one well for extracting oil from a shale formation. Now, imagine that same company drilling a second well that is even more productive than the first well. That company has essentially doubled their output potential by adding only one additional well. This is the type of growth the industry is experiencing, and it could not be more exciting.
Furthermore, the American government has made drilling for oil and natural gas in the United States a relatively easy process when compared to overseas arenas. Because of the reduced bureaucracy, domestic exploration and production companies have smaller obstacles to overcome in order to begin their operations. The less complicated atmosphere surrounding oil and gas production in the United States makes these domestic companies that much more attractive knowing that there is less distance between the company and the oil and natural gas they seek.
It is hard to resist the overwhelming potential that the U.S. energy shale sector possesses. The shale explosion has only recently begun, and more and more resources will be pulled from those rock formations for decades to come. The excitement surrounding the industry is burgeoning, and Split Rock is poised to experience the surge.
Bakken & U.S. Energy Shale SMA
Split Rock Private Trading & Wealth Management continually monitors and evaluates companies with significant exposure to the Bakken shale formation of the Williston basin. We also monitor many other major oil and natural gas shale deposits including but not limited to: Bakken, Marcellus, Utica, Eagle Ford, Green River, Haynesville, and other minor deposits. We are mostly interested in "pure plays" and focus on companies that have established acreage and service footprints in the U.S. Shale sub-sector. We believe these companies have potential for rapid earnings growth and are prime takeover targets for major integrated oil companies looking to increase their proven reserves. With that said...we will occasionally purchase large everyday names if we feel that their exposure to the US Shales is significant enough to positively impact their bottom line. We also occasionally use derivatives and options in order to further enhance or protect the positions in this portfolio. Our Bakken & U.S. Energy Shale SMA tends to have higher volatility than most major energy indexes; this is due to exposure to smaller companies which inherently carry more risk than the larger companies that typically make up energy indexes.
Our strategy is driven primarily by fundamental analysis. We tend to favor companies with consistent growth and stability of earnings and dividends, limited debt, low P/E multiples relative to peers, and strong cash flows. We supplement our research with technical analysis, focusing on moving averages and support levels, as well as identifying current and potential industry trends. In this model, several companies selected might be in their initial growth stage. In which case, several aforementioned statistics may not necessarily be present. In the absence of said statistics, Split Rock may still select equities based on growth potential relative to peer groups within the related region.
We begin our research with publicly traded companies that have exposure to the shale deposits listed above. Rebalancing techniques are based on either tactical or performance related adjustments. Following trades, proceeds are used to rebalance existing holdings, held in cash for future buying opportunities, or used to enter new positions.
Holdings = Typically no more than 50 Weightings = Typically Minimum 2%, Maximum 15% Rebalancing Techniques are based on either tactical adjustments or performance related trades. Following trades, proceeds are used to rebalance existing holdings, held in cash for future buying opportunities, or used to enter new positions.
Our sell discipline is based on many factors including but not limited to: 1. Strategic and tactical adjustments as discussed earlier. 2. Ongoing fundamental and technical analysis.
In the event of any unforeseen circumstances such as environmental hazards, political unrest, etc. which negatively affect operations and production in U.S. shale deposits, Split Rock Private Trading & Wealth Management has the discretion to invest in non-shale-related energy plays.
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Duluth, Minnesota Office
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Duluth, MN 55802
Toll Free: 877.979.3262
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