The debate over fracking — as I laid out in my last story — is raging. Among the media outlets that picked up on the story was Canada’s BNN (Business News Network), which promptly invited me in to discuss both sides of the debate (and how I’m presently trading it) with anchor Andrew Bell. I’ve included the transcript of the interview below, and at the end of it I profile a pick from the OGIB trading portfolio — an oil company that has doubled production in the last 9 months, while it embarks on a program that could give them the most profitable oil in North America.

Andy:  Environmentalists up and down the continent are up in arms about the impact of fracking — potentially on seismic activity and of course water quality. But our guest says despite all the rhetoric, this process is here to stay.  Joining us from Vancouver, Keith Schaefer, Editor of the Oil & Gas Investments Bulletin.  Great to see you again, Keith.

Keith:  Thanks for having me, Andy.

Andy:  I mean the headlines pile up, don’t they?  The BC government just released a report linking fracking to earthquakes. Now, isn’t this a big threat?  I mean, isn’t fracking going to be under a major cloud for a long time?

Keith:  I think over the next couple of years, you’re going to continue to see the dance that the industry is having with the general public, explaining all the things that go on about fracking and how it’s not only beneficial but safe.  So the general public right now I think is looking for little more from the oil and gas industry… and these reports that the BC government is putting out is just the type of thing that I think can start to bring some consensus together.

So basically this report does say that — yes, there are some environmental issues around fracking, that they do cause earthquakes, and I think the industry accepts that, Andy.  The big thing is — this type of activity is really quite small and doesn’t have any major impact or even really minimal impact at the surface.   And that’s what I think the industry wants to get across to people… that it is safe, it’s not going to affect your drinking water, it’s not going to cause earthquakes and cause your pictures to fall off the walls, but there are small things that are deep underground.

Andy:  But you reckon, I mean, there is just too much money behind this — we’re hearing that President Obama for example has been very careful not to condemn fracking because of course it’s causing an economic boom in many parts of the States… and that may help get him reelected.

Keith:  Absolutely, you are seeing a huge economic input into the U.S. through the shale gas and the shale oil revolution, particularly in the Northeast U.S., where it’s been hit so hard with all the economic downturn… and now all of a sudden people are saying, ‘wow I can get some pretty big royalty checks,’ like the farmers in North Dakota are.  And so you’re seeing neighbor against neighbor, Pennsylvania against New York State.  Pennsylvania farmers are getting great royalty checks from the industry, and New York is sitting back, so it’s really created this dichotomy where there is still a very big concern about environmental possibilities versus, wow, there is a lot of money on the table here… not only for the economy but for individual people.

Andy:  Does the royalty system work the same way?  Do Canadian farmers get royalties in the same way?

Keith:  They do, yes.

Andy:  Okay, well, let’s move on.  And you reckon the industry though, the oil and gas industry — I love your expression here — they’ve just been standing there with their hands in their pockets and a blank stare, saying ‘we’ve always done it this way, we’ve always done it this way.’  Do you think that they need to address these concerns?

Keith:  I think the industry has been doing their best to try and get their message out, but I think they’re really not addressing the concerns that the public wants to hear.  They’re saying ‘yes, we’ve always done it this way, and here is the science,’ but they’ve really kind of missed the boat on guessing where public opinion is going to be next… and really dealing with the real issue of, ‘okay let’s sit down, let me show you how this works.’  And they are using the media, I think they should be doing a lot more grassroots, talking to people and really hearing them… making sure that these people feel heard, and not just putting up a brick wall with the economics and the history that says, ‘yes – this has actually been a very safe practice.’

And so, I’m really hoping that in the very near-term, the industry is going to grab this grassroots consultation and really get going… because there is a lot of money on the table here, and we really can’t afford to have a lot of this delayed for much longer.

Andy:  You reckon that in five years the fracking fluid will be food grade — how could they achieve that?

Keith:  Well, they are already working on that. That’s what – I think this is a great example of what can happen when you start to work together. The industry is very innovative, the oil and gas patch has incredible innovation and technological advancements all the time, and so now the industry is working on making fracking fluid food grade.  And the industry is going to demand – pardon me, the public is going to demand that, and I see that that’s where it’s going.  It’s going to take some time, so we’re still going to see this dance between the public and the industry, but it will happen.

And so now what we need to do is really work together, get both sides to the table, so that they really consider talking to each other to work this out.  And I think this food grade fracking fluid will happen, and it is just one example of the type of things that the industry is going to be doing to keep the public aware and happier.  And so all this public pressure, Andy, is good, but it does mean that for the next couple of years, until we really get consensus, you are going to continue to see this friction.

Andy:  You have a couple of stock ideas for us — Raging River, why do you like that one, Keith?

Keith:  Well, I really like this team, you know, Neil Roszell and Bruce Beynon have been together at Wild Stream before, which was sold to Crescent Point.  They have a history of building these companies up really well.  It has an incredible growth rate right now. They’ve more than doubled production just in the last nine months.  The Street does love this team… it gives a very high valuation.

And again, like Novus, it’s in the Viking formation, Saskatchewan — where the economics are just fantastic.  It’s low cost, and this team is also at the forefront of developing water floods into this formation. That is going to bring out a lot more oil at very cheap prices — probably $5 to $10 a barrel — lifting costs, which is incredibly profitable.  So again, over the next 18 months, I just think shareholders are going to be really well rewarded for that stock.

Andy:  And is Raging River a stock you own?

Keith:  Yes, it is.

Andy:  Great.  Keith, thank you so much for joining us today.

Keith:  Thanks, Andrew.