The Collapse Of The Shale Oil Ponzi Scheme
Has Created The Impossible:
A Stock With A Sustainable 15 Percent Dividend
In the 10+ years I’ve researched energy stocks, I have never seen a yield play like this.
It’s just over 15%–and oh-so-sustainable. And the reason it’s 15% is because everybody has left the energy sector.
This stock was a sustainable 10% yield for years—but now global investors hate energy stocks. They’ve sold these stocks—almost completely abandoned the sector in fact—and I love that. That’s what has given me this 15% yield.
That has left some juicy, high-quality yields in the energy space.
But there’s not just Big Yield here…there’s a wild card that could transform this great investment into one of the best ever.
I am so convinced this stock is a winner, I am willing to charge only $ 4.99 for the first month of my trading service.
That’s a big deal. You see, the last time I offered a trial membership to my trading service was back in April of 2014.
You see, there is a very plausible story that North American oil prices firm up in 2020. In fact, I think US oil prices find a sweet spot that will make this investment very timely right now.
And I’ve put together a simple matrix that tells me how much cash flow can be distributed to investors, if oil goes higher:
At $75 per barrel oil — this stock will yield 37 PERCENT at its current price
At $85 per barrel oil — this stock will yield 45 PERCENT at its current price
At $95 per barrel oil – this stock will yield 53 PERCENT at its current price.
And remember — before shale production arrived oil was trading at $150 per barrel on its way higher.
Of course, if American oil prices—WTI—goes higher, then this stock will not only pay a huge dividend but will be a multi-bagger from here.
But I don’t think oil prices have to go higher for dividend-paying oil stocks to go higher. Once the Market believes the oil price is not going lower, multiples will increase quickly.
I want you to think about something. Energy stocks are so cheap that even the slightest sentiment change will send these shares soaring.
But why risk your capital in E&P land—why not get a 15% yield that will go to a 10%, or even 7% yield.
To be clear, if a stock goes from 15% to 7.5% yield, and the dividend stays the same—that means the stock has doubled. DOUBLED.
Even when oil stocks were hot, the Street ignored this high-yield play—for the very best reason: it is so profitable, they never need to raise money. That means the Street would never get paid to follow the company.
This is not a shale producer. They have almost no costs, as they bring in other companies to pay for wells on their land. It’s easy to increase your dividend when you have almost no costs.
They pass on all the extra cash flow from higher oil prices along to shareholders.
It’s a very quiet company, usually issuing press releases only to tell shareholders when their next dividend cheque is coming.
Just think of what a 15 PERCENT DIVIDEND means for your personal income.
If you invest just $1,000 into this stock you are going to be getting an annual dividend of $150.
If you invest just $10,000 into this stock you are going to be receiving an annual dividend of $1500…..
Invest $100,000? Get $15,000 per year—now we’re talking real money!—and the dividends from this stock pay off your entire investment in a few years!
These days most good dividend stocks yield something close to 3 percent.
At a 3 percent yield you need to invest $500,000 to earn $15,000.
With a stock yielding a 15 PERCENT DIVIDEND you would only need to invest $100,000….
That means one-fifth of the up-front investment provides the exact same income stream.
Adding this stock to a diversified dividend portfolio is like dumping rocket fuel onto your annual dividend income stream….
Without question this stock is one of the best dividend play in the world today.
And if US oil supply rolls over in 2020 like I think it could…lots of good things happen. In fact I believe that this is likely highest sustainable yield in the history of the market.
Today I’m here to tell you the story not only about how this absurd 15 PERCENT DIVIDEND came to be—but how, if my theory is correct, this stock could give massive capital appreciation through some well-timed growth.
It is an opportunity that has been created because of the collapse of one greatest PONZI SCHEMES in history….
American shale oil.
As you follow me here, you may get mad. You may think—no wonder nobody wants to own energy. But here’s the thing—every one of these points is now BULLISH for oil.
Oil producers in North America cannot raise new equity to expand production. Credit lines are being shortened. Investors will not fund these money-losing producers.
You might think this is weird for an oil investor like me, but that’s music to my ears. To me, it solidifies—I could even use the word guarantee—that my 15% yield will be a winning trade for YEARS.
Even now, in 2019, if an oil producer either takes over another one, or announces it will increase production—the stock gets crushed. Many many management teams are locked into a death spiral of lower production and lower cash flow.
It’s sad—for the workers, the banks and the investors who didn’t do their due diligence. But for energy specialists who know what sustainable really means—it’s actually good news.
First I’ll tell you the story of how we got here. It’s the perfect set up moving forward.
Then I’m going to tell you how to lock down the only sustainable 15 PERCENT DIVIDEND that you will ever see.
The Spectacular Collapse Of the Shale Oil Ponzi Scheme
You may not know it, but fifteen years ago the entire world dodged a major bullet.
In 2008 our global economy was driving straight into disaster.
I’m not referring to the disaster that was the exploding of the U.S. housing bubble and the Great Recession that followed.
The disaster that I am referring to is a different one…
A disaster that would have been much, much worse — because it would have been permanent.
This looming disaster related to oil — it was one of only two times in the last 60 years where there was truly a pending shortage.
The truth is that in 2008 the world was on the brink of running out of oil.
In 2008 we were at the point where daily global oil consumption had exceeded the amount of oil that we could pump.
What was happening was simple economics.
When demand exceeds supply, there is only one way for price to go…..
Straight up!
I am not exaggerating to say that in 2008 were heading into a permanent world of $200 per barrel oil prices…….if not higher.
The market had caught onto this problem and the price of oil had responded.
In the year 2000 the price of oil was under $20 per barrel.
As the oil market tightened in subsequent years and demand overtook our ability to generate supply….
Oil prices soared to almost $150 per barrel….
Up more than 700% in less than a decade.
With $100-a-barrel here for now, Goldman Sachs says $200 a barrel could be a reality in the not-too-distant future — MarketWatch July 2008 (1)
In 2007 we were headed directly into an era of oil shortages, $200 per barrel oil and global turmoil………
Then we caught two massive breaks.
First, the U.S. housing bubble popped and froze the entire global financial system.
Lehman Brothers, Bear Stearns, Washington Mutual……giant American banks collapsed.
Economies across the world screeched to a halt.
That gave us a breather since it temporarily reduced global oil demand.
With that demand reduction — daily supply and demand fundamentals came back into balance.
Second, during the breather created by the Great Recession American oil producers cracked the code on a new source of oil…..
These American producers finally figured out how to extract oil that had been trapped in shale.
Source: Shale rock photo from Upstream Online
Prior to 2008…….
For 35 years American oil production had been in decline.
After peaking at 9 million barrels per day in the early 1980s….
Oil production in the United States started dropping and didn’t stop—and everyone thought it was permanent.
Year after year the amount of oil produced in the United States declined.
That meant that year after year the amount of oil imported into the United States increased.
From 9 million barrels per day in the early 1980s American oil production had dropped all the way to 5 million barrels per day by 2008.
Nearly cut in half and still dropping.
American demand for oil in 2008 was near 20 million barrels per day, and most of that oil was being imported—at nearly $150/barrel!
Then……..the SHALE MIRACLE!
Just look at the chart below that depicts American oil production — the arrival of shale is not subtle.
As the Great Recession hit in 2008 the shale boom was beginning….
Slowly at first, then it took off like a rocket!!!
After declining for decades, U.S. oil production soared — doubling and now nearing 13 million barrels per day.
Anyone closely tied to the oil market knows this to be true….
Shale saved the world from $200 per barrel oil, and a huge global recession.
I shudder to think about what the world would look like today had the energy sector not cracked the shale code.
With worldwide oil shortages, we wouldn’t just have $200 per barrel oil.
We would also have widespread conflict as countries desperately scrambled to secure oil to feed their economies.
Image Source: New Security Beat
No country would have been more desperate than America — which is by far the biggest guzzler of oil on the planet.
But there would be plenty of competition from China, Japan and other major importing nations.
We can count our blessings because the shale miracle saved us………
OR CAN WE ——because it is now being revealed that the shale boom wasn’t really a miracle after all.
Instead this shale boom was a mirage, a game of smoke and mirrors.
The truth is that this shale oil production surge was actually built upon the biggest PONZI SCHEME in history….
A PONZI SCHEME that has now had the rug pulled out from underneath it.
With Losses Of $200 Billion
And Climbing
Shale Is No Miracle
You will not find anyone who disputes the fact that American shale saved us from an oil disaster.
In 2008 there were no taps left to open.
Every nation was producing at full capacity and we still couldn’t keep up with daily oil demand.
We really don’t know how high the price of oil would have gone if shale hadn’t been there to save us.
$200 per barrel oil is probably the best we could have hoped for —— we were almost to that price already in 2008.
While shale was a miracle for oil prices, we are learning that it is not a permanent solution.
The reality is that shale has a very dirty secret.
It does not work economically….
The oil companies that have been pumping shale RARELY make any money.
The vast majority of them don’t.
In fact, since shale arrived on the scene just over a decade ago these companies have burned through more than $200 BILLION in cash!!! (2)
With that kind of cash burn, shale oil has been one of the greatest destroyers of capital in the history of American business.
What that means is that the shale oil production surge hasn’t been built on solid economics.
Instead it was been built on a giant Wall Street PONZI SCHEME….
Just like Bernie Madoff — just much, much bigger.
Shale drilling has involved hundreds upon hundreds of billions of dollars poured into the ground.
Like all PONZI SCHEMES —— the shale PONZI SCHEME is now crumbling.
In the end it is always economics that determine where cash goes.
The economics of shale don’t work…..
Now the house of cards is now tumbling down.
For years Wall Street investment banks have funneled billions and billions of dollars to the shale producers.
That cash has come from the shale companies repeatedly issuing more debt and more equity…
With greedy Wall Street banks more than happy to peddle these securities order to earn their massive investment banking fees……
For years investors have bought into them hook, line and sinker.
Wall Street has sold them under the premise of the shale growth miracle — and the billions of barrels of oil that these companies have yet to produce.
To be very clear, the oil production boom that shale is responsible for is very much real.
The problem relates to the economics that underpin it….
Those economics don’t work.
Spending money to drill shale oil wells is not a good investment.
The shale production boom hasn’t been built on profitability….
Instead this shale boom has been built entirely by other people’s money.
Quarter after quarter, year after year…..
The shale oil producers (frackers) have bled cash.
The scary thing is that it doesn’t even matter what the price of oil is.
This industry has burned through billions of cash and turned no profits at every step of the way.
The shale boom hasn’t been built on cash flow and profits.
It has been built on bringing more cash into the PONZI SCHEME.
Like all PONZI SCHEMES….
This one works as long as the cash from suckers keeps rolling in.
But also just like all PONZI SCHEMES — eventually those suckers wise up and stop supplying that cash.
Which is exactly what is happening right now.
The shale PONZI SCHEME is collapsing.
With it, so too will American oil production……the only source of oil production growth on the planet.
The very shale production that saved us from $200 per barrel oil just a few years ago.
The Wall Street cash funnel is now closed to shale producers.
The suckers have wised-up……they are done giving hundreds of billions of dollars to shale producers only to watch them burn through it.
Now comes the fallout. NOBODY is funding new oil production.
Now comes the opportunity to profit from the collapse of shale!
It Is Going to Get Really
Ugly From Here
2020 Will Be Ground Zero for Shale
I referenced the figure before and it was most recently reported in Bloomberg.
The net cash outflow from the shale industry now exceeds $200 BILLION.
That $200 billion is cash that the Wall Street PONZI SCHEME has pumped into the shale industry.
That is $200 billion of cash that has allowed these shale producers to drill thousands upon thousands of wells that they otherwise couldn’t have paid for.
Take away that cash and there is no shale miracle.
Friends, it is now becoming very clear….
We are now witnessing nothing less than the FAILURE OF SHALE.
Investors are done with losing money that they have poured into shale companies.
The Wall Street PONZI SCHEME cash door is closed…….
That has the shale producers are panicking.
Budgets are being slashed, drilling rigs shut down, employees laid off……
These are all moves that are happening now — and have been taking place for several months.
The results of those moves are already showing up in American oil production.
In 2020 the market is going to be shocked by how badly shale production rolls over.
There is a rude awakening coming next year — although there shouldn’t be.
The signs are there right now for anyone paying attention.
Perhaps no sign is as blatantly obvious as the soaring number of bankruptcies that are now taking place in the shale industry.
Month after month, we are witnessing shale producers are running out of money.
As that happens, they are being forced into bankruptcy.
Up until recently these companies never ran out of money.
They had an unlimited source of cash coming in from the Wall Street PONZI SCHEME.
With the PONZI SCHEME cash inflows now slowed to a trickle.
These shale producers are forced to rely on the economics of the wells they drill to fund their operations.
Forced to live on their own economics — these shale producers can’t make a go of it.
Companies are failing left and right.
As each of these dominoes fall, it takes a toll on how much oil is going to be produced in 2020.
And every year thereafter.
American shale production saved the world from $200 per barrel oil.
With American shale now failing the implications are pretty obvious…..
The American shale oil tap is being turned off.
In 2020 the entire world is going to quickly learn that our shale savior is actually nothing more than a PONZI scheme — that is now imploding.
When the world figures that out…..
There is going to be huge money to be made for people who are properly positioned for it.
I PROMISE YOU…..
In fact ……if you are one of the few readers who is willing to stick with me and truly understand what is happening to shale
There is a sustainable 15 PERCENT DIVIDEND waiting for you at the end.
Shale Canary In The Coal Mine #1
Technology Has Lost The Fight
Against Bad Shale Geology
Unfortunately for the entire world…
The problems with shale run far deeper than just how the industry has financed the drilling of tens of thousands of wells.
This isn’t just a funding problem.
There are several other canaries in the shale coal mine that are signaling that all is not well.
The first of those canaries is an alarming problem with deteriorating shale geology.
Or more simply put……
The industry has already drilled all of the best shale wells — and the well quality only gets worse from here.
That isn’t encouraging news…
Especially when you consider that the only thing that this is an industry that has already burned through $200 billion without making any money.
Over the past decade, the shale operators have focused their wells in the most obvious places.
The best shale rocks have been drilled first.
That isn’t a criticism — the best wells should be the wells that are drilled first.
Capital should have been allocated to the most deserving opportunities.
These were the first tier oil well locations….
The problem wasn’t that they were drilled — the problem was that they were drilled and didn’t make any money.
Research firm Rystad Energy performed a comprehensive study of 40 dedicated US shale oil companies. (3)
Rystad focused specifically on how much cash flow these companies were generating from producing oil…..
Versus how much money they had to spend drill it.
What Rystad found was that in 2019 just 10% of shale companies were able to generate positive cash flow.
Rystad referred to the industry as having a “staggering level of overspend” in 2019.
That isn’t good. Because this is what happened when these companies are drilling their best, Tier One, well locations.
It only gets worse from here….
Now companies are moving onto the second tier locations which have lesser quality geology.
The proof is in the numbers.
For the first time since the shale boom began — well results are getting worse.
Production from new wells in 2019 is coming in 11% below new well production levels in 2018..(4)
That is obviously concerning.
But it is even more concerning that the 11% decline would suggest.
Because that 11% production decline is happening despite the industry drilling bigger and more expensive wells in 2019.
Shale producers are spending more to produce less.
The industry knows it has a problem and is trying to hide it by throwing money at it with more expensive drilling techniques.
But it isn’t working — these more expensive wells aren’t even generating the same production rates as their 2018 counterparts.
That means the already terrible economics of drilling shale wells is getting even worse.
With bigger, more expensive wells, 2019 production per well should be UP, far in excess of 2018 levels.
Not down.
For the past decade American shale producers have burned through cash even though they have been drilling the very best wells.
Now that the Tier One drilling locations are being exhausted the economics of shale aren’t going to get better….
They are going to get worse — just the PONZI SCHEME funding source disappears.
What this means is that the shale industry isn’t going to just be drilling a lot fewer wells because the PONZI SCHEME cash is gone…
The wells that the shale industry is drilling are also much worse than the wells that it has been drilling in prior years.
What this all boils down to is a simple math equation….
FEWER WELLS + WORSE WELLS = THE END OF THE SHALE BOOM
The math isn’t pretty and it is sending us a very clear message.
Our oil market savior is no more.
In 2020 the oil market is going to get a rude awakening.
Shale Canary #2
These Wells Have A Major
Gas Problem
You can’t blame the shale producers for drilling the best wells first.
The whole point of business after all is to try and make as much money as possible.
The problem for shale producers and their shareholders — even these First Tier wells haven’t made any money.
Now the industry is moving to the Second Tier wells.
These are the wells that are outside the core acreage that companies control.
Even though the shale producers are throwing more money at these wells….
They are still producing less.
But there is another problem with these Second Tier wells.
Production from these wells isn’t just smaller, it is also less weighted towards oil.
As the shale producers move away from the core of their acreage……their production is GETTING GASSY.
Let me explain what that means.
Every shale well that these companies drill contains a mix of oil and natural gas.
What the companies want are wells that are almost all oil.
The reason for that is simple — oil is worth much more than natural gas—like, 10x as much.
As these companies move further away from the core of their acreage….
The wells they drill are producing less oil and more natural gas.
That means the economics of these wells are getting worse—because natgas is essentially worthless; it produces almost no positive cash flow.
It seems that these shale oil wells are not turning out to be what they were initially hoped……or perhaps “hyped” to be.
Proof of this is now showing up in the numbers at an alarming rate.
Case in point — the shale well results of one of the largest shale oil producers Pioneer Resources.
In 2015 Pioneer told investors that each of its shale wells would ultimately produce an impressive 960,000 barrels of oil. (5)
Wow — almost 1 million barrels per well.
Wall Street took that figure and sold it to investors repeatedly.
Pioneer was able to capitalize by raising billions of dollars of capital in the public markets.
The Wall Street investment bankers made out like bandits pocketing their fat fees.
Fat fees they collected for selling a dream……
Not reality.
Fast forward to today…….where the actual results of these wells show that they are not even close to meeting expectations.
In an expose published by the Wall Street Journal…
It was revealed that after several years of production Pioneer’s wells are not on track to produce 960,000 barrels of oil.
Not even close.
Instead, the Wall Street Journal revealed that these wells are on track to produce 720,000 barrels of oil.
A shocking drop of 25 percent from initial estimates….
Cutting 25 percent of the revenue that was expected doesn’t change the profitability of these wells slightly.
It completely guts the economics.
Pioneer’s wells produce less than was originally advertised and they also have a higher gas weighting than originally advertised…
Hey — when you are selling a PONZI SCHEME you have to be able to tell a good story.
Unfortunately it was only a good story….
The reality of these wells is not nearly matching up to the initial hype.
Now please don’t think that I’m picking on Pioneer….
This company was simply playing the game that the entire shale industry was involved with.
The Wall Street Journal further noted that more than two-thirds of the projections by fracking companies between 2014 and 2017…have been overly optimistic.
This is based on detailed analysis of more than 16,000 shale wells conducted….
In total, The Wall Street Journal estimated that American shale oil producers had overestimated their reserves by…get this….
1 Billion Barrels of oil!!!!
At $60 per barrel that is a $60 billion hole that has been punched in the supposed value of these shale producers.
As the great Warren Buffett is fond of saying….
“We don’t find out who is swimming naked until the tide goes out”…
The tide just went out on the American shale story — and there isn’t a swimsuit to be seen.
It kind of makes you want to own a company that is poised to benefit from the collapse of shale doesn’t it?
Perhaps one with a sustainable 15 PERCENT DIVIDEND……
Shale Canary #3
A Major Decline Rate Problem
Has Emerged
The shale story was a good one….
A story that has been backed up by surging American oil production.
Wall Street sold a story of growth to investors…and that growth story was no lie.
American oil production surged thanks to shale.
The problem is that growth for the sake of growth isn’t a good thing.
What matters is whether or not the growth is profitable.
For shale oil that was not the case.
This surging production was built on a house of cards.
Funded by a giant Wall Street PONZI SCHEME that has now been exposed.
What is exposing the shale story — more accurately the shale PONZI SCHEME is cold hard data.
People Tell Stories–Data Tells
The Truth.
Production data is showing how new shale wells being drilled are getting worse as the industry moves to Second Tier locations.
Production data is showing worsening economics as shale wells produce more natural gas and less oil.
And the shale production data disappointments just keep rolling in….
The next data point is the horrifyingly high rate at which existing production is declining.
Decline rates have always been a problem for shale oil wells.
What happens is that as soon as a shale well gets put on production…..that rate of production immediately starts dropping.
More accurately it starts dropping HARD.
And it happens on the very first day….
The chart below shows the typical production “curve” for a shale oil well.
Here is how it works…
A typical shale oil well would start producing on Day 1 at 500 barrels oil per day.
Now, that sounds like a pretty good well.
And it would be….
The problem is that by Day 2 the rate of production from that well has already dropped.
Then it keeps dropping every day thereafter.
After one year of production a typical shale oil well will have seen production drop by 70%…….or more!
These wells quickly become shadows of their original selves.
Those production declines never stop — they just continue on at very high rates.
With production continually declining at a high percentage rate production is soon reduced to a trickle.
Within the industry it is known as the TREADMILL FROM HELL…
It is called that because the industry must continually drill like madmen to offset those production declines.
Just like running on a treadmill….
You can’t stop or you will immediately fall off.
If new wells are not constantly being put on production companies will see their production plummet.
Can you see where this headed?
With the giant Wall Street PONZI SCHEME that supplied the cash that allowed shale producers to drill at a frantic pace being shut off…..
There isn’t going to be enough drilling to offset those hyperbolic production declines.
Without the Wall Street cash inflows the shale industry isn’t going to be able to run fast enough to keep up…
This shale oil production boom is all smoke and mirrors…..
It always was.
Not only was it funded by a PONZI SCHEME —— but shale production also has absolutely no staying power.
Shut off the PONZI SCHEME and very quickly the shale producers aren’t going to be able to keep up with the TREADMILL FROM HELL.
Again what we are looking at here is simple math.
First…we know the math on the shale oil decline rates.
Horrifyingly high.
Second…. we know the math on the billions and billions of dollars of cash the industry needs to offset those decline rates by frantically drilling new wells.
That cash is now gone….vanished!
Simple math tells us that once the cash source is closed — shale production is going in the tank.
When shale production goes in the tank it doesn’t take advanced level mathematics to figure out where the price of oil is going.
I’ll give you a hint — it isn’t lower.
Shale Canary #4
The Horizontal Rig Count Is Collapsing
Without the arrival of shale oil a decade ago the price of oil would be $200 per barrel today.
If not higher….
The Middle East would be on fire.
The United States and China would be desperately competing against each other to lock down a secure source of oil.
Shale oil saved us from an economic disaster.
Perhaps a fate even worse than that.
But what we are now discovering…….
Is that the shale business model doesn’t work.
The shale business is like borrowing on your credit card at an interest rate of 21%….
To invest in a term deposit that pays an interest rate of 2%.
The shale producers are not sustainable businesses — the growth that they generated was built on an illusion.
An illusion created by the shale producers being able to massively overspend….
By tapping into the Wall Street PONZI SCHEME.
Wall Street constantly pumped money into the shale engine….
The shale engine pumped continuously into the ground.
The result was that shale production soared….
But the profits of these companies didn’t.
2020 is going to be the year that the unsustainability of the shale business model is revealed to the world.
Growth hid the facts.
But the facts are there.
To be clear……the collapse of shale isn’t what I expect to happen.
This is what is already happening…
Again, when in doubt look to the data — because that is where the truth can be found.
The chart below represents that data.
This chart shows how many horizontal shale drilling rigs are running in the United States.
Remember — to keep shale oil production from falling off a cliff…..
The industry needs to drill at a continuous, frantic pace.
Just look at what is happening to that shale rig count…
Speaking of falling off a cliff!
The shale producers know that they are in trouble and this chart makes that very clear.
The industry is rapidly shutting down drilling rigs that it no longer has the cash to pay for.
Fewer rigs operating means that there are fewer wells being drilled.
And once the number of wells being drilled drops.
So does shale oil production — WHICH IS EXACTLY WHAT IS HAPPENING!!!
Heading into 2019 American shale production had been growing at a tremendous clip.
Now as we exit 2019 with the PONZI SCHEME cash source closed the chart above shows that production growth is rapidly disappearing.
Growth that the world desperately needs.
By 2020 the truth is going to become abundantly clear.
The shale PONZI SCHEME is over……
And that the shale oil growth miracle that saved the world from $200 per barrel oil has collapsed.
Shale Canary #5
Shale CEO’s Aren’t Supposed
To Be Saying Things Like This!
After a decade of not making any money for investors…..
The shale industry is facing a complete capital retreat.
Investors have finally had enough.
Wall Street is no longer able to convince them to invest money into unprofitable growth.
I already showed you how simple the math is on this.
The hyperbolic decline rates of shale oil mean that drilling must continue at a frantic pace.
To keep drilling at the frantic pace the shale industry requires billions of dollars of cash……
Now that we know that the cash has dried up — so too will those high decline shale wells.
While you and I can undoubtedly understand this simple math….
So too can the shale CEOs, who know exactly what is coming.
For years these CEOs have talked their books — told us how incredibly profitable shale production is.
That is how the game worked.
The shale CEOs promoted their product and Wall Street sold it to investors.
What is coming out of the mouths of these shale CEOs today is a radical change of face….
Suddenly..these CEOs are being rather honest about their not so bullish future.
With the Wall Street PONZI SCHEME closed down they no longer benefit from playing the game.
I’ve been tracking what they have recently been saying.
It is more than a little eye-opening.
And is very revealing about the coming shale oil collapse.
Consider what Steve Schlotterbeck the former CEO of shale giant EQT Corporation said recently about shale producers. (6)
Here are his exact words…
That is a hard truth that verifies what we have been discussing today.
And exactly what the world is soon to learn….
The shale business model doesn’t work.
Shale production isn’t a miracle.
It is the product of hundreds of billions of dollars that have come from a Wall Street PONZI SCHEME — and been spent drilling wells.
Wells that don’t make any money!!!
Instead of making money……all of that spending has lost money for investors.
Enormous amount of money.
What these shale CEOs are saying is very important to take note of.
These gentlemen are supposed to be talking their own book — and pounding the table on the greatness of shale.
But that isn’t what is happening.
What is coming is so bleak that they are openly bearish about their own companies.
Pioneer Natural Resources (PXD) is the largest independent shale producer.
The company’s Chief Executive Officer Scott Sheffield recently commented when asked about the future of shale….(7)
This is a man who is paid very well to be bullish about the prospects for American shale oil.
But he isn’t bullish — he is very bearish.
These are words that should be paid attention to.
The CEO of the largest independent American shale oil producer is telling us that writing is on the wall.
The only source of oil production growth in the world is on the verge of rolling over.
After years of doing nothing but destroying investor capital the lifeblood of shale production growth is gone.
The shale producers have had their cash source cut-off.
Even the Godfather of shale oil himself — Mark Papa of Centennial Resource Development believes that the end for shale is at hand..(8)
There it is right from the horse’s mouth….
The shale boom is over and the market is not prepared for it.
Mark Papa, Scott Sheffield and Steve Schlotterbeck have front row seats to what is happening to shale oil production.
And even though it is in their best interests to tell you how great shale production is — THEY CAN’T.
The reason why they can’t is because it is so blatantly obvious that the PONZI SCHEME has gone bust.
What I can’t understand is how the investment world is ignoring the warnings from these shale CEOs…..
I don’t understand why the rest of the investment world isn’t doing what I’m doing…….which is position myself for massive profits in 2020 as shale rolls over.
THIS IS A NORTH AMERICAN ISSUE
There is still lots of international oil demand; global demand continues to increase at more than 1 million barrels per day every year. Chinese oil imports continue to increase.
But there is enough oil in the rest of the world to meet that demand…for a couple more years. OPEC—well really, it’s the Saudis—have reduced production in the last five years to keep oil prices high. They can ramp up production again if they want.
But in the United States, oil production could roll over in 2020. Lower production means lower cash flow and lower stock prices for North American shale oil producers.
This is great news for my oil company paying me a sustainable 15% yield!
Honestly folks, I could talk to you for another hour on why WTI oil prices in the US have a new floor under them, and why I think they even go higher in 2020.
But let me just give you One. More. Point.
DUCs stands for Drilled-Un-Completed wells. Completion basically equals fracking—so these are wells that haven’t been fracked and brought into production. They are a quick, very low-cost way for shale producers to increase production.
Why would they increase production when I’ve shown they are actually burning cash with every well? It’s because the senior management teams are incentivized to increase production, not increase cash flow.
US brokerage firm Raymond James argues—convincingly, IMHO—that DUCs have been the reason US production is up so much this year.
They report that DUCs have declined by ~25% in 2019, and they are being used up faster and faster—as you can see by the chart below.
From June thru Oct, DUCs were reduced by 732 or an average of 146 over the 5 months.
But the month-over-month (MoM) reduction in DUCs was 204 in September and 225 in October, well above the average of 146 over the May 1 thru Oct 31 period.
DUCs are the last cheap sources of new shale oil production in the USA. Raymond James estimates that by March 2020, there will be no more surplus of DUCs. That could be a very important inflection point for WTI prices.
And it’s not like producers can go raise money for new wells. As I said, debt lines are actually being reduced now and, get this…
For the first time in years, there was NO new equity raised by US oil producers!! See this chart below:
This is VERY, VERY bullish for US oil prices.
Why do I keep harping on US oil prices? There’s a couple of reasons.
One is because I think international supply and demand will stay in more balance than in America. I think the Market sees reduced supply in the US in 2020.
Understand that this may not increase US oil prices. But it WILL increase the multiple for US non-shale US oil stocks with very low decline rates.
As soon as the Market is convinced that WTI is NOT going into the $40s per barrel, US oil stocks will rise.
And the stocks that will rise the most will be dividend-paying stocks with very low decline rates. That’s what I want to show you today.
Never, Ever…
Have Good Non-Shale Oil Producers
Been This Cheap
The entire energy sector has literally NEVER BEEN THIS CHEAP.
Especially the smaller companies….
As I just showed you……
The entire S&P SmallCap index is down 90 percent!
That is why for intelligent investors the opportunity has never been this big.
Good company, or bad.
They have all been treated the same by the stock market at this point.
The market hates all oil producers…
In terms of investor sentiment, the energy sector ranks dead last.
Share prices of cash gushing oil producers have been beaten down just like the share prices of money-losing shale operators.
And these good oil producers are available at incredibly discounted prices right now — just as American shale production is about to roll over.
Make sure that you understand what that means.
The share prices of good oil producers are historically cheap using current $50 per barrel oil prices as the base of that valuation.
These companies are table pounding buys right now.
Every dollar that oil goes higher these good oil producers generate more cash flow which means they become even better bargains.
By every measure shares of good oil producers, today are radically undervalued.
Today energy-related equities make up a mere 4% of the S&P 500.
Not only does this represent the lowest level in decades…..
It is 75% below the peak levels reached in 2008 when energy stocks made up 16% of the S&P 500.
That means that with current oil prices the entire sector could double and still not be expensive.
If oil prices moved higher the entire sector could quadruple and not be beyond historical norms.
That is the entire sector…
Individual producers that are the most unfairly beaten down could see their share prices go up four, five or six times easily.
And again remember……it isn’t just the producers that are historically cheap.
So too is the price of oil itself — because of the temporary lid that the shale PONZI SCHEME has created.
We have 120 years of data to work with that shows just how cheap a barrel of oil is today.
Over the past 120 years, it took on average 17 barrels of oil to buy one unit of the S&P 500.
Today — it takes 53 barrels of oil to buy that same one unit of the S&P 500.
In other words………
Just to reach the average historical valuation the price of oil needs to increase by more than 150%.
Based on 120 years of historical information a barrel of oil should be selling for more than $170 per barrel today.
I’ve shown you that the share prices of oil producers are dirt cheap at current oil prices.
Just imagine how cheap they would be at $170 per barrel oil.
Now let’s zero on the single best opportunity that this beaten-down area of the market has to offer.
If You Don’t Make A Sound
Nobody Will Hear About Your
15 Percent Dividend
For most publicly traded companies the purpose for existing is pretty simple.
Every day of the week the plan is to do everything possible to drive your share price higher.
That is why the management teams of these companies are attending all of those conferences.
And issuing press releases right and left.
On the surface that might sound good to you as an investor.
After all, what you want is to see that share price driven higher.
When you dig a little deeper though, you realize that this constant focus on trying to get attention to drive the share price……
Actually drives a lot of short term (and poor) decision making.
For a very small minority of small companies, stock market attention isn’t something that they desperately seek.
In fact for some small companies the less attention the better.
The good news for these companies is that it isn’t hard to disappear.
The small companies that do everything they possibly can find it almost impossible to attract investor interest.
For the small companies that want to disappear from view….
It is extremely easy to slip by unnoticed in the world of 615,000 publicly traded stocks.
This is where you find a PINK UNICORN….
An animal that people think doesn’t exist, because they haven’t ever seen it.
This is where you find a 15 PERCENT DIVIDEND….
Something that investors think can’t exist because nobody ever shows them one.
And it isn’t hard to understand why some small companies would choose to be invisible.
These are small companies that are financially strong and disciplined…
Therefore they don’t need (or want) Wall Street’s expensive capital.
Exactly the opposite approach of the shale cowboys who have turned $200 billion into nothing.
My 15 PERCENT DIVIDEND stock for example carries absolutely no debt.
One of many ways why this company is the ultimate anti-shale investment.
Nor does it ever have the intention of having any debt….
That means this company doesn’t need to make the investment banks like them.
In fact they want nothing to do with Wall Street whatsoever.
A company like this prefers to keep their heads down and run their business.
They don’t want greedy Wall Street investment bankers phoning them every day trying to tell them what to do.
By keeping a low profile, Wall Street doesn’t even know this 15 PERCENT yielding stock exists.
It isn’t just Wall Street investment bankers that they want to avoid.
They also don’t want institutional investors (hedge funds and mutual funds) buying up all of the shares….
And in doing so bringing their short term thinking and disrupting a successful long term business plan.
They don’t want to have to deal with constantly answering analyst questions, attending conferences and hosting conference calls.
This company wants to be the needle in the haystack that isn’t found because they like it that way.
It is better for business.
Dealing with Wall Street and raising investor awareness is very expensive.
When you don’t need Wall Street’s money these are costs that you can avoid.
When you have a great business model that generates gobs of cash flow….
You don’t want Wall Street’s short term mindset coming in and ruining a good thing.
Let me tell you when a small company doesn’t want to be found it is not hard to stay hidden.
With a market cap of well under $100 million……
If this company doesn’t want to be found — it isn’t going to be found.
Especially today in the energy sector.
This is exactly how my subscribers and I were able to lock down a 15 PERCENT DIVIDEND…
Staying hidden isn’t hard……
This company issues no press releases to brag about company accomplishments.
Zero!
This company’s website looks like something from the 1990s….it is UGLY!!
They don’t care how it looks….
There is literally no investor relations area and forget about a fancy corporate presentation.
This company hasn’t ever prepared an investor presentation.
Attending investor road shows to present the company to investors?
Forget about it.
This company cares about one thing…….successfully running the business.
And by running that business they generate the cash flow that funds their dividend.
A 15 PERCENT DIVIDEND….
While the shale companies burn through cash this company generates it — in fact generates far more than it needs to run the business.
While shale companies consume investor cash this company pays cash out to investors as a dividend.
A dividend that has blown out to 15 PERCENT as the energy sector has fallen out of favor.
With more than 615,000 publicly traded stocks in the world competing for attention….
It is hard to be discovered, even when you want to.
Most small cap stocks are standing on the table and waving their arms to try and catch investor attention.
Yet — they seldom do because 99 percent of cash gets direct towards larger stocks…..
So when a small, sub $100 million market cap company wants to stay hidden…
All it has to do is stay as quiet as a mouse.
Everything Wrong With Shale
Is What Is Right About This
15 Percent Dividend Stock
Owning shale producers has been a disaster for investors.
These businesses have destroyed capital — not created value.
The shale producers have had massive net cash outflows.
Funded by repeated issuances of equity and balance sheets loaded with debt.
There is just so much not too like about shale producers.
My 15 PERCENT DIVIDEND stock has nothing to do with shale.
And is nothing like the shale companies.
In fact the operations of this company are basically the exact opposite of shale.
It is the anti-shale investment….
Everything wrong with shale is right about this company.
That means……
No hyperbolic decline rates — this company has the lowest production declines in the industry.
No debt — when you have superior economics you don’t need to rely on other people’s money.
No natural gas problem — this is a near pure-play on oil.
No capital expenditures — this company has a unique business model that allows them to benefit from the spending of other operators.
No net cash outflows — the only outflow is the 15 PERCENT DIVIDEND to shareholders.
No Wall Street PONZI SCHEME…..
In fact no Wall Street involvement at all — this company is intentionally off of everyone’s radar.
What this company has is one thing, and one thing only.
Gobs of free cash flow.
Free cash flow, the entirety of which is paid out to investors as a dividend.
This stock isn’t just unlike shale….
This is the opposite of shale — the anti-shale investment.
Despite that……
This company’s share price is deeply, deeply depressed.
A bargain unlike any that I have ever found before.
A dividend unlike any that I have ever found before.
The cash flows and dividends of this company are directly tied to the price of oil.
At the current price of oil
A dividend that is directly tied to the price of oil.
If you tell me what the price of oil is going to be…..
I can tell you what the dividend payout will be.
The leverage to oil prices rising is huge.
Shale oil production is rolling over — as the market comes to terms with this the price of oil is going to go up.
We don’t need that to happen for this stock to be a huge win.
My most bearish case for an average oil price in 2020 is $67 per barrel.
That is less than $10 per barrel higher than where we trade today…before the shale collapse hits home.
At $67 per barrel oil this stock yields 30 PERCENT…….an absurd dividend yield.
If I’ve been too conservative with the price of oil then that yield goes higher……
Check out these numbers.
At $75 per barrel oil — this stock will yield 37 PERCENT
At $85 per barrel oil — this stock will yield 45 PERCENT
At $95 per barrel oil – this stock will yield 53 PERCENT
At those prices this stock will pay annual dividends that exceed its current share price.
Crazy — I know….
All that I can say is thank you.
Thank you to the shale cowboys and the greedy Wall Street investment bankers……
Thank you for making this sector so hated that I could find a 15 PERCENT DIVIDEND using my most bearish 2020 oil price model.
I’m so excited to share this massive dividend with you.
But I first want you to understand one very important thing.
And this is crucially important.
This company is not a one way trade on oil.
We don’t need oil prices to go higher from here for this to be a massive win.
My base case is that this stock will provide a 15 PERCENT DIVIDEND in 2020.
This is the best dividend opportunity that I’ve ever found.
If you know of any other stock that offers this kind of sustainable yield please let me know about it….
Seriously! I pay hundreds of thousands of dollars in research each year and I’m more than happy to direct that towards whoever finds me another stock like this…
A stock that offers a 15 PERCENT SUSTAINABLE DIVIDEND—with the optionality of a stock that can double in a year.
I’m so proud to share it with you so that you can fact check everything that I’ve told you today.
And most importantly….lockdown that 15 PERCENT DIVIDEND right now before 2020 arrives…..
And the collapse of the Shale PONZI SCHEME brings investor attention to this opportunity.
I’m giving you this stock RISK-FREE today. I’ve laid out a compelling case for a bullish turn in oil prices. But oil doesn’t have to go up for this stock to run up.
You can start making 15% per year, and quite possibly a lot more if everything I’ve outlined how these trends are starting to impact oil prices.
I told you earlier how energy stocks have been left for dead since 2014. But I continue to find winning stocks.
In July 2016, I alerted subscribers to Resolute Energy—REN-NYSE—at $7. The stock took off immediately! It was over $15—a double—within one month. With a discovery in the Permian, the stock quickly ran to $48 in months—almost 700% win. It was eventually bought out.
In 2017, I got excited about Viper Energy (VNOM-NASD) as a high-dividend paying player in the Permian. I bought the stock at $15.50…and the stock almost tripled to $44 within a year.
In early 2018, I saw that Colombian oil producer GeoPark Ltd—GPRK-NYSE—was rapidly growing production and cash flow per share. It was trading at a very low valuation for its high growth and high profitability.
I alerted subscribers to this stock, and—just like Viper Energy and Resolute Energy—started to move up almost immediately. GeoPark doubled in months.
Bottom line—I know how to pick the winners, even in bad markets. As this energy tape improves, doubles and triples off this bottom level will become commonplace. DON’T MISS THIS OPPORTUNITY.
Download my report today, RISK-FREE. I’ll make this easy, and a no-brainer for you. First off, you have a guaranteed 30 day money back guarantee if you try my annual subscription.
Also included is a Report: The OGIB Trading Guide: How To Invest in Oil & Gas Stocks
And finally, you will get IMMEDIATE ACCESS to the OGIB member’s centre, with dozens of trading bulletins posted over the last year.
Don’t delay—all these trends are happening NOW, and I think stock prices start rising imminently (in Canada they’re going up NOW!).
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