Some Ideas To Invest In The Volatile Shale Oil Motif

Motif Investing looks for “trends, ideas and world events that could create an investment opportunity.” It then finds related stocks and builds portfolios, which weigh the stocks (20 to 30 stocks) based on their exposure to a particular idea.

Taking a look at oil motifs, one stands out for its high volatility: Shale Oil. The motif places a bet on new sources of underground crude reversing America’s falling oil production.

The Sale Oil Motif

Motif Investing explains this motif:

“The US is the top oil consumer in the world, using nearly 7 billion barrels per year -- half of which is imported from geopolitically unstable regions of the Middle East. But new horizontal drilling practices, including fracking, have greatly expanded the ability of US producers to profitably recover crude from domestic shale reserves that are estimated at more than 33 billion barrels.²
The Energy Information Administration projects US production of crude oil will jump to 7.5 million barrels a day in 2019 from 6.5 million barrels a day in 2012, primarily due to the increased output from shale plays.³ With global demand for oil remaining high, and continued geopolitical uncertainty in other oil-rich regions, firms that explore and produce crude oil in US shale plays could benefit from richer valuations for their shale oil reserves and a more stable environment.”

The bull case assumes that companies with access to shale oil in regions with geopolitical stability “could have the potential for greater worldwide distribution at profitable levels.”

The proposed portfolio allocates 51 percent of the assets to Permian Basin stocks, 34.5 percent to Bakken Shale exploiters, 10.4 percent to Eagle Ford, 2.2 percent to Niobara, and 2.1 percent to Utica.

CHART

Source: Motif Investing

The top five stocks comprised in the equity portfolio are:

• Pioneer Natural Resources Company PXD, to which the motif allocates 25 percent of the total assets
• Hess Corporation HES, 24.4 percent
• Apache Corporation APA, 16.2 percent
• Murphy Oil Corporation MUR, 7.3 percent
• Continental Resources, Inc. CLR, 5.1 percent