Happy Independence Day! I hope you’re enjoying the long holiday weekend with friends and family.In between the picnics and fireworks, I hope you take a moment to remember what we’re really celebrating this weekend: freedom.This great experiment of ours started as a quest for freedom from tyranny. Now 235 years later, we are still striving, still changing, still fighting. That spirit is what makes our country great.My goal is to help you achieve freedom of another kind–financial freedom. One of the many ways in which I do that is by dispelling the myths and lies that trip up so many investors.Today, I want to do just that by debunking some dangerous myths being spread by the mainstream media about one of the biggest energy opportunities of the decade.They’re WrongThe New York Times recently ran a series of stories that questioned the sustainability of the shale gas revolution. These pieces suggested that many shale gas producers have overstated the productivity of their wells and that these operations are unprofitable with natural gas prices at depressed levels. The authors are correct that some shale gas fields are uneconomic in the current pricing environment, which explains why drilling activity has declined in the natural gas-rich Barnett Shale and Haynesville Shale.However, the articles largely ignore the economics of the Eagle Ford Shale and other unconventional fields that produce large amounts of high-value oil, condensate and natural gas liquids such as butane, ethane and propane. Exploration and production firms have shifted production from dry-gas fields to liquids-rich plays that offer superior profitability. Many investors have picked up on this distinction; stocks of companies that failed to make this transition have underperformed. Moreover, the shale gas industry has undeniably changed the domestic energy mix in recent years: Over the past half-decade, natural gas production from US unconventional fields has soared to about one-quarter of total domestic gas output–up from only 4 percent. This production boom has enabled the US to overtake Russia as the world’s leading producer of natural gas, while the resulting supply overhang and closed domestic market have ensured that the US enjoys gas prices that are far lower than anywhere else in the world. Why did producers continue to drill in gas-only fields despite unattractive economics? Many leasing contracts require operators to sink a commercially viable well within an established period to secure the acreage. This involuntary drilling activity catalyzed a wave of joint ventures and acquisitions in recent years–an important source of capital to support these programs. Many of the acquirers are large, integrated energy companies such as ExxonMobil Corp (NYSE: XOM) or Chevron Corp (NYSE: CVX) that boast bulletproof balance sheets and can afford to take a long-term view on natural gas prices and demand.Production growth from the Bakken and other oil-rich onshore fields has also reversed the steady decline in US oil output. An influx of oil from these unconventional fields has contributed to the low price of West Texas Intermediate crude oil, which trades at a discount to Brent crude because of a supply glut at the Cushing, Okla. delivery point.Finally, the New York Times articles cite steep decline rates and dramatic variations in well performance between a play’s core and less-productive peripheral areas as evidence of fraud. But this information is common knowledge–at least to those who pay attention to companies’ quarterly reports and investor presentations. Major producers routinely share detailed production data that show first-year decline rates of 80 percent in some fields. This isn’t a revelation: Unconventional wells tend to exhibit high initial production rates, but many still prove profitable despite high decline rates.To be sure, some shale gas companies–those that were late to the game or overpaid for undesirable assets–pursued flawed business strategies and fell prey to the herd mentality. But our No. 1 independent oil and gas producer generated 65 percent of its revenue from liquids in 2010 and should benefit from strong oil prices and growing production in its core plays. Get the full details on this stock (including my latest buy price) and my other top energy picks when you start a risk-free trial to Personal Finance. You’ll save up to $119 and get my full money-back guarantee with this special invitation.
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