A "Backdoor" Way to Play America's Coming Energy Independence (Part 1)
If you haven’t heard the news by now, earlier this month, the International Energy Agency (IEA) declared the United States will become the world’s top oil-producing nation by 2017.
Yeah, you read that right.
In addition, by 2030, the agency predicts America will be a net exporter of oil. And just five years later, we’re projected to nearly become an energy independent nation.
Wow, talk about a change of heart from just a few years ago.
I mean, in the United States, we currently import about 20% of our energy needs. We also consume more oil and gas than any other country in the world.
So how is this going to be possible?
In short, hydraulic fracturing.
From 2008 to 2011, fracking pushed U.S. crude oil production up 14%. Natural gas production also rose 14% during this period.
Thousands of wells are going to be drilled in the coming years. Trillions of cubic feet of gas and billions of barrels of oil are set to be extracted. It’s like an energy investor’s dream come true.
Of course, many investors will put their money into big oil and gas companies such as Exxon Mobil (NYSE: XOM) or ConocoPhillips (NYSE: COP) to try to take advantage of this historic energy shift.
But I won’t bore you with the obvious players.
Instead, let’s take a look at some alternative plays that have the potential to benefit tremendously from the increasing production of oil and gas in America.
The Next Oil Equivalent
In order for fracking to happen, other than drilling equipment, companies need three things:
Without these ingredients, there simply would be no shale oil and gas boom inAmerica.
In June, I wrote about U.S. Silica Holdings (NYSE: SLCA), a premier sand-mining company that seemed destined to gain from increased shale oil and gas production. I shamelessly say it has climbed nearly 50% since I first wrote about it.
But along with sand and various chemicals, fracking also uses millions of gallons of water to crack open the shale rock and enable drillers to extract oil and gas.
Today, the water industry in the United States is a $113 billion market. Around the world, it’s in the range of $360 billion.
With the IEA latest projections, this figure could grow tremendously. In fact, already 15% of total demand for water comes from the energy industry.
Plus, water is simply getting harder to come by.
That’s because even though 75% of the earth consists of water, only about 2.5% is actually fresh water. The remaining 97.5% is salt water that no one can drink or use for fracking.
Thanks to a growing global population and the increasing usage of water for agriculture, energy, and other various industries, Fortune even recently stated, “[water] promises to be in the 21st century what oil was in the 20th.”
If that’s the case, then a water company like Aqua America (NYSE: WTR) could go gangbusters.
Energy Companies Are Thirsty for Water
Aqua America is a water and waste water company that provides water to homes, offices, and industrial customers across 14 states.
Pennsylvania makes up roughly 50% of the company’s total revenue of $761 million. It also gets about 10% of its revenue from the great state of Texas, the second-largest region contributing to its bottom line.Ohiocomes in third.
I hope you’re seeing a trend here. These are all states that are well-known for their shale oil and gas prospects. Executives at Aqua America know it, too.
They’ve been strategically trying to gain water rights in these areas so they can pump water to oil and gas drillers in addition to supplying fresh water to millions of homes and businesses around the country.
In the Marcellus Shale alone, CNBC reports, Aqua America is “... expected to pump 3 million gallons of water a day to drilling operations...”
Energy companies are happy to pay Aqua America, too. These pipelines are saving drillers a lot of money because they don’t have to use their own trucks to transport everything they need.
Now, in July, shares of Aqua America hit a 52-week high of $26.93. Since then, its stock price has slid down 9%. The fiscal cliff debacle may continue to be a drag on shares until an agreement is reached in Washington.
Best yet, for those of you who have read our own Marc Lichtenfeld’s bestselling book, Get Rich with Dividends, Aqua America is known as a “Dividend Achiever.” That means the company has consistently raised its dividend each year for the past 10 to 24 years.
Aqua America is also one of the rare companies on Wall Street that offers a discount if you participate in its dividend reinvestment plan (DRiP) through their company's website. For more information on that, click here.
This is just one of a few companies I want to talk to you about. In the next piece, we’ll look at another water company that could spike as the U.S. works its way to energy independence. We’ll also look at a unique emerging water business that could end up being even bigger than the companies supplying water to the drillers themselves.