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Spotlight on North America

By Roger S. Conrad on Oct. 14, 2013

The shale revolution has enabled the US to grow its oil production for the first time in decades and overtake Russia as the world’s leading producer of natural gas. These dramatic changes in the North American energy landscape have created a host of profitable opportunities for savvy investors–and a number of pitfalls.

We review our price outlook for oil and natural gas in Canada and highlight our top three midstream names that operate north of the border. The recent decline in the price of Western Canada Select crude oil and the Canadian dollar have precipitated a slight pullback in these three stocks, giving investors an excellent buying opportunity.

We then turn our attention to recent developments in the US market and explain why recent drilling efficiency gains reinforce our view that natural-gas prices won’t eclipse $5.00 per million British thermal units. These developments have depressed the valuations of contract drillers that specialize in onshore rigs, giving investors  an excellent opportunity to buy into this turnaround story.

The Stories

1. What stands between Canadian energy producers and higher price realizations on their oil and gas output? Takeaway capacity. We lay out our outlook for energy prices north of the border. See Price Check on Canadian Oil and Gas.

2. Shares of our favorite Canadian midstream operators have pulled back in recent weeks, giving investors with a longer time horizon an ideal buying opportunity. See Canada’s Midstream Marvels.

3. Improving drilling efficiency in North America’s shale oil and gas plays has bolstered the profit margins of producers and oil-field services firms. However, this development is less sanguine for natural-gas prices, which will likely range between $3.00 and $5.00 per million British thermal units over the next two to three years. See Salute Your Drillmasters: Efficiency Gains Lower Production Costs.

4. Whereas oil-field services outfits and exploration and production companies have benefited from improvements in drilling efficiency, firms that own these rigs and lease them to upstream operators have been one of the biggest losers from this trend. Nevertheless, our favorite name appears poised for a turnaround. See Drilling for Value: Our Favorite Onshore Contract Driller.

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