Special report: The US is awash with oil — and refiners and hedge fund managers are making the most of it.

An oil boom centred in Texas has pushed production to a 35-year high of 10.8 million barrels a week.

It’s allowing refiners to buy oil cheaper — petrol inventories rose to 234 million barrels in early August, 3 million higher than this time last year, according to the Energy Information Administration (EIA).

It’s also pushed hedge fund and other money managers into building big positions in petrol gasoline in the US according to Reuters analyst John Kemp.

They had lifted their net long position in six of the most important petroleum futures contracts by 22 million barrels in the last week of July, Mr Kemp reported last week.

Oil rush

At the centre of this boom is the oil rush in the Permian Basin in West Texas.

The American oil industry has been re-energised by new technology honed over the thin years after the oil price crash in 2014 as well as tightening supply.

New oil production has caused exports to rise by 540,000 barrels to hit 1.85 million barrels a day, while imports fell by 358 million to 6.08 million barrels a day in early August, according to EIA data.

There are a number of Australian companies working in the Permian, such as Winchester Energy (ASX:WEL), Freedom Oil and Gas (ASX:FDM) and Helios Energy (ASX:HE8).

Many have seen their share price affected by a depression in oil prices created by the huge amount of supply in the US combined with the limited pipeline capacity in the region to get the oil out of the region has resulted in $10-15 extra transportation costs for oil produced in the Permian basin

But a handful of other companies are looking at the market from a different perspective: land.

Focus on low cost conservative oil and gas assets

American Patriot Oil (ASX:AOW) is one of those companies focusing in low cost conventional assets to make their fortune in oil.

American Patriot buys producing conventional production assets cheaply, adds value by reworking the fields and spending capex on low cost workovers and recompletions to significantly enhance production, and ultimately expects to sell those leases for a profit to larger oil businesses looking for easy producing assets to buy.

A company-transforming deal last month turned American Patriot — named after a US football team — into a mid-tier operator.

Its 2P reserves now total 7 million barrels of oil equivalent with a value of with a PV10 value of $US55 million.

American Patriot is looking to significantly enhance production by acquiring a number of additional assets over the next 12-18mths growing production to over 4000bopd.

It is backed in this endeavour by a significant US Credit Fund White Oak who are looking to grow their facility to over US$100m.

Typically “reserves” refer to oil or gas discoveries that are commercially recoverable using existing technology, while “resources” are either not yet commercially viable or are mere speculation.

A 2P means it’s proven and probable, while a 3P includes “possible”.

A PV10 value is the present value with a 10 per cent discount.

 

 

This special report is brought to you by American Patriot.

This advice has been prepared without taking into account your objectives, financial situation or needs. You should, therefore, consider the appropriateness of the advice, in light of your own objectives, financial situation or needs, before acting on the advice.

If this advice relates to the acquisition, or possible acquisition, of a particular financial product, the recipient should obtain a disclosure document, a Product Disclosure Statement or an offer document (PDS) relating to the product and consider the PDS before making any decision about whether to acquire the product.

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