Playing the Energy Boom

Steve McDonald: The best advice I have ever been given about playing the energy boom in North America is to buy companies that don’t take the risks: Buy oil and gas services, not explorers and developers. And one of the best energy service plays I have seen to date is Flotek Industries Inc(NYSE:FTK).


This company has taken the gas and oil business by surprise with something called CnF, Complex Nanofluid. In independent studies, CnF has been shown to dramatically improve the output of both oil and gas wells.


It was first used by Freeport-McMoRan Copper & Gold Inc.(NYSE:FCX) in the Niobrara field and is now being used by the majority of the wells there. After seeing the huge increase in yield CnF created for Freeport, Plains All American Pipeline, L.P.(NYSE:PAA), Marathon Oil Corporation(NYSE:MRO) and Oasis Petroleum Inc.(NYSE:OAS) started using it in the Eagle Ford Shale area.


Halliburton Company(NYSE:HAL), which is delivering CnF to some of its customers, in a recent conference call stated it was seeing consistent adoption of the product across the industry.


Flotek reports that it currently has about 5% of the market for CnF and expects to triple that by 2015. Earnings are expected to move from $0.67 a share to $2 by 2016.


A near-term move to $25 is also expected.


CnF is also made with a citrus component that should help get it by all the environmental objections fracking has been running into.


And CnF is not the only innovative product Flotek has. The company recently introduced a tool called the Stemulator that increases the efficiency of certain types of drilling. It is expected to take the No. 2 spot behind a similar product from National-Oilwell Varco, Inc.(NYSE:NOV), a company I have profiled in the last few weeks.


An exploding energy business in North America, tripling its market coverage by 2015 and increasing production with an environmentally safe product: You have to look at Flotek!


by Steve McDonald, Bond Strategist, The Oxford Club


Investment U provides cutting-edge research and strategic financial recommendations for all levels of investors through its morning publication Investment U Daily and its related publications.


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