When I flew in, I wasn’t quite sure what to expect. Before hitting the ground in the area containing what Senator Orrin Hatch called, “the richest fossil fuel resource on earth,” I noticed that this resource was quickly on its way to finally being tapped.

You couldn’t miss it. With Mt. Garfield off in the horizon (that’s the mountain Prudential Financial pictures as its “rock”), there’s nothing but miles and miles of crisscrossing dirt roads, oil and natural gas wells, and trucks driving all over the place.

“Finally,” I thought, “we might finally get to it.” But hey, what can you really tell from 5,000 feet in the air? And it wasn’t long before I would get a firsthand look at the organic marlstone, more commonly called oil shale.

Every 20 years or so small towns in Western Colorado turn into boomtowns thanks to high oil prices and the economics of oil shale, which conservative estimates put the cost of production at about $40 a barrel.

And with two years now of averaging $60 oil, the small town of Grand Junction, Colorado is booming again. As I walked from my plane’s gate to the exit of the airport, I picked up a copy of the local Daily Sentinel.

There were no headlines claiming the markets are falling apart, subprime mortgages are sinking multi-billion-dollar hedge funds, or the latest happenings in the political world. The top headline read: “Task Force: Hit the Gas on Oil Shale.”

Clearly this sleepy Colorado town has got oil shale fever and the locals are watching it very closely. You see, the entire local economy is booming thanks to the influx of millions of dollars and new residents due to oil shale operations.

After a day of meetings, checking out a few of the local energy companies, and visiting the local headquarters of one of my top picks for Small-Cap Commodity Prospector, I headed to the historic downtown area for dinner.

Colorado is home to 142 microbrews and it’s always nice to stop in and a have a glass of the local specialty. This time, over a glass of Widowmaker Wheat, Rockslide Brewery’s top-selling ale and with a Colorado Rockies baseball game on in the background, I met Nick.

A Colorado native, Nick was new to town and is a natural gas technician. He was lured in by the sheer demand for new experienced oil and gas operational experts. After finishing my hearty buffalo meatloaf dinner (Nick’s recommendation), we got to talking.

Although only a high school graduate, Nick told me he wouldn’t work for less than $50 an hour. Now, I’ve seen some pretty high salaries for these types of specialists, but you usually have to go to very remote places to find them this high. The high wages usually reserved for those in northern Canada are making their way to more active areas.

That’s not too bad and proves the sheer demand for oil and gas specialists in the area is getting pretty strong. In fact, I took a look at the classifieds in the Daily Sentinel and Nick was spot on. Everything from gutter installers to trench diggers were being offered top dollar. Despite the generous offers, the entire section was one of the largest classified sections I’ve ever seen in a town this size.

But Nick’s life wasn’t all good times. After a brief interruption due to a Chicago Cubs home run that put the Rockies down by four runs, Nick explained he was having trouble finding a house at a decent price.

You see, although Miami condos may be plummeting in price and houses are staying on the market for three, four, or six months at a time across the country, Grand Junction real estate prices are still climbing. In fact, over the past three years Grand Junction real estate prices have climbed a 16% average each year, the best in Colorado. And they’re up another 7% this year.

And Nick is looking to buy, but is having a little bit of trouble. There aren’t many houses on the market and it will be a while until the construction boom helps to provide the local real estate market with more houses.

But that’s not too big of an ordeal and provides the amount of money that is flowing in to try and tap the Colorado oil shale that has never even provided 1% of U.S. energy needs.

In 2005, the U.S. Department of Energy issued a report detailing how oil shale will provide 200,000 barrels a day by 2011, 2 million barrels a day by 2020, and 10 million barrels a day thereafter.

Those are pretty high hopes, but they do prove the real value of oil shale. If it all works out according to plan, oil shale could provide the world with 10% of its oil needs by 2050. But how many of us have a 43-year investment horizon?

And you have to consider this. Even in its heyday of the late 70’s, only 16,000 barrels a day was produced from oil shale. So even 200,000 barrels a day is quite a leap.

As for the oil shale working out this time, who knows? Most of the locals who lived through the previous booms say it comes along every 20 or 30 years or so and then disappears just as fast as it came.

I think Randy Udall and Steve Andrews of the Association for the Study of Peak Oil and Gas put the prospects of turning Colorado into the next Saudi Arabia best when they said, “Oil shale’s history is one of the delusions leading to disappointments. Sometimes the delusions have been motivated by a stock scam, but mostly they seem to have been driven by a belief that wishing can make it so. Peter Pan would have loved the oil shale industry.”

For now though, times are good in western Colorado. However, if you’re looking for oil, I’d look elsewhere. As for the tremendous amount of natural gas reserves in the region, that’s a whole different story.

Good investing,

Andrew

 

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