Insights into the hydraulic fracturing (fracking) industry courtesy of Mike Weiner, Chief Investment Officer, Unified Trust Company.

1. Frackin' Good
Bullish on America…Markets have been following Paula Abdul’s lead so far this year, “Two
Steps Forward, One Step Back” (can you hear it in your head? Sorry). For example, the US
stock market makes a new high, a respected investor suggests it might be too high and the
market sells off. Then a respected investor says she sees some bargains and the market
engages and makes another new high. Rinse and repeat. Economic reports have been tepid and
interest rates have actually retreated in 2014, not gently rise as many of us had suspected. The
US and global economies can’t seem to grow more than 2% despite multiple interventions.
Central banks have not been able to relax monetary policies so we have wax on, wax off on a
daily basis. Markets are not poised for a collapse nor do they seem set to advance
meaningfully. We will address some of the reasons for the malaise in future emails but we
thought we might take a different perspective this week.
Let’s review an exciting prospect for the genuinely longer term horizon. High-volume horizontal
hydraulic fracturing, or fracking is the use of sand, water and chemicals injected at high
pressures to open shale rock and release oil and natural gas trapped inside. If (a non-trivial if, by
the way) fracking can be done cleanly and safely, with minimum environmental impact and
maximum political backing, we could be on the threshold of a really big thing.

2. The above map shows the known shale deposits in our nation. Each deposit has unique
characteristics. The Bakken formation in the North Dakota / Montana region is rich in recoverable
oil while it is estimated that the Utica shale alone might have 100 years supply of natural
gas. 100 YEARS! This enormous supply potential has helped depress natural gas
prices. Natural gas is somewhat challenging to transport over great distances in its gaseous form
so today this supply is predominantly available to North America. An initial and appropriate
reaction to the fracking phenomenon is to consider that the US could be energy independent in
the not too distant future. While you ponder that prospect, consider what an inexpensive energy
source can mean to our factories.
Plentiful, low cost US natural gas is a key competitive advantage for US manufacturers. Costs of
manufacturing include labor, both skilled and unskilled, electricity, natural gas and other
costs. Five years ago we might have been afraid that China would be the world’s manufacturer
forever and that some US plants would be permanently sidelined. Today, China’s success has
eroded much of its labor advantage and all of a sudden the US is among the low cost
manufacturers in the world!

3. The graph above highlights the numerous advantages owned by US companies. We are at the
beginning of a manufacturing renaissance in America that could be sustainable. We have a
temporary mismatch between job openings and skilled applicants but that will resolve in the
foreseeable future. We are bullish on America and American companies and by extension the US
stock market for several reasons with the fracking phenomenon being one. We will review some
others over time including 3D manufacturing and biotechnology. Let us know what you think.
Mike Weiner, Chief Investment Officer, Unified Trust Company
This report was prepared by Unified Trust Company, N.A. and reflects the current opinion of the authors. The sources and data upon which
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