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IN THE RECENTLY RELEASED FILM PROMISED LAND, MATT DAMON plays a smooth-talking salesman for a natural-gas company who plays down concerns about the environmental impact of hydraulic fracturing, or fracking, to buy cheap drilling rights from farmers in a depressed area of Pennsylvania. Damon’s character sours on his job when he discovers the actions the company is willing to take to win, but he never really turns against fracking, as the potential bonanza of natural gas may offer the last chance of economic revival for this rural area.

Off the silver screen that message is resounding more than ever. Fracking has reinvigorated the U.S. oil and gas industry and brought the nation’s economy to the cusp of a historic transformation. The drilling technique is extracting massive new supplies of natural gas and sizable amounts of oil from shale rock formations, also known as plays, from Pennsylvania to North Dakota. Energy imports have declined so much over the past six years that the idea of U.S. energy independence — a pipe dream of presidents since the days of Richard Nixon — is suddenly a distinct possibility. The gas revolution also has the potential to spark a broader economic surge, creating millions of jobs and lighting a fuse under U.S. manufacturing.

Cheap, abundant energy generated by fracking will bring a “new American century,” contends Philip Verleger, an economist and former director of the U.S. Treasury’s Office of Energy Policy who runs his own energy and commodity consulting firm. He predicts that the U.S. energy boom will create 3 million jobs and boost economic growth by 1 to 1.5 percentage points a year between now and 2020.

“We can clean the clock of competitors who don’t have access to natural gas, and that overrides cheap labor abroad,” says Verleger, who served in the Carter administration. “Our trade deficit may go way down; we’ll have lower-cost energy; the Fed won’t have to tighten monetary policy; the dollar will be more competitive. And it’ll work no matter who is president. We will be energy independent in ten years.”

Verleger’s prediction is certainly ambitious, but there are several obstacles on the path to potential independence. First, the fracking industry must overcome its critics and demonstrate that it can continue to ramp up production without causing serious environmental damage. New York State, home to a potent antifracking movement, has imposed a moratorium on the practice pending review of an environmental study; Governor Andrew Cuomo is expected to decide by late this month whether to allow drilling to proceed. Scores of local governments across the country have banned it. Environmental concerns “can influence policymakers and can lead to lower investments and slow things down when we’re trying to generate energy and create jobs,” says John Felmy, chief economist at the American Petroleum Institute, a Washington-based trade organization. “There are legitimate issues that have to be properly addressed, especially when fracking is often misrepresented.”

The industry must also grapple with a spirited political debate about whether growing supplies of natural gas and oil should be kept at home or exported to world markets, helping to narrow the U.S. trade deficit. Manufacturers are eager to see new gas supplies directed at the domestic market to keep their energy costs down. Export advocates, however, are brandishing support from a long-awaited U.S. government study, released in December, that concluded that shipping natural gas abroad would provide a “net economic benefit.”

Notwithstanding these issues, however, the broader trend of cheaper, more abundant U.S. energy appears undeniable. Total dry production of natural gas increased by 18.9 percent between 2007 and 2011, to 22.9 trillion cubic feet, according to the U.S. Energy Information Administration. The agency projects that output will grow by roughly 50 percent by 2040 and that the U.S., which now produces 95 percent of the gas it consumes, will become a net exporter by 2020.

Crude oil production has also risen strongly, reflecting both the impact of fracking and that of offshore oil drilling. In September, U.S. petroleum production hit 6.5 million barrels a day, the highest level in nearly 15 years. The EIA projects that output will increase from an average of 6.4 million barrels a day in 2012 to 7.3 million this year and 7.9 million in 2014. Although oil production is forecast to decline after 2019, the agency expects output to remain above 6 million barrels a day through 2040. Tight oil, which is mostly generated by fracking, will account for 51 percent of total onshore production in the lower 48 states in 2040, up from 33 percent in 2011.

While energy companies jockey to make money in the new energy era, investment bankers are enjoying an M&A boom as oil giants such as Exxon Mobil Corp. snap up smaller players with significant shale stakes. Pipeline operators have also been merging at a rapid clip, with Kinder Morgan last year buying El Paso Corp. for $21.1 billion in one of the biggest-ever energy deals. Energy was the hottest M&A sector last year, with 588 deals worth a total of $151 billion, compared with 612 deals valued at $136 billion in 2011, according to data provider Dealogic.

Investors are scrambling to identify the winners and losers in this emerging new economy, betting on the stocks of oil producers, suppliers and infrastructure firms, and pouring money into partnership investments and energy sector funds.

“Fracking is a game changer,” says Mark Kiesel, a senior member of the investment strategy and portfolio management group at Pacific Investment Management Co. The onshore natural-gas and oil industry is growing three times as fast as the U.S. economy, he points out: about 6 percent a year versus 2 percent. “It’s thriving and one of the true bright spots for America,” he adds.

“The revolutionary implications of shale development in the U.S. are dramatic,” says Marc Lipschultz, global head of energy and infrastructure at New York–based investment firm KKR & Co. “Onshore in North America this development ranks second only to the beginning of the oil and gas industry in the U.S.”

The numbers tell the story. In the past decade shale gas rose from 2 percent of U.S. natural-­gas production to 40 percent. The nation has proven and potential natural-gas reserves of about 2,100 trillion cubic feet, according to the Potential Gas Agency, an industry body. Some estimate that is equal to about a 100-year supply. Developing this bonanza will be a major undertaking. Experts predict that unconventional gas production will attract a staggering $2 trillion in investment capital between 2010 and 2035.

“Fracking is a macroeconomic positive,” says Barry Bannister, equity investment strategist at St. Louis brokerage Stifel, Nicolaus & Co. But making microeconomic investments — and not just piling into the obvious names — will require careful analysis. “It will take a keen focus for investors to pick the winners,” says KKR’s Lipschultz. Oil and gas producers and refiners who either own shale assets or participate in their development will be among the biggest beneficiaries of the fracking boom. No wonder investors have bid up stocks like Houston-based Cabot Oil & Gas Corp., a natural-gas producer active in the Marcellus Formation in Pennsylvania. Its stock rose 29 percent last year after doubling in 2011. Though many of the smaller, more nimble independents arrived early in the shale-rich regions, some big energy companies have been slow to start drilling. Among them: Apache Corp., BP, ConocoPhillips Co. and Hess Corp.

Businesses that use natural gas as a raw material — chemicals and agricultural companies, along with a wide range of manufacturers — will continue to benefit from lower-cost energy. Dow Chemical Co., one of the country’s biggest consumers of natural gas, plans to invest $4 billion in new U.S. production facilities between 2012 and 2017 based on the promise of cheap energy. Dow projects that the facilities will create thousands of new U.S. manufacturing jobs.

Companies that supply products and services to drillers like Halliburton Co., Schlumberger and Baker Hughes — everything from trucking to construction and steelmaking — also stand to benefit. “We think fracking will bring a manufacturing renaissance,” says Donald Lindsey, chief investment officer of George Washington University’s $1.33 billion endowment. “The investment opportunities are vast and across many industries. It rivals the tech boom of the 1990s.”

Coal producers like Peabody Energy Corp. and Arch Coal are likely to be big losers as electric utilities and other energy users burn less coal and more gas, an outcome cheered by environmentalists.

Private equity titans Blackstone Group and KKR are raising multibillion-dollar energy funds to play the fracking game. Of the $5 billion that Blackstone has committed to energy investments, it is targeting more than $1 billion for early-stage oil and gas projects, many of them fracking plays. “The entire North American economy will benefit from fracking, especially manufacturing, with plastic and petrochemicals refining making significant gains,” says David Foley, CEO of Blackstone Energy Partners.

Since 2009, KKR has invested more than $2.5 billion in shale or shale-related businesses and put a further $4 billion into other energy-related investments, including energy infrastructure, housing for workers in the Bakken Formation and conventional oil and gas assets. In 2011, KKR and portfolio company Hilcorp Energy Co. sold properties in the Eagle Ford shale play in south Texas to Marathon Oil Corp. for $3.5 billion, three times what they paid only a year earlier. Last July, KKR agreed to pay up to about $200 million to take a one-third stake in Comstock Resources’ holding in the Eagle Ford.

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