Two Stocks to Buy to Tap Into the Massive Wolfcamp Shale

There's no better place to start your search for the best oil stocks to buy now than deep in the heart of Texas - especially its shale formations.

Texas has two of the largest shale formations in the country. One, the Eagle Ford shale in the southeast part of the state, has been a hot topic among investors for years.

The other, the Permian Basin, has multiple formations, including the Cline Shale, that have grown increasingly attractive (and potentially lucrative) as new discoveries have been made.

These new discoveries are making the Permian Basin the most oil-rich region in the nation.

But one shale formation in the Permian Basin - the Wolfcamp - has stood out in particular, and it's poised to make investors a big score this year.

In fact, some analysts estimate that the Wolfcamp Shale formation is the second-largest oil field in the world.

The Wolfcamp Shale Formation: Vast Untapped Potential

According to some estimates, the Wolfcamp Shale contains up to 50 billion barrels of oil equivalent - second in the world after Saudi Arabia's Ghawar.

That compares to the Bakken, which the U.S. Geological Survey in April 2013 estimated held a total of 7.4 billion barrels of recoverable oil.

This field is more challenging than the one in Saudi Arabia thanks to a complex geology that requires higher production costs. The Wolfcamp is actually three different shale formations stacked atop each other like a layer cake.

The "upper" Wolfcamp Shale formation sits 3,800 feet beneath the ground. The "lower" Wolfcamp Shale formation sits 5,700 feet deep. And the Cline Shale is a little more than 7,300 feet below ground level.

Being able to tap into the various levels requires a great amount of technological prowess - an ability a number of oil and gas companies now have and can put to use thanks to the recent fracking boom.

Given the technological abilities of American engineers to tap these fields, a wide number of companies and investors have rushed to purchase available land so production can begin.

Two Stocks to Buy to Profit from the Wolfcamp Shale

There are two companies working in the Wolfcamp Shale formation that are among the best stocks to buy to profit from this discovery.

The first is a defensive play against lower oil prices in 2014, while the other has the confidence of three of America's greatest investment minds...

The first Wolfcamp stock to buy is Devon Energy Corp. (NYSE: DVN). Devon owns approximately 250,000 acres in the Wolfcamp and opened 19 wells in 2013. So far, Devon's wells have provided a strong production rate of more than 1,000 barrels of oil equivalent per day. But what's important for 2014 is that the company has used hedging as an effective strategy to combat declining oil prices.

In the fourth quarter, Devon hedged 142,000 barrels of oil production per day at $95. Meanwhile, it has hedged 138,000 barrels of oil production per day for all of 2014 at $92 per barrel. If oil prices decline due to a dramatic glut of supply in 2014, Devon will be well-positioned as a defensive play, with upside as more production comes online, particularly if oil prices increase.

The second name, and the biggest company to push into the Wolfcamp Shale formation, is Pioneer Natural Resources (NYSE: PXD). This company has been buying land in the region since the 1980s and owns 900,000 acres in West Texas' biggest oil field. Pioneer believes its share of the formation is roughly 7 billion barrels of oil equivalent, which is profitable even at $80 per barrel.

In October 2013, Pioneer Chief Executive Officer Scott Sheffield said the Wolfcamp "could possibly become the largest oil and gas discovery in the world."

The economic outlook and regional success of Pioneer has caught the attention of investment titans Stanley Druckenmiller, John Paulson, and George Soros. The latter, Soros, owns 964,000 shares of the company.

Moving forward, the Wolfcamp will provide a wealth of energy profits for investors. As the year progresses, be sure to check back here for midstream companies operating in the Wolfcamp Shale formation that will also be among the best investments 2014.

A great way to combine the power of energy investing with income investing is with Master Limited Partnerships. In addition to giving you exposure to the oil and gas energy boom, MLPs pay the highest yields you can find in today's market and help you pay less in taxes. Here's what you need to know to get started...