Monday, January 30, 2006

Exxon: #@&% the Police.

Sure, the margins aren't that high versus pharma or banks, but $116 million a day or 80k a minute still attracts attention. The wrong types, unfortunately, from, to use McCain's term, "wackos". Ours and theirs..

One Senate hearing not enough? You couldn't have put a little away for a rainy day, Rex? [I guess you're not supposed to do that anymore, but geez..]

Let the political grandstanding begin!

USA Today: ExxonMobil amasses record $36B 2005 profit.


ExxonMobil (XOM) reported the largest annual profit in U.S. corporate history Monday, a $36.1 billion jackpot that included a record-setting fourth quarter.
Exxon earned $10.7 billion, or $116 million every 24 hours, in 2005's final quarter, up 27% from the same period one year earlier.

Quarterly revenue of $99.7 billion was 19.5% higher than last year's fourth quarter. For the year, Exxon took in $371 billion — equal to the total annual economic output of Argentina and Thailand.

It's not going to make negiotiations with the "wackos" any easier though.

IHT: Exxon adds it all up: $36 billion.


Production at Exxon's oilfields around the world declined 1 percent in 2005, excluding stoppage at platforms in the Gulf of Mexico from last year's hurricanes, illustrating an industry-wide dilemma: an inability to tap into the world's richest oil exploration areas in the Middle East and Venezuela because of political limitations.

"Lack of access to new reserves is the most important problem Exxon and the other large oil companies are facing," said Michael Economides, a professor of chemical engineering at the University of Houston. "It should make them paranoid about the future."

Major oil producers like BP and Chevron are exploring more remote areas of the globe and drilling wells to record depths to bolster production as older fields in North America and the North Sea near exhaustion.

Exxon will this year tap new oil fields holding an estimated 1.75 billion barrels, or 34 percent of all the new projects by publicly traded oil companies scheduled for 2006, according to analysts at Deutsche Bank.

Saturday, January 28, 2006

Tea time in oil service or tee up time in oil service?

There are lots of recommendations on oil service these days. I would normally take that as somewhat of a bad sign, except:

- The loudest on oil service are the analysts, who have been long suffering and mostly ignored for their tech brethren.
- The second loudest are some fairly savvy investors.
- The earnings in oil service have been very good.
- I suspect that oil service is underweighted in the average investor's portfolio.

FoxNews: Cashin' In, January 21.


Wayne's Slick Pick: Oil Service HOLDRS (OIH)
Friday's close: $151.75
52-wk High: $151.75
52-wk Low: $84.16

Wayne Rogers: HOLDRS has about 18 different companies in it, most of which are in the oil service business, like Halliburton (HAL), Baker Hughes (BHI), and those kinds of companies. They constitute between 5-10 percent of the total fund and it's a bet on the whole thing. I've owned that for over a year. It's doubled in the last 15 months. I'm still holding it, and like Jonathan and I always talk, I've got a stop-loss in there and if it hits it, it hits it. In the meantime, it's running.

Barrons: Bold Views, Heavy Mettle.

Quotes from Barron's Roundtable member Felix Zulauf:

Thank you, Abby. Felix, you're next.

Zulauf: Every decade has its winner. In the 1960s it was the rise of multinational companies. In the 'Seventies it was gold. In the 'Eighties it was Japan. In the 'Nineties it was technology and in the current decade it is everything geared to the rise of China, India, the emerging economies and the industrialization process. Natural resources is the candidate for the mania, particularly oil and probably precious metals. Emerging markets should do well, along with capital-goods companies around the world. The loser is the middle- and lower-class consumer in the old industrial countries. That's the long-term structural set-up.

This is the second year in the U.S. presidential-election cycle, which historically has been a bear-market year. There is a reason for that phenomenon. The government stimulates the economy in the two years prior to the election, and withdraws the stimulus in the two years after. This time it will probably work a little differently.

Why is that?

Zulauf: The economic cycle globally is de-synchronized. A slowdown is beginning in the U.S. that will accelerate during the year. We have an acceleration in Asia and Europe -- Japan and Europe, in particular. Consumer inflation is held in check due to the forces of intense globalization, so there is no reason for central banks around the world to get harsh on monetary policy. U.S. monetary policy, which has been the most restrained globally, will change this year, becoming accommodative. If Bernanke [incoming Federal Reserve Chairman Ben Bernanke] wants to improve his image, there is a risk he goes further than expected in raising rates, provoking a correction between spring and fall. After, the market should do well. I'm pretty constructive on equity markets around the world.

With the underlying trend bullish, I'll stick to natural resources. Last year I recommended crude oil, as I did the year before, and Transocean [RIG]. This year crude could pause in the range of $50 to $70 a barrel. After the pause, it will run up more, hitting $100 before the decade is over. I'm recommending an ETF, the Oil Service HOLDRS Trust, which is traded on the American Stock Exchange.

What does it consist of?

Zulauf: It's a basket of 18 drillers, service and equipment companies. It's an easy way for investors to participate in an ongoing bonanza in this industry. Investments in oil infrastructure declined from their 1981 peak for 20 years. Supply does not respond quickly to rising demand, as investments are capital intense. Rising replacement costs have slowed the process of bringing new supply on stream. In 2004 -- the '05 numbers are not out yet -- oil companies could replace only 66% of the reserves they had lifted. They're continuing to deplete their reserves rapidly. As companies find new oil and gas, they are enjoying excellent cash flow. In recent months, the industry has increased its exploration budget dramatically.

Schafer: Felix, isn't it amazing how the major oil companies look in the rear-view mirror as far as what they expect oil prices to be?

Zulauf: They can't believe in a higher oil price because to some extent it hurts them. There are a lot of production-sharing agreements with governments in Africa, the Caucuses and such. If oil goes higher, a rising share of future production goes to these governments, and the portion of reserves booked for the companies isn't theirs any more. That is going to be a problem next year. Some large, integrated companies could run into shocking problems when they disclose they have to reduce reserves.

Neff: À la Royal Dutch?

Zulauf: Yes. The bullish thing about the oil-drilling, service and equipment industries is that all the money spent by the oil producers flows through the service providers. A few years ago it was a buyer's market, and drillers accepted multiyear contracts at low prices. Today the drilling industry still has about 70% of its fleet contracted at rock-bottom rates. Most of these contracts are ending this year, and '07 will see a dramatic jump in earnings and cash flows when capacity is contracted at spot rates. Transocean, for example, earned 27 cents per share in '04. It probably earned $1.70 a share in '05. Consensus estimates for '06 are $5 and for '07, $8. This is based on contracts ending and new ones signed at current spot rates. Based on '07 earnings, the stock trades for nine times earnings, which is really cheap. It closed Friday at 75. Book value is $36 a share, but replacement book is probably $60. The company is buying back 10% of its shares. I recommend buying the industry through an ETF, but Transocean is a great investment.

Thursday, January 26, 2006

Lies, damned lies, and oil reserves.


MarketWatch: Repsol cuts proved reserves by 25%.


Oil and gas explorer Repsol YPF on Thursday cut its proved-reserves estimate by 25%, citing new laws in Bolivia that make it more costly to extract gas as well as more field information from Bolivia and Argentina.

A re-run: No Limit WTI Hold 'Em.

Kurt Wulff on Bloomberg TV 01-25-2006.

Kurt Wulff, a former oil analyst with DLJ, currently has his own firm, which publishes research at

Points covered during the discussion yesterday on Bloomberg TV:

ConocoPhillips' (COP) earnings were highlighted. Kurt believes they were exceptional, higher than investors are giving the company credit for, and believes that COP is a cheap stock. Currently, COP is priced as if oil were trading at roughly $38, while the 6 year forward oil futures, which Kurt believes are a reliable indicator, are at $66.

Kurt discussed his outlook for the energy market in 2006. He doesn't know exactly how the year plays out, but believes that investors are behind the curve. His view is that we are in the middle of a decade long uptrend in energy prices, and that oil will be around $150 in 2010, based on the idea that our energy situation is now worse than it was in the 1970's, energy continues to be relatively cheap, and in the 1970's the price of oil increased by 10 times.

Kurt has a particular fondness for natural gas, as it deserves a premium as a cleaner fuel. At the 5 to 1 conversion rate he uses, he sees the possibility of natural gas at $30 in 2010.

What could end the price gains for energy?

As in 1980, a worldwide recession of some sort.

Kurt, however, is optimistic on worldwide growth, and believes that it continues to be strong.

Tuesday, January 24, 2006

Back to the Future for Coal.

msn Money: 6 ways to invest in the coming coal boom.

Jim Jubak is riding the commodities boom pretty well, so I make it a point to read his articles.

Sunday, January 22, 2006

What's the reserves, Kenneth?

Say what!? 8x?!!

A sweet endorsement of Operation Alberta Freedom, er, Canadian oil sands stocks via 60 Minutes on CBS tonight. There's a mention of possibly (emphasize 'possibly'), 8x the reserves of Saudi Arabia. Wait, is that the real reserves of Saudi Arabia, or the "we're not so sure about those reserves" reserves?

This report is positively gushing. Somewhere, Dan Rather is arranging for two guys to rough up Bob Simons in an elevator, I'm sure of it.

How's this for a quote:

It may look like topsoil but all it grows is money.

Or this:

Pickens is one of those investors. He runs a hedge fund in Dallas and is now a true believer.

"We’re managing $5 billion here. And, about 10 percent of it is in the oil sands. So, it’s the largest single investment we have," Pickens says.

And if oil sands are the answer for investors, does Pickens think the oil sands are the answer for the United States?

"Oh, I think so," he says.

Anyway, an article and video at CBS' site. More info and stock ideas in a prior post, but I'd be wary of buying on Monday.

CBS: The Oil Sands of Alberta.


Twenty-four hours a day, 365 days a year, vehicles that look like prehistoric beasts move across an arctic wasteland, extracting the oil sands. There is so much to scoop, so much money to be made.

There are 175 billion barrels of proven oil reserves here. That’s second to Saudi Arabia’s 260 billion but it’s only what companies can get with today’s technology. The estimate of how many more barrels of oil are buried deeper underground is staggering.

"We know there’s much, much more there. The total estimates could be two trillion or even higher," says Clive Mather, Shell's Canada chief. "This is a very, very big resource."

Very big? That’s eight times the amount of reserves in Saudi Arabia. The oil sands are buried under forests in Alberta that are the size of Florida. The oil here doesn’t come gushing out of the sand the way it does in the Middle East. The oil is in the sand. It has to be dug up and processed.

Rick George, the Colorado-born CEO of Suncor Energy, took 60 Minutes into his strip mine for a tour. He says the mine will be in operation for about 25 years.

The oil sands look like a very rich, pliable kind of topsoil. Why doesn’t oil come out when squeezed?

"Well, because it’s not warm enough. If you add this to hot water you’ll start the separation process and you’ll see the oil come to the top of the water and you’ll see sand drop to the bottom," George says.

It may look like topsoil but all it grows is money.

It didn’t always. The oil sands have been in the ground for millions of years, but for decades, prospectors lost millions of dollars trying to squeeze the oil out of the sand. It simply cost too much.

T. Boone Pickens, a legendary Texas oil tycoon, was working Alberta’s traditional oil rigs back in the '60s and remembers how he and his colleagues thought mining for oil sands was a joke.

"Here we are sitting there having a drink after work and somebody said this isn’t going to, it isn’t possible. It’ll all have to be subsidized to a level, said, before they’d make money you’d have to have $5 oil," Pickens says laughing. "We never thought it would happen."

But then $40 a barrel happened and the oil sands not only made sense, they made billions for the people digging them.


Asked if the processed oil is as good as that pumped in Saudi Arabia, Mather says, "Absolutely as good as. In fact, it even trades as a, at a premium because it’s high quality crude oil."


A million barrels a day are now coming out of the oil sands and oil production is expected to triple within a decade. It won’t replace Middle Eastern oil but at that point it will be the single largest source of foreign oil for the United States, even bigger than Saudi Arabia, which sends a million and a half barrels a day to America.

Greg Stringham, who works for the Canadian Association of Petroleum Producers, says surprisingly, that Washington has only been paying attention for the "last couple of years."

Stringham often lobbies for the oil sands in Washington. He says that in Alberta you don’t have to look for the oil sands — the earth moves.

"When it comes to exploration in the oil sands, you can’t drill a dry hole. It’s there," he says. "We know where it is. They’ve outlined it. You don’t have any risk. But other conventional sectors around the world, there’s a huge exploration risk."

The exploration risks are the least of it. Much of the world’s crude is in the Middle East where the instability is deeper than the oil. When Alberta’s blue-eyed sheiks took to Wall Street last summer in their Stetsons to drum up support for the oil sands, their message seemed to be, "If you can’t trust Alberta, who can you trust?"

"Alberta is a very good place to do business. It’s a very stable environment," says Mather.


Asked what he thinks about the Chinese interest in the oil sands up in Alberta, Pickens says, "At first I thought they were tire kickers. But I think they’re serious buyers."


But unless the Chinese go back to bicycles and Americans trash their SUVs, there will be buyers — for oil anywhere, no matter how it’s found or mined. Right now, Canada has become the land of opportunity for oilmen. They will tell you there is little else on the horizon.

"Bob, if you take a tablet and put on it where is supply gonna come from that we don’t know about today. And you put down all the optimistic points, that tablet will basically be blank," says Pickens.

As blank as the landscape around Fort McMurray, where the world of oil exploration ends.

Does Pickens think the days of cheap oil are gone?

"They’re gone," he says. "From what we knew as cheap oil, when I pumped gasoline in Ray Smith’s Sinclair station on Hinkley Street in Holdenvale, Oklahoma, 11 cents a gallon, that’s gone."

Will we ever again see $1.50 a gallon? "We won’t ever see $1.50 a gallon. No, that’s gone," says Pickens.

Lunch time in oil service.

RBC Capital Markets analyst Kurt Hallead appeared on CNBC Friday morning. He's bullish on the oil service sector and thinks it goes up 30% this year.

That's great, except it's already up 17% or so.


It’s hard to find a better place to invest today than in shares of oilfield-services companies, according to Kurt Hallead, who analyzes the sector for RBC Capital Markets.

“Oil services are now attractive to many different investment styles, from value to growth to momentum,” Hallead told CNBC’s “Squawk Box” on Friday. “We expect to see substantial new money flow into oil services.”

Saturday, January 14, 2006

Two more weeks! Two more weeks!

S&P's Sam Stovall finds yet another way to slice and dice the sector data, and we've got ourselves a &*^%@$ horserace!

Keep in mind it's about momentum and historical performance and probabilities - not to mention we're only half way through January - but maybe it's gonna be Africa hot baby! [Sam Stovall's idea is in the last paragraph of that link.]

The below data is not from S&P, but from the Fidelity Select sector funds, which I use to keep track of sector performance.

Top 10 performing Fidelity Select Sector funds so far in 2006:

Energy service: 10.44
Gold: 9.45
Networking and infrastructure: 9.36
Electronics: 8.80
Energy: 8.75
Natural resources: 8.45
Developing communications: 8.40
Natural gas: 7.93
Technology: 7.27
Software and Computer Services: 7.24

Those won't correlate exactly with what S&P has, but they're something to work with.

Let's see how we close 'em out at the end of January.

Friday, January 13, 2006

Stock ideas.

The below video is ostensibly an interview with the CEO of Hornbeck Offshore Services [ticker: HOS], but it also features a number of stock ideas from Chris Edmonds, who is the oil commentator on

CNBC via msn Video: Hornbeck Offshore Services CEO Todd Hornbeck.

Jim Jubak from msn Money with some interesting ideas in alternative energy:

Invest in Europe's alternative energy leaders.

An administrative note: I'm going to be working on some personal projects for a while, so my postings here may slow down.

CIBC: The Time of Sands.

Via The Oil Drum and Peak Energy Australia, the latest CIBC World Markets research letter that is rather positive on Canadian oil sands.

CIBC World Markets: The Time of Sands.

This report doesn't go into the related stocks, but if you read through the archives on this blog, you'll find mention of various oil sands related stocks. Two places to start, the Raymond James report on oil sands, and an earlier post of mine, Blame Canada.

Wednesday, January 11, 2006

RBC: Sunrise in Oil Service.

CNBC via msn Video: RBC Capital Markets Oil Services Analyst Kurt Hallead

Full Matt Simmons Interview Available.

The full Barron's interview with Matt Simmons has been posted below.

JapanFocus: Twilight in the Desert: an interview on peak oil with Matthew Simmons

CIBC: Conventional oil ''seems to have peaked in 2004.''

Resource Investor: Oilsands to Be World's Largest New Energy Supply by 2010.


As conventional oil reservoirs deplete rapidly around the world, Canada's oilsands will be the biggest contributor to new global supply by the end of the decade, predicts CIBC World Markets [TSX:CM].

And in an energy market where state-owned firms control a major portion of global daily production, the oilsands provide one of the few remaining growth opportunities for investors, chief economist Jeff Rubin said Tuesday.

''All of the net increase in oil production this year is expected to come from non-conventional sources,'' Rubin said in a release.

''While deepwater oil is the primary source today, we forecast that Canadian oilsands will become the single biggest contributor to incremental global supply by 2010.''

The Toronto-based bank said a study of 164 new oil fields and projects around the world shows that the price of oil will continue to rise over the next three years if global demand does not begin to wane.

As such, Rubin believes oil prices this year will eclipse last year's record high of $70.85 per barrel, reached as major oil and natural gas infrastructure in the Gulf Coast was being pounded by two major hurricanes.

Rubin also predicts that oil could rise to as much as $100 per barrel by 2007, giving energy companies a vast amount of cash in which to invest in large but expensive projects like the oilsands.

''Not only is depletion significant, but it is also accelerating, forcing more and more reliance on non-conventional sources of supply, such as Canada's vast but largely undeveloped oilsands,'' said the report.

The CIBC study says once depletion rates are factored in, global conventional supply ''seems to have peaked in 2004.''

Tuesday, January 10, 2006

Lehman Brothers: Sunrise in Oil Service?

Reuters: UPDATE 1-RESEARCH ALERT-Lehman ups Halliburton, 18 others.


Lehman Brothers on Tuesday raised its price targets on Halliburton Co. (HAL.N: Quote, Profile, Research) and 18 other oil service and equipment companies.

Sunday, January 08, 2006

There's Something About Henry.

Of the various oil prognosticators I follow, Henry Groppe of oil analysis firm Groppe, Long & Littell is one of the more even keeled in his predictions. As an example, I can't remember hearing a call for $250 oil from him, any mention of an 'oil crash' scenario, or even the kind of swashbuckling pinpoint oil price predictions that Boone Pickens has, at various points, swooped in and made (and mostly nailed). Which isn't to say Groppe has not had some impressive calls of his own, he just has a different style.

So what is Groppe's prediction for this year? Oil prices may trade in a range of $45 to $75, which seems entirely reasonable to me, if not as sexy as Boone Picken's daring calls, or as eye catching as Matthew Simmons' recent calls.

For more insight on Groppe, I have a prior post here and a more recent one here. There's also this recent interview from an ASPO peak oil conference. All well worth reading for what I think is an informed and balanced view on peak oil.

There's an interesting kicker: As even keeled as Groppe's views are, he admits to having 90% of his investments in energy and 65% in the Canadian energy group.

Friday, January 06, 2006

China reserves.

China signaling again that they want to keep some of their reserves in something other than the dollar, say, perhaps commodities.

FT: China signals reserves switch away from dollar.


China indicated on Thursday it could begin to diversify its rapidly growing foreign exchange reserves away from the US dollar and government bonds – a potential shift with significant implications for global financial and commodity markets.


In a brief statement on its website, the government's foreign exchange regulator said one of its targets for 2006 was to “improve the operation and management of foreign exchange reserves and to actively explore more effective ways to utilise reserve assets”.

It went on: “[The objective is] to improve the currency structure and asset structure of our foreign exchange reserves, and to continue to expand the investment area of reserves.


However, according to Stephen Green, economist for Standard Chartered in Shanghai, although the language was “vague”, Thursday's statement was the first time Safe has publicly indicated a shift away from dollar assets.

“It is a subtle but clear signal that they are interested in moving away from the US dollar into other currencies, and are interested in setting up some kind of strategic commodity fund, maybe just for oil, but maybe for other commodities,” he said.

Thursday, January 05, 2006

The end justifies the means?

Following up on the post about Sam Stovall and investing in the prior year's best sector, here is an article from Mr. Stovall explaining Standard & Poor's research on this topic.

Businessweek: Go for Momentum or Recovery?

A couple of notes: The article discusses investing in the top 10 sectors versus the bottom 10 sectors, rather than just the top sector, which is what I have examined [hey, I've got limited resources..]. Using historical data, the results are that over the time period studied, investing in the top 10 sectors led to almost twice the return of the S&P500, while also increasing the risk adjusted return, which is basically investment nirvana. [And before you go crazy with this, remember it is historical data and backtesting. But you are betting on the strongest horses, and they have a tendency to keep their strength for a while.]

I found similar results when looking at just the top performing sector. Well, mostly. But picking one versus ten leads to much more volatility, and the occasional train wreck when a high flying sector craters. Caveat emptor.

Looking at S&P's list of 2005's best performing sectors, 4 of the 10 are energy related, which seems to bode well for the energy sector in 2006, according to this study.

Here's the problem though: Two of those energy sectors were also top performers in 2004, so they are now on a multi-year winning streak. And they not only outperformed, they hot dogged it. So it is time for caution, folks.

I have another way of slicing the sector data that I haven't had a chance to look at yet. If it gives a strong signal on something, I'll probably mention it later.

Powerful the Dark Side Is.

It looks like Stephen Leeb has gone over to the Dark Side. Darth Kunstler will be pleased.

Leeb's new book:

The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel.

By the way, it would be cool to make enough from the site to pay for the book, so if you were going to buy it anyway (or make another Amazon purchase), consider going through the above link and I'll get a commission on your purchase. [If you do, thanks.]

But we can probably guess roughly what he's going to say:

Buy oil companies with long lived reserves [oil sands, unconventional resource plays, selective foreign producers (say PBR, STO, LUKOY, OGZPF, last two if you're daring)], selective oil service, uranium, coal, selective growth companies (at least that's what he recommended in his last book), and be prepared to swing from gold to zero coupon bonds as we cycle from inflation to deflation.

Monday, January 02, 2006

Trade along with Boone Pickens.

Not sure what's up with that title. The stocks he likes are SU, COSWF, EOG, KWK, and XOM. First two Canadian oil sands, next two natural gas, the final is the biggie. I am pretty sure Boone Pickens is also hot on coal, BTU and CNX, I believe.



Pickens: Demand for energy will stay strong

Billionaire Boone Pickens, who forecasts a drop in oil prices next year after predicting 2005's rally, told Bloomberg News that he plans to retain his favorite energy stocks: He expects demand to remain strong.

His faves include Suncor Energy of Calgary, Alberta; Canadian Oil Sands Trust; EOG Resources of Houston; and Quicksilver Resources of Fort Worth, according to Bloomberg.

Pickens correctly predicted in 2004 that oil prices would top $60 a barrel this year. Crude-oil futures in New York have jumped 40 percent this year and briefly traded at $70.85 a barrel Aug. 30. Pickens said in Nov. 9 and Dec. 20 interviews that oil would drop toward $50 in the first half of 2006 because supplies are abundant and high prices are crimping demand.

"It'll be slow in the first half for energy stocks," Pickens, who also owns shares of Irving-based Exxon Mobil, told Bloomberg.

Gains should resume in 2006's second half for exploration and production companies and other energy stocks as demand strengthens, Pickens told Bloomberg. "I don't believe this downturn's going to last for very long," he said in the interview.

P.S. There's a piece on Rainwater in there too. Joining the Dark Side, he is. For more on that, read Fortune's "Energy's Prophet of Doom."

[List all posts on Land of Black Gold on Boone Pickens.]

Has Aubrey McClendon lost his mind?!

Has Aubrey McClendon lost his mind?!

Maybe not.

WSJ: U.S. buyers are outbid in the natural-gas crunch.


Even with natural-gas prices surging to new heights and heating bills soaring across the U.S., much of the nation's import capacity remains idle.

The U.S. has four onshore terminals for receiving and processing imported gas, and they are processing only about half the volume they can handle. The reason: U.S. buyers are being aggressively outbid by Europeans and Asians for the limited number of cargoes available.

The supply crunch means natural-gas prices will stay high -- and sensitive to weather changes -- for years, even as the U.S. builds more terminals to handle overseas gas.

"There will be continued competition for supply, certainly through the end of the decade," says Martin Houston, president of North American operations for BG Group PLC, the largest importer of liquefied natural gas into the U.S.


High prices are one reason big producers are looking to boost North American gas production. This week, ConocoPhillips said it would pay $35.6 billion to acquire Burlington Resources Inc.. Eighty percent of Burlington's assets are North American gas.

But imports also are key. While the majority of natural gas consumed in the U.S. comes from North American wells, many aging fields can't produce more.


With U.S. production leveled off, the energy industry expected to compensate with imports from the Middle East and Africa, where excess supplies of the fuel are never brought to market. Instead, a pressing global shortage has developed, in part because of overseas competition. As the price of liquefied natural gas fell, a building boom began. While supply increased and the number of cargoes available for purchase on the spot market grew, so too did the number of new import terminals in other countries.

Global production capacity for natural gas, in liquefied form, is about 20 billion cubic feet, or about 600 million cubic meters, a day, but there are enough terminals around the globe to eat up twice that volume, according to the Federal Energy Regulatory Commission.

A global shortage has developed in recent months, amid supply glitches, cold weather in the U.K. and a drought in Spain, which has been turning to liquefied natural gas to make up for a shortfall in hydroelectric power.

In an extreme example of the situation, a tanker carrying liquefied natural gas last month arrived from Nigeria and idled in the Gulf of Mexico for a week -- during which prices in Europe rose -- before sailing on to Spain to unload its cargo. Recently, the Spanish have been willing to pay $2 to $3 per million BTUs above Gulf Coast spot prices, according to PIRA Energy Group, a New York consultant. South Koreans, meanwhile, are paying a premium of about $2 and the British a premium of $2 to $6.

Tom Ward too..

This has to be the most aggressive insider buying I've ever seen.

Matt Simmons: Sunrise in Oil Service?

A nice interview of Matthew Simmons in this weeks Barron's. Consider buying a copy, it's worth reading in it's entirety.

Barron's: Twilight for Oil? [$]


Q: Can the Saudis keep their current production where it is for quite a while?

A: That is certainly a likelihood. But there is a real but unquantifiable risk that it starts into the same type of decline we've seen in the North Sea.

Q: This is Barron's, so how do people profit from this?

A: If oil prices don't collapse, energy will be the best place to invest in 2006.

Q: Even though the stocks have had such a run-up?

A: Yes. Maybe they will be only up 1% and everything else will be down 10%, but I doubt that. The current prices we have for energy stocks are finally high enough to start some really significant spending on badly needed projects that have been ignored for a long, long time. The major oil companies can't spend money fast enough. The average E&P budget this coming year is up 35% to 50%. The problem is there are no more drilling rigs. So the backlog in the petroleum-equipment sector is starting to build.

Q: What kinds of companies will benefit?

A: Engineering. Valve companies. Flange companies. Pipe companies. Construction companies. The oil-service industry. Recently our analysts were updating our year-end earnings models. There were about three instances in a row in which earnings were expected to go from $2 in 2005 to $8 in 2007.

Q: Why does ExxonMobil have a different view of where the oil price is headed?

A: I don't have the vaguest idea why they could ever think we are going back to $25 oil other than their business model desperately needs that to happen to have their long-term strategy work. High oil prices are very bad news for big oil. The higher the price, the more proven reserves they've already booked they lose in these foreign concessions, because once their projects hit their payout targets, then the host government's share rises. I think the major oil companies are lost in the wilderness right now.

Sunday, January 01, 2006

Royal Dutch Shell PLC tells it like it is.

After reading this:

WSJ: Center Stage in '06: Natural Gas, Iran, New Cancer Tests


Jeroen van der Veer, chief executive of Royal Dutch Shell PLC, says natural gas now accounts for 40% of Shell's hydrocarbon output and is rising. "In a decade, we will be close to being 50-50," he says. "One day, the question will be whether we should be [called] an oil-and-gas company or a gas-and-oil company."

Gas use is expected to grow 50% faster than oil consumption in the next 25 years, says the International Energy Agency. Gas is expected to pass coal as the No. 2 energy source by 2020, accounting for nearly a quarter of the pie, with oil first at more than a third. One element favoring the use of gas is that it's clean burning, producing fewer so-called greenhouse gases.

I was amused to see that when I googled an article from Barron's last week, the number 1 hit was Royal Dutch Shell's web site where it has been posted. Read the article and you'll understand.

Barron's (via RDS PLC): Bullish and Fully Fueled.

By the way, the subject of that interview, Kurt Wulff, makes some of his research available on a delayed basis for free, and it is worth reading. Check out