Friday, March 31, 2006

Why corn ethanol is a bit of a Catch-22.

Hmm.. 'Rising fertilizer' costs, eh? Where does fertilizer come from again?

Gotchas like this are part of the reason that Brazil uses sugar, which is a more efficient way to generate ethanol.

Bloomberg: Corn Prices Soar as Survey Shows U.S. Farmers to Cut Acres on Higher Costs.


March 31 (Bloomberg) -- Corn prices in Chicago rose the most in seven months after the U.S. said farmers will sow the fewest acres since 2001 because of rising fertilizer costs. Soybeans fell as growers said they will plant the most ever.

Corn will be planted on 78.019 million acres, down 4.6 percent from last year, a government survey of 87,000 farmers showed. Analysts expected a 1.5 percent decline, based on the average of 25 estimates in a Bloomberg survey. Farmers may shift to soybeans because of higher costs to fertilize corn in the U.S., the world's largest producer and exporter of both crops.

``Prices have to rise to buy more acres,'' said Dale Durchholz, an analyst for AgriVisor Services Inc. in Bloomington, Illinois. ``This was a huge surprise.''


``Corn is the most fertilizer-intensive of major crops, accounting for approximately 40 percent to 45 percent of each of the three main fertilizer nutrients,'' nitrogen, phosphate and potassium, Silver said in his report. The reduction in corn plantings ``reflects factors including lower farm income, higher fuel and fertilizer costs, and excessive dryness in soil conditions in the southern Plains states,'' Silver said.

Thursday, March 30, 2006

Boone Pickens on CNBC 03-30-2006.

CNBC via MSN Video: Boone Pickens.

Mr. Pickens comments we'll likely see $75 before $60, which again suggests to me that he believes that OPEC will successfully defend $60 if necessary, as well as the idea that it's likely something is going to go wrong somewhere: hurricanes, Nigeria, Iran, Iraq, pick your poison.

He makes an interesting suggestion that we go to a global price for gasoline, like we have for crude oil, perhaps via taxes. He's in Washington, maybe he's talking some sense into them down there.

But man, the US sees $6 gasoline as in Europe, and GM and Ford are in a heap of trouble. Okay, an even bigger heap of trouble than they are in now.

Wednesday, March 29, 2006

Matthew Simmons on Bloomberg TV 03-28-2006.

A lengthy interview with Matthew Simmons covering a wide range of energy topics.

To view it, click on the below article, then click on the link that says "Simmon's & Co.'s Simmons: Oil and Natural Gas Markets" which is in the box labeled "Related Media on Demand" then "Video", on the right hand side of the page.

Bloomberg: Oil Rises to 7-Week High on Forecast of Gasoline Supply Decline.

Oil service stocks look set to spike. Oil Service Stocks Look Set to Spike.

I still have a few things to learn about technical analysis, but I believe the charts of many energy stocks in general are looking better, and not just in oil service.

Update, more charts:

321energy: Special update on the energy sector.

Monday, March 27, 2006

Things that make you go "Yippie!"

If you don't already have a subscription to Barron's, invest $4 and buy this week's Barrons to read the full interview with Art Smith, the CEO and Chairman of John S. Herold Inc., a research firm that follows the oil industry.

Barrons: Energy, An Aging Bull.

A quick summary:

Energy stocks have run up over the past 3 years, but on various valuation measures continue to look like solid investments, particularly the oil majors. $60 a barrel oil and $7 natural gas is sort of an equilibrium level that should balance supply and demand for the next few years, but Mr. Smith suspects that it is likely there will be a further large upswing in prices, and that it could be due to peak oil. He makes note of the difference in oil futures and the price implied in energy stocks, and he believes the futures prices are likely more correct, suggesting the stocks still have value in them. On the question of what to avoid, he notes that oil service is red hot and that caution should be used in terms of potentially overpaying for what's already in the stocks.

Sunday, March 26, 2006

The new, new thing circa 2006: Moonshine, er, ethanol.

Sun Microsystems and Microsoft are competitors in the tech world, but two of their founders (and apparently at least one of the founders of Google) appear to be agreeing on at least one thing: It's time to invest in the production of ethanol, a plant derived form of alcohol fuel than can serve as a substitute for gasoline.

There are still questions about whether ethanol is actually worth it in terms of energy returned versus energy invested, and if and when it could be scaled up to be more than a small part of America's fuel supply, but nonetheless, a number of famous tech investors have energy on their radar and are making investments in various alternatives including ethanol, as well as solar and new battery technologies. A healthier addiction.

NY Times: On the Ethanol Bandwagon, Big Names and Big Risks.

Businessweek: Kleiner Perkins Energy Startups Soon to Shine?

Update, UCB study on ethanol:

UCBerkeley: Ethanol can replace gasoline with significant energy savings, comparable impact on greenhouse gases.

Saturday, March 25, 2006

It's a Mad, Mad, Mad, Mad World!

What kind of a strange world are we in when Pat Dorsey, the value biased director of stock research from recommends not one but two energy stocks on FoxNews' Bull & Bears, one of which is also a recommendation of Jim Cramer (aka Reverend Jim of the Church of What's Working Now).

Both recommended Houston Exploration (THX) in the past week.

FoxNews: Bulls & Bears Recap of March 18.

Pat: I'm betting on Energy Partners (EPL), which is an oil and gas exploration firm in the Gulf of Mexico. It's building a bunch of high impact wells right now that have the potential to double or triple the company's reserves. The stock's at $22 right now and could be at $40 if these wells succeed. This has some risk, but if it succeeds, it will do extremely well. (Energy Partners closed on Friday at $22.27.)


Pat's prediction: Houston Exploration (THX) up 40 percent by next St. Patrick's Day. Mad Money Recap 03/24/2006.


Lightning Round

Cramer was bullish on


Houston Exploration (THX:NYSE - news - research - Cramer's Take)

Note: Not all that long ago, Pat Dorsey would make statements like "Oil is going straight down" whenever the subject of energy or energy stocks came up on the show. Normally, this kind of about face by a stubborn bear is an important warning signal. [As in: who's going to buy our stocks from us if everybody's on our side?!] But in this case, we'll make a note of it and keep on the alert.

Monday, March 20, 2006

FPA: We believe in Hubbert's Peak.

First Pacific Advisors (FPA) is a fund advisory firm that has always marched to the beat of a different drummer, but has a solid track record. They were big in energy stocks (mainly service) for a while, but are now heavily in cash-like instruments because they believe the risk/reward ratio is not favorable at the moment. Over a 5 year time frame they are believers in energy.

CNBC via MSN video: First Pacific Advisors Portfolio Manager Steve Romick.

Friday, March 17, 2006

Things that make you go "Hmm".

Palm Beach Post: Warmer oceans blamed for producing more intense hurricanes.

St Petersburg Times: Get ready to 'hunker down'.


It looks more and more like another nerve-racking hurricane season.

Sea surface temperatures are above average, La Nina has returned and the Atlantic Basin remains in an "up" cycle for storms.

"There is no reason not to expect a real active season," said Hugh Willoughby, a renowned hurricane researcher at Miami's Florida International University.

Longtime hurricane forecaster William Gray predicted an above-average season, with 17 named storms, nine of them hurricanes and five of those Category 3 or higher. He predicted at least one major hurricane would hit the United States.


For the 25 years before 1995, an average of fewer than nine named storms formed in the Atlantic region. The numbers increased by about 40 percent over the next 10 years.

The results were particularly pronounced the last two seasons, when a total of 42 named storms formed in the Atlantic Basin. Eight hurricanes struck Florida in those two years.


Even more bad news: Up cycles tend to last a bit longer than the down cycles, Willoughby said. The current cycle is expected to last another 20 or so years.

"Maybe even 30 years," Willoughby said.


Tropical storms need fuel to thrive. Warm waters provide that fuel.

Last year the waters around many parts of the Atlantic Basin were 4 degrees warmer than normal.

It doesn't sound like much. But combined with warm waters, favorable steering winds and weak shear, it creates an ideal scenario for lots of storms.

Part of the reason for the warmer waters was that the Bermuda High, a system of high pressure, was exceptionally weak in the winter of 2004-2005 and did not provide the usual cooling of Atlantic Basin waters.

Essentially, the waters started off above average and nothing happened to prevent them from getting even warmer.

If there is a silver lining this year, it might be that the Bermuda High has been stronger the past few months. The trade winds have stirred up the Atlantic and cooled the sea surface.

The temperatures remain slightly above normal, but not as high as the previous year, Landsea said.

"That's the good news," he said.

Tuesday, March 14, 2006

Most skeptical headline of the week.

Bloomberg: Pemex CEO Says Mexico May Have Found Deep Water Oil.

Actually, the article isn't any more convincing. It might be 10 billion barrels, it will likely take 10 years to develop, and Pemex doesn't have the expertise to do it alone, and they can't bring in international partners to help, according to current Mexican law.

Encana upgraded.

I was wondering what moved this stock today, I have to assume this was it.

The Energy Stock Blog: EnCana Upgraded By Prescient FBR Analyst.

Monday, March 13, 2006

Insights from oil service firm Weatherford.

Some interesting insights from an article on Weatherford, one of my favorite oil service companies.

Forbes: Oil Gleaners.


The petro-giants own the oil, but they rely on service companies like Weatherford to drill for it, study it and build wells and pumps to extract it. As the average untapped oil reservoir is to be found in ever smaller, deeper and tighter rock, service companies have come up with ever more innovations. And they’re charging for it. According to research firm John S. Herold, since 2000 the inflation-adjusted cost of finding and producing oil and natural gas worldwide (not counting taxes or royalty payments) has climbed 80% to $9 per barrel.

“It reflects all the symptoms of an aging of the reservoir base,” says Bernard J. Duroc-Danner, 52, chief executive of Weatherford, the fourth-largest oil service company (after Halliburton (nyse: HAL - news - people ), Baker Hughes (nyse: BHI - news - people ) and Schlumberger), with 25,000 workers worldwide. The older these fields get, the more help they need, and that’s good for Weatherford. In 2005 net income was up 42% to $470 million on $4.3 billion sales.

Worldwide, capital expenditures on energy exploration and production have risen 15% in each of the past two years to $170 billion, according to Herold. The number of drilling rigs poking holes in the world is at a high not seen in 20 years--up from 1,200 in 1999 to 3,000 now. Yet the oil supply, at 84 million barrels a day, has expanded just 1% since 2004.


Like biblical gleaners extracting more wheat from long-tilled acreage, Duroc-Danner is revitalizing oil flows from aging fields once thought to be largely tapped out. That means he is turning his back on the kinds of large-scale seismic testing used to prospect for elephant fields--a high-margin business dominated by Schlumberger. “Frankly,” he says, “we don’t think there’s a lot of big reservoirs left to be found.”

Friday, March 03, 2006

ExxonMobil: Peak oil? We don't believe in no stinkin' peak oil!

ExxonMobil: Peak oil? [pdf]


Oil is a finite resource, but because it is so incredibly large, a peak will not occur this year, next year, or for decades to come. According to the U.S. Geological Survey, the Earth was endowed with over 3.3 trillion barrels of conventional recoverable oil. Conservative estimates of heavy oil and shale oil push the total resource well over four trillion barrels. To put these amounts in perspective, consider this: Since the dawn of human history, we have used a total of about one trillion barrels of oil.


With abundant oil resources still available -- and industry, governments and consumers doing their share -- peak production is nowhere in sight.

Wednesday, March 01, 2006

Do I hear 60?

Why yes, I do. Looks like OPEC is signaling it wants the new floor at $60.

AP: OPEC President: $60 'Fair Price' for Oil.


While tight markets and global tensions have pushed up prices, the president of OPEC said Wednesday there's plenty of oil with the global surplus expected to grow at current production levels.

The assessment by Nigerian Oil Minister Edmund Daukoru in an interview with The Associated Press provided an indication that the OPEC producers are likely to pull back on production levels when they meet March 8.


Daukoru, who is OPEC president this year, declined to speculate what the cartel will do, but said its discussions "should be against the background of that anticipated overhang" which he suggested could lead to a collapse in oil prices.

He called $60 a barrel for oil a "fair price" and said oil prices should be kept at "an equilibrium with global economic growth." He cautioned if prices are allowed to edge toward $70-a-barrel "everybody gets nervous" about the impact on the global economy.