Tuesday, July 25, 2006

Boone Pickens: "$100 oil within the next year"

Top 10 Alternative Titles for this Post:

10. Got Oil?

9. Boone Pickens Declares War on Belgium.

I digress..

Video interviews today on:

CNBC: Boone Pickens.

Bloomberg: Boone Pickens.

Important points:

- Believes oil will reach $100 a barrel within the next year, "unless you go into a global recession".

- Does not buy the idea of a terror/geopolitical/risk premium in oil prices, instead he thinks high prices are simply a function of supply and demand being close to or out of balance at roughly 85 million barrels a day.

- Does not believe we are at the point of substantial demand destruction, and he isn't sure where it is.

- Believes natural gas will be used as a transportation fuel on a large scale.

- Prefers "oil sands" to "tar sands".

- Doesn't believe Saudi Arabia's figure of 250 billion barrels of reserves.

- Does believe there is 250 billion barrels of reserves in the Canadian oil sands.

- Recognizes the increase in costs of new oil sands production, but still talking about Suncor.

- Working to close slaughter houses that slaughter horses for export consumption.

Thursday, July 20, 2006

"June absolutely fell off the Richter scale for us"

CEO of homebuilder D.R. Horton in Q&A session on the company earning's conference call, about 01:37:15 in.

D.R. Horton Earnings Conference Call July 20, 2006.

The stock market is telegraphing a fairly serious slowdown. Lots of bad news out there and several smart investors calling for caution. (See 'Jim Rogers: "Be very careful.") I would post the chart of a homebuilding stock, but I run a family friendly blog.

Peter Thiel predicted a housing nuclear winter leading to a recession, and uh-oh, recently long bonds are outperforming stocks, even with the idea that the Fed is still in a raising mood. (See 'Man cannot live by energy stocks alone.')

And Barry Ritholz pointed out how important housing was to the economy over the past couple of years. (See 'Half of New Jobs Are Real Estate Related' and 'Housing is Dominating Economic Activity, part 3.')

Energy stocks are cheap, oil prices are high, oil futures prices are high, demand has not yet declined to any substantial extent, but technically energy stocks are weak (See '200 Days Later' and 'Crude oil to $100?').

Caution may be the better part of valor here.

Wednesday, July 19, 2006

Oil Analyst Charles Maxwell on Peak Oil.

On June 3rd 2006 Weeden & Co's Senior Energy Analyst Charles Maxwell appeared on Bob Brinker's Moneytalk radio show as a guest. Charles Maxwell has been involved in the oil industry since 1957 and has solid credentials. One of the callers [Mitch in Des Moines] asked Mr. Maxwell a rather involved question about the state of Saudi Arabia's production and it's place as the dominant oil producer in the world and in OPEC, the peaking of world oil production, and how this might relate to an earlier era when the Texas Railroad Commission was running the show and US oil production peaked.

Mr. Maxwell's answer:

There's always been too much oil around the world that could be produced, and to get a reasonable return in the industry somebody had to bring supply and demand into balance.

In the early days that was John D. Rockefeller, and then of course that was stopped with the anti-trust action of Theodore Roosevelt and so on, and then we went to the Texas Railroad Commission which was a government group that did the same thing in the name of supporting the oil industry, and then we went to the Seven Sisters who tried to regulate the oil industry in the same way - not very successfully - and finally we've ended up here with OPEC trying to do the same thing.

But that 147 year history is now likely to be broken, because the problem that each of these famous organizations have tried to do, is to bring supply and demand into balance effectively by creating some kind of a monopoly that would limit the amount of supply. It was necessary because we had too much supply. Now the world is completely changed. Completely changed.

And I don't think that the majority of governments, or the majority of analysts, or the majority of the public really understand the face of the energy crisis that we're coming in to, is that there is not enough supply.

This is the first time in the history of the world that that problem has arisen; there isn't enough supply. And the reason that OPEC is now opening up their quota system and producing pretty much as much as they can, is that they too are caught up in this problem. There is just a finite amount of oil, we are using up the oil in the great fields that we've had in the past that was cheaply brought in, and we are finding a good deal less each year than we are actually using, and we will gradually reach that peak, probably in about 7 to 10 years, and the Saudis have a critical role to play.

Now you're bringing the issue up, how much oil do the Saudis have? And I think it is more, perhaps, than some analysts have recently suggested, but probably a lot less than the Saudis have been given to believe in the past that they had.

Oil industry people are notoriously unreliable in terms of their own reserves, they tend to make a political statement about reserves instead of a geological statement about reserves. The Saudis want us to believe that they have almost limitless reserves.

I've looked at the situation carefully, and I think the Saudis can produce a bit more oil, maybe 15 or 20% more oil than they're producing today, but when they reach something in the order of 12 to 15 million barrels a day - they're at 9.5 million now
[note- those numbers don't appear to add up, perhaps he meant 13 million, but that's still more than 20% higher]- I think they're going to run into the inability to proceed any higher. They're going to reach a peak and they're going to hold it for a while, but they're not going to be able to help us with incremental barrels. I think that will happen in about 10 to 12 years.

So I think you're bringing up a very important point; Mr. Bush says that we're addicted to oil, and we will be hurt terribly when the Saudis are unable to produce more, because they have been the main hope that the world's oil supplies would go on a long, long time. When it becomes obvious that the Saudis can't carry higher and higher production, the world will recognize that peak oil is here.

Answering a follow up question from Bob Brinker on Hubbert's Peak and the fact that the major oil discoveries date back 35 years:

We had these great oil finds in the past, and now we're finding smaller and smaller fields, many of them, but not enough to make up for the loss of these great fields and they continue to be depleted, that is, used up, and the production from them is falling, so we can begin to forecast that without a lot of new production, and with the old production falling, we're in a pickle.

Thursday, July 13, 2006

"A fundamental imbalance between supply and demand growth."

CIBC World Markets Chief Economist Jeff Rubin and Banc of America Securities Oil and Gas Analyst Bob Morris debate the possibilities of $80+ oil.

CNBC Video: CIBC's Rubin & BoA's Morris.

Jeff Rubin has been a quite bullish on oil for the last few years, for reference see 'CIBC', and 'CIBC: Conventional oil seems to have peaked in 2004.'

Wednesday, July 05, 2006

Boone Pickens on CNBC.

Understatement of the decade: "This whole thing is going to be very, very interesting."

Boone Pickens of BP Capital interviewed this morning on CNBC regarding his predictions for oil prices for the rest of 2006, his views on natural gas, and his investment ideas.

CNBC Video: Boone Pickens, July 5, 2006.

Monday, July 03, 2006

Unconventional Success in Gas Production (No Yale Degree Required).

The term 'unconventional' resources refers to things like oil sands, coal bed methane, tight sands gas, and various forms of shale gas, the key being that these are not the usual oil and natural gas drilling operations. Unconventional resources take different equipment and techniques, take longer to develop and are generally more capital intensive than 'conventional' oil and gas production, and yet tend not to produce at the same high initial velocities, and thus, for most of the oil industries' history have been sort of the ugly (and somewhat neglected) stepchildren.

There is a flipside to the slower production of unconventional resources though: Production tends to be more even over the life of the resource, and the lifespan tends to be longer than that of conventional resources.

Though much of the focus these days is on oil and the possibility of peak oil, it's interesting to note that the last three major US takeovers in the energy industry revolved mainly around gas resources, including unconventional resources. This reflects both the fact that most of the easy oil and gas is already either gone or spoken for, and the fact that the US natural gas market, though well supplied at the moment, over the longer term will likely reflect increasing tightness as demand rises and US production struggles to keep pace, and so far at least, the much ballyhooed rise in LNG imports appears to still be a ways off.

Unocal, which was taken over by ChevronTexaco, owned some nice natural gas assets in Asia. ConocoPhillips purchase of Burlington Resources (BR) revolved around onshore US based production of natural gas, and BR had both conventional natural gas and unconventional gas production. Anadarko is now about to purchase both Kerr-McGee and Western Gas Resources (WGR), two deals which again focus on natural gas, with a mix of deepwater production and unconventional gas production (coal bed methane from WGR).

The focus on gas resources in recent deals, together with recent insider buying at gas producers Chesapeake Energy, XTO Energy, McMoRan Exploration, and a bit at Quicksilver Resources, are a clear signal that energy insiders are bullish that gas production is going to be a profitable enterprise in the future, and that unconventional resources have really come of age.

For further info on the recent deals:

The Oil Drum: Drilling on Wall Street.

For further info on the recent deals and some stock ideas:

Jubak's Journal: What $21 billion can teach you.

CNBC Video: Jim Jubak on Anadarko Deals.

Jubak highlights the stocks KWK, EOG, and UPL. ECA, SWN, and XTO are other possibilities to look at.