Monday, April 30, 2007

Boone Pickens in L.A.

Bloomberg Video: Boone Pickens.

From last week. Yeah, I know, I'm a slacker. But it's not like the energy issue is going anywhere.

As I first watched this video, I was distracted and rather amused by the parade of generally high end cars passing by in the background, particularly the BMW 7 Series that nearly backs into another car behind it. Los Angeles, for anybody who's never been there, is a serious car town, and you literally are what you drive. The fun part is that along with an amazing array of the world's more expensive models, you'll also see a lot of older cars, many of them in relatively good condition and driven daily. The roads in LA are pretty gentle and the weather is supportive, so you'll see everything from old Volkswagon Beetles and BMW 2002s to 80's Japanese cars that would have rusted away in other areas, oh, circa 20 years ago.

The other bit of amusement in this video is the fountain running in the background. Ah, how nice it is to forget in LA that, technically, you're living in the desert.

Generally this interview covers familiar ground, but a couple of interesting data points come out: Mr. Pickens believes that the Chevron/Devon Gulf of Mexico deepwater discovery, Jack, will probably not be economical to produce, as it is too deep and had to be fractured to produce just 6,000 barrels a day. Additionally, he says that the breakeven point of Suncor's oil sands production is around $22 a barrel. [I had thought it was closer to $35 a barrel.] Suncor is his biggest single stock position.

Another interview with Mr. Pickens from the LA Times:

LA Times: A future with less oil and more hard choices.

Sunday, April 29, 2007

US: We have a weak[-ening] dollar policy.

That's what I'm hearing here.

Reuters: U.S. Treasury's Kimmitt declines dollar comment.

Quotes:

U.S. Treasury Deputy Secretary Robert Kimmitt said he would not comment on the weakness of the U.S. dollar on Saturday after the currency slid to a record low against the euro on Friday.

Kimmitt told reporters that only his boss, U.S. Treasury Secretary Hank Paulson, makes comments on the dollar on behalf of the U.S. Treasury.

"There is only one person who can speak about the dollar... I will leave it there," he said at a conference in Brussels.

The euro pushed over $1.3680, the highest level since the launch of the common European currency in 1999, after a report showed the U.S. economy grew by just 1.3 percent in the first quarter of the year.

"We have made it quite clear to the Chinese that they need to move quicker on their currency, to move to (an) underlying market valuation based on fundamental economic principles," he said during a debate at the conference.


But a weak dollar could put a little juice in our exports as we try to stave off this:

Reuters: Fed's Yellen says U.S. economic downturn possible.

Quotes:

There is the potential for a downturn in the U.S. economy that could have ripple effects around the world, San Francisco Federal Reserve President Janet Yellen said on Saturday.

The U.S. economy grew modestly in the first quarter but should accelerate in the second half of the year, she said in a speech to the American Academy of Arts and Sciences and the American Philosophical Society.

Enumerating the top current risks to stable economic conditions around the world, she said that in the U.S. economy "there is potential for a downturn that could have major spillover effects around the globe." The United States contributes roughly 25 percent to world economic output, she noted.

The U.S. economy expanded at a sluggish 1.3 percent in the first quarter of 2007, the Commerce Department said on Friday, reflecting declines in the housing market and a pickup in inflation. It was the fourth consecutive quarter of sub-par growth in the world's largest economy.

Wednesday, April 25, 2007

Henry Groppe: Got oil?

National Post: Sands are shifting for oil supply.

Quotes:

The world continues to run rapidly out of oil and natural gas, which points to dramatically higher prices in a handful of years.

That was the message from Henry Groppe, a lanky Texan who advises oil companies and investors around the world about the world of prices. His firm, Groppe, Long & Littell, is based in Houston and was founded after he did stints as a chemical engineer for Saudi Arabia's Aramco, Dow Chemical, Monsanto and Texaco.

"The fundamentals always prevail, which is that the minute you start producing, you are depleting your resource," he told an audience of investors last week at a conference sponsored by Calgary's Pengrowth Energy Trust.

He showed production curves in the North Sea and Mexico that are catastrophically sudden in terms of their declines.
"This has a huge impact on the economies of Britain and Mexico," he said. "Britain became an oil importer this year for the first time in decades."

Oil production worldwide peaked months ago, but figures and prices don't reflect that yet because the production of liquids stripped from natural gas has been filling the gap, he said.

But that potential is peaking, too, which means that "in several years" the world will enter a new era of higher prices.
"The only question is how high will prices have to go before there is a decline in usage?" he said. Price hikes will mean the freeing up of less viable supplies, but there are limits economically and geologically to this, too, given current technology.

"Do we ever run out? Well, 40 years ago we ran out of US$2 a barrel oil; then 25 years ago we ran out of US$10 to US$12 a barrel oil and recently we ran out of US$40 to US$45 a barrel oil," he joked.

Current prices in the US$60- range make oilsands and Venezuela's tar sands viable, and prices will continue rising, he forecasted.

"The issue for the United States is that it uses one-quarter of the world's energy [oil, gas, coal] but has only 5% of the world's population," he said. "As realities intrude and consumption goes from 80 million barrels a day to 120 million [in 10 years], you will see a major shift in all financial and energy markets."

Sunday, April 22, 2007

Once More, with Feeling!

Excellent interview with Boone Pickens on EVWorld from earlier this month. I highlight select pieces, but it's worth reading the entire article.


EVWorld: Straight Talk from T. Boone Pickens.

Quotes:

"You take 30 billion barrels out of the world's reserve base and we have not replaced 30 billion barrels since 1985. You're talking about twenty years. You keep drawing down on the world reserve base... and it is happening because you can't find big oil fields anymore. They're just not out there to find."

....


No one has ever asked why we [Americans] use five times as much oil as the rest of the world, he pointed out. "That question is going to be asked more and more. There's no question, but we are going to have to reduce our energy [consumption]."

Queried by Kleindienst what he would do if he were the next energy secretary -- and Pickens joked that he'd insist on being called 'czar' -- he replied that the country is going to need every renewable energy source it can muster, including wind power, which while he's not a fan of the big turbines for esthetic reasons, he is now re-invested in it after an earlier abortive venture in the business.

"Wind is going to be a big deal," he commented. "You're going to have solar, you're going to have wind. You're going to have biodiesel. You name it, you've got it," he drawled. He also said that as energy 'czar' he'd raise the price of gasoline, working to establish a common, worldwide price for gasoline, just as there is a largely global price of oil. He said people who want their SUVs will be able to have them, but it's going to cost a lot to run them.

....

In discussing how the conference attendees can help influence Congress, Pickens responded, "I can tell you that the problems are going to come so fast and the price of gasoline is going to go up so fast here within the next twelve months, they are going to start catching on real quick that you're going to have to do everything you can to cover the base, and you're also going to realize that the supply [of oil] is so tight...

"Matt Simmons, a very, very bright guy that knows a lot more about this business than I do, and Matt Simmons last week sent me an.. email that said the [petroleum supply] system is so tight now. He said that storage is down... inventories around the world are coming down so fast now... everything is getting so tight... that you're going to see oil priced above $80 a barrel [this year]. And he said that if you had some kind of hiccup in the system it could go to $100 faster than a hot knife through butter.

"And I believe that and I think that when that happens, this thing is going to get so serious so fast that you're going to get the help out of Washington. You're going to have these politicians running for president, they're going to start talking about, 'We're going to have to do this, this and this, and all of it is going to help us, us, us in this room. I really believe that's going to happen."

Sunday, April 15, 2007

Peter Thiel on Bloomberg.

Bloomberg: Peter Thiel.

To summarize Peter Thiel's views in this interview:

- Continues to believe that ultimately we have a hard landing in housing/consumer led recession in the US due to the aftermath of the housing bubble, though obviously this is taking longer to play out than he thought (he's not alone there - I'm guilty too).

- Bullish on the dollar; believes that the Fed will be unable to lower rates as it has to try to contain inflation and that the dollar is undervalued versus other currencies (references the British pound in particular).

- Bullish on oil, Canadian oil sands stocks (Opti Canada, Nexen, Encana), and oil service companies (Schlumberger).

- Believes China will be a great growth story for the next 20 years, but has no investments there and isn't interested in them as the market is overvalued and the stocks available to invest in are losing money. Believes the best way to invest is via multinationals that export there.

The interviewer raises an interesting question: Could a rise in US exports, and the concurrent stimulation to the US economy that would come from that perhaps head off a looming recession? With the dollar weakening, there is some support to this theory, as a weak dollar gives foreigners more purchasing power in US goods, it also boosts US multinationals foreign earnings when translated back into dollars.

Interestingly, we're not really hearing much squawking on the dollar from the Treasury secretary (ala how they used to roll out John Snow with his "we've got a strong dollar policy" line - boy was that guy a terrible actor). So I'm wondering if perhaps they're looking the other way on the dollar with exactly that idea. After all, a US recession isn't good for anybody, Chinese, Germans or Saudis.

Thankfully, I didn't start a blog on currency trading so this is less of a concern to me, and I personally never trade currencies. [Peter Thiel, on the other hand, was once a currency trader.]

Thursday, April 12, 2007

Stay long. And short.

Refiners, natural gas, solar, uranium... the bull looks like it's back.

CNBC: Pickens Tells CNBC Oil Is Heading Higher.

Short the homebuilders? You've got company.

Reuters: Rogers shorts U.S. builders, eyes more losses.

Monday, April 09, 2007

Warren Buffett: Ich bin ein Peak Oiler.

Right scenerio, wrong guys maybe. Ah, so let's try again..

Warren Buffett and Matthew Simmons walk into a bar...

Berkshire Hathaway disclosed over the weekend that it had acquired a circa $3 billion stake in railroad Burlington Northern Santa Fe, and then this morning CNBC reported that there are two other railroads that Berkshire is investing substantial amounts in, to the tune of around $700 million each.

Now, if you take a look at the charts of the various railroad stocks (BNI, UNP, CSX, NSC), you will see that Mr. Buffett isn't exactly acquiring these stocks at rock bottom prices. In terms of historical valuations, they don't look all that cheap either. This is clearly not a prototypical Warren Buffett investment, at least at first glance. But for some reason, Mr. Buffett wanted the railroad industry and he wanted in in a hurry.

The news media is mainly playing this up with the "Warren Buffett believes in the American economy" angle. I think they're all wet.

Now, while I'm sure there is more than one angle to this investment for him, I would wager a large amount of money that as he is more and more aware of the energy challenges the world has, he thus is investing in the cheapest form of long haul shipping that reaches most areas of the country. For one thing, the rails transport much of the coal that's shipped around the country, for another, they are shipping around grains and much of the ethanol (which, in theory, we will see more of in the future). Finally, shipping items by rail verus truck is immensely more efficient, I've read something up to 10 times more efficient.

So while people puzzle over why Mr. Buffett is going gangbusters over the rails, I submit that the following quote from Matthew Simmons has a lot to do with it:

Foreign Policy: Matthew Simmons on Softening Oil Peak Impact.

FP: If you were the secretary of energy right now, what policies would you recommend to President Bush?

MS: If we restructure the way we use fuels, we might be able to get along very well with oil in decline. The single-most energy inefficient way we use oil is large trucks delivering goods over large distances. If you take all the goods that are trucked more than, say, 50 miles, onto railroad tracks, depending on the length of travel, you’d use between 3 to 10 times less energy. If you put them on a marine vessel, it’s even more efficient. So forget about just-in-time inventory. Once you get the large trucks off the road, you make a tremendous dent in traffic congestion, which is public enemy one through five on passenger car fuel efficiency.


P.S. Don't forget his investments in ConocoPhillips, wind power, and ideas about nuclear energy.

Thursday, April 05, 2007

Warren Buffett, Boone Pickens, and William Greehey walk into a bar...

How'd you like to be a fly on that wall?

I don't know if these guys have ever gotten together, I'm not even sure if they all drink (Boone Pickens and William, ahem, Greehey, I'm going to go out on a limb and suggest these guys have probably both had a drink or three before), but we can try to imagine the conversation they might have together.

Warren Buffett, CEO of Berkshire Hathaway and one of America's greatest investors (if not the greatest), would probably talk about how he likes to buy companies with compelling businesses and strong, intelligent management at undervalued prices, and with his eye firmly on the long term. He might explain how he is seeking to diversify overseas these days, particularly since he has questions about the US dollar and deficits, and though he generally avoids 'commodity' businesses, has invested in the past few years in oil companies ConocoPhillips and Chinese oil major PetroChina.

Boone Pickens, CEO of hedge fund BP Capital, and perhaps the most famous proponent of peak oil in the financial world, would probably talk of his strong belief in peak oil and that we are right now at the production peak, his high regard for natural gas and Canadian oil sands, and his large stakes in Canadian oil sands producer Suncor, refiners Tesoro and Valero, and deepwater driller Transocean.

William Greehey, former CEO of Valero and architect of it's amazing rise, might then finish up with his current view of the refinery business, which is that with everybody focused on getting the last drop of gasoline out of the barrel, the asphalt side has been neglected and is going to become quite tight in 2007.

What company might they all three agree on?

ConocoPhillips, maybe, though Boone Pickens is not a huge fan of the majors as they struggle in keeping up with the ever faster treadmill of declining reserves.

[Update - It occured to me later that maybe I ought to look at BP Capital's recent filings to see if, in fact, they owned COP, and er, sure, enough, COP is the only one of the majors they do own. Oops. So I guess Boone does like COP. The other interesting thing that stood out to me from looking at his holdings was just how much Denbury Resources (DNR) BP Capital holds. Wow, they are way overweighting that one. They have some large CO2 resources and they buy old oil fields on the cheap and CO2 flood them to recover more oil.]

My vote for a play they all might find interesting: Canadian energy company Husky Energy (HUSKF or HSE.TO).

Why?

1.) Major natural gas discovery in the South China Sea.
2.) Sizable oil sands holdings in Canada.
3.) Major refiner of asphalt in Western Canada.

(Details here.)

35% of Husky is owned by Hutchison Whampoa, a Hong Kong conglomerate/holding company. There is some speculation that a Chinese company will purchase a Canadian producer to get a significant piece of the oil sands. I have no idea if Hutchison wants to sell, but I would rather not see that happen with Husky. (Frankly, I'd rather not see it happen with any of my holdings there.) Instead, I'd just like to collect my dividends over time and let current management keep running the joint, they've been doing a rather fine job.

Note: None of the above referenced investors has, as far as I know, ever actually suggested Husky as an investment. I'm just... speculating.

Sunday, April 01, 2007

The One Minute Peak Oil Investor.

Because the markets are my main hobby, in my off-blog life as a civilian I often wind up talking to people about stocks, investments, and energy. And although the concept of 'peak oil' has now gotten fairly widespread coverage, I still find many people aren't familiar with the concept. I'm not going to try to explain it in this post [I believe the most easily read book that explains the concept well is 'Hubbert's Peak: The Impending World Oil Shortage' by Kenneth Deffeyes].

In terms specifically of investments, many of the people I talk to also seem to be carrying a lot of cash (an outgrowth of their bad experiences in the bear market of 2000-2002). When I bring up the topic of how much energy people have in their portfolios, most don't know, or assume they have an average range (probably a reasonable assumption). Sometimes I get around to suggesting an energy stock or two that people might want to take a look at, and the usual reaction is fairly unenthusiastic. Energy just does not seem very sexy to most folks, I guess, certainly not as sexy as a nice tech play. Some people also say basically, "I just don't have the money, and don't want to sell what I have to make room."

Ok, understood, but given the world that we have today, with questions about long term energy supplies (both in terms of location and quantity), emerging markets and their demands on commodities, inflation, and a potentially declining dollar, I think most people should try to be gaining exposure to energy over time.

So here is my answer to this:

I believe an appealing way to gain additional exposure to energy in an inexpensive, low risk way is to use the Automatic Asset Builder program (essentially a dollar cost averaging program - invest a fixed amount every month to buy more on dips, less on spikes) at T. Rowe Price into their New Era Fund, which can be funded with as little as $50 a month. The New Era fund is focused around natural resources and has a healthy serving of energy. The manager (Charles Ober) amusingly is not a peak oil believer, nonetheless, his fund charter forces him to stay heavily invested in natural resources. The fund has returned about 30% per year over the past 3 years, so it's done a reasonable job of capturing the upside. If you take the time to read the article below, you'll learn also Mr. Ober is a believer in wind energy and is making investments in the sector.

Kiplinger.com: Oil Boom Runs Out of Gas.

T. Rowe Price: New Era Fund