What kind of a strange world are we in when Pat Dorsey, the value biased director of stock research from Morningstar.com 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.
thestreet.com: Mad Money Recap 03/24/2006.
Quotes:
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.
Saturday, March 25, 2006
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.
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'.
Quotes:
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.
St Petersburg Times: Get ready to 'hunker down'.
Quotes:
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.
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.
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.
Quotes:
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.”
Forbes: Oil Gleaners.
Quotes:
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]
Quotes:
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.
Quotes:
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.
Quotes:
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.
AP: OPEC President: $60 'Fair Price' for Oil.
Quotes:
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.
Sunday, February 26, 2006
The bombing begins in 5 minutes.
File under humor: Canadian readers react to Jon Markman's post, "O Canada, Can We Have Alberta?".
Good thing he didn't let on about Operation Alberta Freedom or they'd really be ticked.
It would be interesting to see whether in terms of actual dollars, there is more American or Canadian money invested in Suncor. There aren't a huge number of large cap Canadian stocks, so I assume Canadians themselves have a lot of money in Suncor, but it could be close.
P.S. Hopefully everybody can tell the title is a joke..
Good thing he didn't let on about Operation Alberta Freedom or they'd really be ticked.
It would be interesting to see whether in terms of actual dollars, there is more American or Canadian money invested in Suncor. There aren't a huge number of large cap Canadian stocks, so I assume Canadians themselves have a lot of money in Suncor, but it could be close.
P.S. Hopefully everybody can tell the title is a joke..
60 Minutes' Disco Inferno.
Satisfaction came in a chain reaction - Do you hear?
I couldn't get enough,
so I had to self destruct,
The heat was on,
rising to the top
Everybody's goin' strong
That is when my spark got hot
I heard somebody say
Burn baby burn!
Disco inferno! (Aah yeah!)
Burn baby burn!
Burn that mother down
Lyrics: The Trammps.
CBS News: Montana's Coal Cowboy.
First they did an optimistic piece on Canadian oil sands, now CBS' 60 Minutes does another relatively optimistic piece on a proposal by the Montana governor on massive coal to liquid conversion.
I don't know about you, but it sure sounds like somebody at 60 Minutes read a peak oil book or two, freaked a little, and got on the stick. I don't think this coverage was prompted simply by $60 oil. If there was any mention of peak oil (I don't recall any, but I could be wrong), it sure wasn't highlighted. In fact, it seemed rather more like 60 Minutes is making the case we're covered, what with these various alternatives.
And while I'm a believer that the ride over Hubbert's Peak will be mitigated by solutions/alternatives like conservation [nee demand destruction], gas to liquid, coal to liquid [i.e. basically anything we can get our hands on that we can burn..], high efficency diesel vehicles and eventually electric vehicles of some sort, I think we have some serious questions that will need to be addressed about the increased CO2 output of some of these alternatives.
And on that topic, a sidenote unrelated to 60 Minutes:
A couple of times now I have read comments along these lines:
"Who would have thought that after a severe hurricane season that disrupted oil and gas production in the Gulf Region so severely, we would experience one of the warmest winters on record which would cut our natural gas use and save our butts!"
Hmmm.. Warmer than usual Gulf.. Powerful hurricanes.. Warmer than normal winter..
Is there a connection? I don't know. I don't think anybody really knows for sure, but if we are in some kind of pattern (whether it's due to cycles or global warming or both) and have another hurricane season like that last one, we are in for a heap of trouble.
I couldn't get enough,
so I had to self destruct,
The heat was on,
rising to the top
Everybody's goin' strong
That is when my spark got hot
I heard somebody say
Burn baby burn!
Disco inferno! (Aah yeah!)
Burn baby burn!
Burn that mother down
Lyrics: The Trammps.
CBS News: Montana's Coal Cowboy.
First they did an optimistic piece on Canadian oil sands, now CBS' 60 Minutes does another relatively optimistic piece on a proposal by the Montana governor on massive coal to liquid conversion.
I don't know about you, but it sure sounds like somebody at 60 Minutes read a peak oil book or two, freaked a little, and got on the stick. I don't think this coverage was prompted simply by $60 oil. If there was any mention of peak oil (I don't recall any, but I could be wrong), it sure wasn't highlighted. In fact, it seemed rather more like 60 Minutes is making the case we're covered, what with these various alternatives.
And while I'm a believer that the ride over Hubbert's Peak will be mitigated by solutions/alternatives like conservation [nee demand destruction], gas to liquid, coal to liquid [i.e. basically anything we can get our hands on that we can burn..], high efficency diesel vehicles and eventually electric vehicles of some sort, I think we have some serious questions that will need to be addressed about the increased CO2 output of some of these alternatives.
And on that topic, a sidenote unrelated to 60 Minutes:
A couple of times now I have read comments along these lines:
"Who would have thought that after a severe hurricane season that disrupted oil and gas production in the Gulf Region so severely, we would experience one of the warmest winters on record which would cut our natural gas use and save our butts!"
Hmmm.. Warmer than usual Gulf.. Powerful hurricanes.. Warmer than normal winter..
Is there a connection? I don't know. I don't think anybody really knows for sure, but if we are in some kind of pattern (whether it's due to cycles or global warming or both) and have another hurricane season like that last one, we are in for a heap of trouble.
Thursday, February 23, 2006
55 is the new 30.
MSN Money: 5 stocks for the new oil reality.
I have a slightly different view than Jubak on why there is a price floor in the low 50's: I think OPEC wants the floor there, and has the power to maintain it due to the tightness in the market currently. So I don't think oil in the 50s is about a risk premium. On the other hand, in terms of the volatility in oil prices, that I attribute to the market uncertainty over what the risk premium should be above the mid 50s.
I agree though that the price appears likely to stay in this higher range, unless demand gives in.
I have a slightly different view than Jubak on why there is a price floor in the low 50's: I think OPEC wants the floor there, and has the power to maintain it due to the tightness in the market currently. So I don't think oil in the 50s is about a risk premium. On the other hand, in terms of the volatility in oil prices, that I attribute to the market uncertainty over what the risk premium should be above the mid 50s.
I agree though that the price appears likely to stay in this higher range, unless demand gives in.
Sunday, February 19, 2006
Jubak: This too shall pass.
An article from Jim Jubak with much valuable insight on the seasonality of the oil sector and current dynamics. It's well worth reading in it's entirety.
On a sidenote, throw APC into his list of stocks at the end, and I think you have a reasonable starting list of future potential takeout candidates.
MSN Money: Hard winter for the oil sector.
Quotes:
If it's February, the price of crude oil must be tanking -- and taking down oil stocks with it. Over the last 26 years, according to SeasonalCharts.com, on average crude oil prices have peaked in late January and plunged to a low at the end of February or the beginning of March. (There's another seasonal peak in October and another seasonal low in December.)
So it really shouldn't come as a surprise to investors that the AMEX Oil Index ($XOI.X) peaked on Jan. 31 and has been tumbling ever since. There's certainly no reason to panic and abandon this sector of the stock market. On average, a seasonal drop like this is followed by a strong seasonal rally that lasts into May.
But while the general seasonal pattern is familiar, I think this drop will be deeper than usual and the rally will arrive later than expected.
Stocks of oil producers, oil drillers and oil-service companies will bounce back. The energy rally isn't over by a long stretch. If you've held onto your energy stocks through the decline to date -- already 11.5% on Feb. 15 from the Jan. 31 high -- I think you should continue to hold. If you've been looking to buy on the dip, I think it's time to start building positions. But only if you have the patience to wait out a drop that could be over in two to three weeks or that might stretch well into the second quarter of 2006.
On a sidenote, throw APC into his list of stocks at the end, and I think you have a reasonable starting list of future potential takeout candidates.
MSN Money: Hard winter for the oil sector.
Quotes:
If it's February, the price of crude oil must be tanking -- and taking down oil stocks with it. Over the last 26 years, according to SeasonalCharts.com, on average crude oil prices have peaked in late January and plunged to a low at the end of February or the beginning of March. (There's another seasonal peak in October and another seasonal low in December.)
So it really shouldn't come as a surprise to investors that the AMEX Oil Index ($XOI.X) peaked on Jan. 31 and has been tumbling ever since. There's certainly no reason to panic and abandon this sector of the stock market. On average, a seasonal drop like this is followed by a strong seasonal rally that lasts into May.
But while the general seasonal pattern is familiar, I think this drop will be deeper than usual and the rally will arrive later than expected.
Stocks of oil producers, oil drillers and oil-service companies will bounce back. The energy rally isn't over by a long stretch. If you've held onto your energy stocks through the decline to date -- already 11.5% on Feb. 15 from the Jan. 31 high -- I think you should continue to hold. If you've been looking to buy on the dip, I think it's time to start building positions. But only if you have the patience to wait out a drop that could be over in two to three weeks or that might stretch well into the second quarter of 2006.
Friday, February 17, 2006
Bob Marcin's Daddy is Bigger Than Your Daddy.
TheStreet.com: The Dumb Money Slips on the Oil Trade.
Quotes:
I don't mean this to be offensive. But a lot of money in the oil futures market must be dumb. Let me explain.
....
I believe it's long/short equity hedge funds looking for juice! And for the most part, these funds are technically based, momentum traders. Dumb money, they know the sound bites but not the facts. They took natural gas to $15 in December and it hit $6.98 yesterday. Enough said.
A big part of my thesis on $45 oil this spring is the same dynamic. Momentum hedgies bail on the commodity as we approach the soft season for oil demand. Fundamentals get a bit soggy short term, and the technical traders get stopped out on the way down. Dumb money.
These are not dumb people, they're simply uninformed about the fundamentals of oil. To them, it's only a price on a Bloomberg terminal.
And I risk being very wrong if a geopolitical event occurs. But just as the dumb money drove natural gas to unsustainable prices in the short run, it did the same with oil.
....
At the time of publication, Marcin was short oil, although positions may change at any time.
I may turn out to be dumb, but:
a) I know OPEC is going to try to hold the line at $53.
b) I can count to 4, which is the number of potential geopolitical events that are currently in progress: Iran, Iraq, Nigeria, Venezuela. Note that these are all oil exporting nations. [And with the gas supply thing in Russia, maybe you go to 4.5]
c) I've noticed some people get snippy when their positions go against them.
d) Marcin is a smart guy, but as Pickens said, it doesn't make sense to be short oil now.
Quotes:
I don't mean this to be offensive. But a lot of money in the oil futures market must be dumb. Let me explain.
....
I believe it's long/short equity hedge funds looking for juice! And for the most part, these funds are technically based, momentum traders. Dumb money, they know the sound bites but not the facts. They took natural gas to $15 in December and it hit $6.98 yesterday. Enough said.
A big part of my thesis on $45 oil this spring is the same dynamic. Momentum hedgies bail on the commodity as we approach the soft season for oil demand. Fundamentals get a bit soggy short term, and the technical traders get stopped out on the way down. Dumb money.
These are not dumb people, they're simply uninformed about the fundamentals of oil. To them, it's only a price on a Bloomberg terminal.
And I risk being very wrong if a geopolitical event occurs. But just as the dumb money drove natural gas to unsustainable prices in the short run, it did the same with oil.
....
At the time of publication, Marcin was short oil, although positions may change at any time.
I may turn out to be dumb, but:
a) I know OPEC is going to try to hold the line at $53.
b) I can count to 4, which is the number of potential geopolitical events that are currently in progress: Iran, Iraq, Nigeria, Venezuela. Note that these are all oil exporting nations. [And with the gas supply thing in Russia, maybe you go to 4.5]
c) I've noticed some people get snippy when their positions go against them.
d) Marcin is a smart guy, but as Pickens said, it doesn't make sense to be short oil now.
Boone Pickens on CNBC 02-16-2006.
CNBC via MSN Video: The Oracle of Oil.
This interview covers basically the same ground as the Bloomberg TV interview, though, amusingly, in this one he suggests $53 as the floor for oil prices, which happens to be exactly the price that the OPEC president last year suggested as an 'ideal price'. So it sounds like Boone Pickens believes that OPEC will be successful in defending their price floor, should they need to. [Makes sense to me, given what I see.]
Quotes:
"Let me say this: I would not be short oil."
"If you're not short, if you're giving me a forced question Melissa, I have to either go up or down on the oil market, I'll take it up; I'd rather buy it than sell it. Am I in there buying today, no. I think you could see some more weakness here. I think it's probably gonna go back up and I think you're gonna be back up in the 60s again."
[View all posts on Boone Pickens.]
This interview covers basically the same ground as the Bloomberg TV interview, though, amusingly, in this one he suggests $53 as the floor for oil prices, which happens to be exactly the price that the OPEC president last year suggested as an 'ideal price'. So it sounds like Boone Pickens believes that OPEC will be successful in defending their price floor, should they need to. [Makes sense to me, given what I see.]
Quotes:
"Let me say this: I would not be short oil."
"If you're not short, if you're giving me a forced question Melissa, I have to either go up or down on the oil market, I'll take it up; I'd rather buy it than sell it. Am I in there buying today, no. I think you could see some more weakness here. I think it's probably gonna go back up and I think you're gonna be back up in the 60s again."
[View all posts on Boone Pickens.]
Thursday, February 16, 2006
Boone Pickens on Bloomberg TV 02-16-2006.
From my hastily scrawled notes on his appearance:
- On the recent pullback in oil prices, he observed that there is too much oil right now and that prices could go down into the lower $50's, but that prices would be back up again before long.
- He predicted he won't see $50 again in his lifetime, and he believes the floor for oil prices is around $55. [Could this have something to do with that prediction?]
- In terms of demand, the numbers are not showing much of a drop, though the mild winter helped. Gasoline demand will come back up and oil too, and so perhaps in six months or by the end of the year he predicts oil prices will be back up in the $60's.
- On natural gas, he noted that it had topped out at $15 or so, then recently dropped as low as $7, and he believes it could drop further, as low as $5 or $6. We will come out of this winter with record high storage levels, which will be good for the consumer.
- On alternative energy, he said it "has to be" part of the solution, but "not quick". Ethanol is not a primary fuel, meaning it has to be manufactured, and it is expensive to do so. Alternatives will help, he believes, but will not prevent the general trend higher in oil prices.
- The issues regarding Iran are out of his field of expertise, but he believes the market has come to accept the situation as it stands currently. If the situation changes, the market will react.
- His investment recommendations continue to be the same: Suncor [SU], Canadian oil sands stocks, coal [mentioned BTU and MEE], and natural gas plays CHK ['always good'], DVN, and KWK. These have all been big winners, but he continues to believe they are still good investments. Though the market has been very good to energy stocks, he still believes they are underpriced. The E&P stocks, as an example, he believes are priced for $40 a barrel oil, and as mentioned, he doesn't believe he'll ever see $50 again.
- On the supply/demand balance for oil, further supply is now limited, production is at 85 million barrels a day and in his view can't go higher, demand continues to rise, thus oil prices will have to rise, which will trigger some falloff in demand.
- He has been asked many times what price will hurt demand. He doesn't know, but perhaps $75-85.
- His view is that if there is no event driven spike in oil prices (say over Iran, Venezuela, Nigeria, etc), prices will rise to $90-100 possibly over the next two years, but if something goes haywire, we could get there very quickly.
[View all posts on Boone Pickens.]
- On the recent pullback in oil prices, he observed that there is too much oil right now and that prices could go down into the lower $50's, but that prices would be back up again before long.
- He predicted he won't see $50 again in his lifetime, and he believes the floor for oil prices is around $55. [Could this have something to do with that prediction?]
- In terms of demand, the numbers are not showing much of a drop, though the mild winter helped. Gasoline demand will come back up and oil too, and so perhaps in six months or by the end of the year he predicts oil prices will be back up in the $60's.
- On natural gas, he noted that it had topped out at $15 or so, then recently dropped as low as $7, and he believes it could drop further, as low as $5 or $6. We will come out of this winter with record high storage levels, which will be good for the consumer.
- On alternative energy, he said it "has to be" part of the solution, but "not quick". Ethanol is not a primary fuel, meaning it has to be manufactured, and it is expensive to do so. Alternatives will help, he believes, but will not prevent the general trend higher in oil prices.
- The issues regarding Iran are out of his field of expertise, but he believes the market has come to accept the situation as it stands currently. If the situation changes, the market will react.
- His investment recommendations continue to be the same: Suncor [SU], Canadian oil sands stocks, coal [mentioned BTU and MEE], and natural gas plays CHK ['always good'], DVN, and KWK. These have all been big winners, but he continues to believe they are still good investments. Though the market has been very good to energy stocks, he still believes they are underpriced. The E&P stocks, as an example, he believes are priced for $40 a barrel oil, and as mentioned, he doesn't believe he'll ever see $50 again.
- On the supply/demand balance for oil, further supply is now limited, production is at 85 million barrels a day and in his view can't go higher, demand continues to rise, thus oil prices will have to rise, which will trigger some falloff in demand.
- He has been asked many times what price will hurt demand. He doesn't know, but perhaps $75-85.
- His view is that if there is no event driven spike in oil prices (say over Iran, Venezuela, Nigeria, etc), prices will rise to $90-100 possibly over the next two years, but if something goes haywire, we could get there very quickly.
[View all posts on Boone Pickens.]
Monday, February 13, 2006
Kenneth Deffeyes: Meet the Flintstones..
You and me...
Kenneth Deffeyes, author of "Hubbert's Peak, The Impending World Oil Shortage" and "Beyond Oil, The View From Hubbert's Peak", in a web post from February 11, 2006, calculates that we hit the peak oil point on December 16, 2005, and that, as a result of not beginning our preparations for this moment earlier, we could be back in the Stone Age by 2025.
Kenneth Deffeyes: Join us as we watch the crisis unfolding. February 11, 2006.
Quotes:
In the January 2004 Current Events on this web site, I predicted that world oil production would peak on Thanksgiving Day, November 24, 2005. In hindsight, that prediction was in error by three weeks. An update using the 2005 data shows that we passed the peak on December 16, 2005.
....
Could some new discovery come along and reverse the global oil decline? The world oil industry is a huge system: Annual production worth 1.7 trillion dollars. I don't see anything on the horizon large enough to turn it around.
So what are the policy implications? Numerous critics are claiming that the present world economic situation is a house of cards: built on trade deficits, housing price bubbles, and barely-adequate natural gas supplies. Pulling any one card out from the bottom of the pile might collapse the whole structure.
....
Since we have passed the peak without initiating major corrective measures, we now have to rely primarily on methods that we have already engineered. Long-term research and development projects, no matter how noble their objectives, have to take a back seat while we deal with the short-term problems. Long-term examples in the proposed 2007 US budget (Feb. 9, 2006 New York Times page A-18) include a 65 percent increase in the programs to produce ethanol from corn, a 25.8 percent increase for developing hydrogen fuel cell cars, and a 78.5 percent increase in spending on solar energy research. The Times reports that solar energy today supplies one percent of US electricity; the hope is to double that to 2 percent by the year 2025. By 2025, we're going to be back in the Stone Age.
Ethanol, fuel cells, and solar cells are not the only shimmering dreams. Methane hydrates, oil shale, and the Yucca Mountain radioactive waste depository would be better off forgotten. There are plenty of solid opportunities. Energy conservation is by far the most important. Initiatives that are already engineered and ready to go are biodiesel from palm oil, coal gasification (for both gaseous and liquid fuels), high-efficiency diesel automobiles, and revamping our food supply. Every little bit helps, but even if wind energy continues its success it will still be a little bit.
That's it. I can now refer to the world oil peak in the past tense. My career as a prophet is over. I'm now an historian.
Note: I tend not to publish views from the Peak Oil Dark Side, particularly ones from people I believe have other agendas. I don't lump Deffeyes in with those folks.
Kenneth Deffeyes, author of "Hubbert's Peak, The Impending World Oil Shortage" and "Beyond Oil, The View From Hubbert's Peak", in a web post from February 11, 2006, calculates that we hit the peak oil point on December 16, 2005, and that, as a result of not beginning our preparations for this moment earlier, we could be back in the Stone Age by 2025.
Kenneth Deffeyes: Join us as we watch the crisis unfolding. February 11, 2006.
Quotes:
In the January 2004 Current Events on this web site, I predicted that world oil production would peak on Thanksgiving Day, November 24, 2005. In hindsight, that prediction was in error by three weeks. An update using the 2005 data shows that we passed the peak on December 16, 2005.
....
Could some new discovery come along and reverse the global oil decline? The world oil industry is a huge system: Annual production worth 1.7 trillion dollars. I don't see anything on the horizon large enough to turn it around.
So what are the policy implications? Numerous critics are claiming that the present world economic situation is a house of cards: built on trade deficits, housing price bubbles, and barely-adequate natural gas supplies. Pulling any one card out from the bottom of the pile might collapse the whole structure.
....
Since we have passed the peak without initiating major corrective measures, we now have to rely primarily on methods that we have already engineered. Long-term research and development projects, no matter how noble their objectives, have to take a back seat while we deal with the short-term problems. Long-term examples in the proposed 2007 US budget (Feb. 9, 2006 New York Times page A-18) include a 65 percent increase in the programs to produce ethanol from corn, a 25.8 percent increase for developing hydrogen fuel cell cars, and a 78.5 percent increase in spending on solar energy research. The Times reports that solar energy today supplies one percent of US electricity; the hope is to double that to 2 percent by the year 2025. By 2025, we're going to be back in the Stone Age.
Ethanol, fuel cells, and solar cells are not the only shimmering dreams. Methane hydrates, oil shale, and the Yucca Mountain radioactive waste depository would be better off forgotten. There are plenty of solid opportunities. Energy conservation is by far the most important. Initiatives that are already engineered and ready to go are biodiesel from palm oil, coal gasification (for both gaseous and liquid fuels), high-efficiency diesel automobiles, and revamping our food supply. Every little bit helps, but even if wind energy continues its success it will still be a little bit.
That's it. I can now refer to the world oil peak in the past tense. My career as a prophet is over. I'm now an historian.
Note: I tend not to publish views from the Peak Oil Dark Side, particularly ones from people I believe have other agendas. I don't lump Deffeyes in with those folks.
Sunday, February 12, 2006
Free Week of Barron's Online.
If you're a person who invests in stocks, there are two sources I highly recommend: Barron's and Investor's Business Daily. They each represent completely different philosophies, but, hey, that's what makes a market. They're both great at what they do, and sometimes I wonder if reading anything else really matters. [It does, but those two are great places to start.]
Barron's Online is free to everyone this week, so I might as well take advantage. I recommend you read Michael Kahn's column this week in Barron's Online, which examines some of the recent trading in energy from a technical perspective and it's possible meaning for the overall market.
Barron's: Are Weak Commodities Good for Stocks?
The quick take: We are enduring what appears to be a short term correction in commodities. The longer term bull market trend is still intact, but should be monitored. Since commodity stocks are currently the leading stocks in the market, this is doubly important.
Barron's Online is free to everyone this week, so I might as well take advantage. I recommend you read Michael Kahn's column this week in Barron's Online, which examines some of the recent trading in energy from a technical perspective and it's possible meaning for the overall market.
Barron's: Are Weak Commodities Good for Stocks?
The quick take: We are enduring what appears to be a short term correction in commodities. The longer term bull market trend is still intact, but should be monitored. Since commodity stocks are currently the leading stocks in the market, this is doubly important.
Thursday, February 09, 2006
Page A4, with a bullet.
The world's second most productive oil field might be about to cause a big problem with oil supply, and the WSJ puts this on page 4?
WSJ: Mexico's Oil Output May Decline Sharply.
Quotes:
Pemex Study Points to Possible Drop At Major Field, Which Would Strain Global Supply
MEXICO CITY – Mexico's huge state-owned oil company may be facing a steep decline in output that would further tighten global oil supply and add to global woes over high oil prices.
....
An internal study reviewed by The Wall Street Journal shows water and gas are encroaching more quickly than expected in Cantarell, Mexico's biggest oil field, and might cause output to drop precipitously over the next few years. Currently, Cantarell produces two million barrels of oil a day, or six of every 10 barrels produced by Mexico. It is the world's second-biggest-producing field after Saudi Arabia's Ghawar.
Pemex, Latin America's biggest company by assets and employees, says it is confident it can make up for any decline at Cantarell by squeezing more output from other fields, but some analysts outside the company are far less sanguine.
The study, carried out last year by Pemex experts, offers a rare glimpse inside the traditionally secretive oil company. It outlines five scenarios for a decline at Cantarell, four of which are more pessimistic than the company's current public forecasts.
....
Mexico has been bracing for a decline in Cantarell for years, and previous predictions of imminent decline have turned out to be wrong. But the internal study is the most complete look at the field to date.
....
"In my mind, this report suggests a collapse scenario is the most likely," says David Shields, an energy consultant in Mexico who first published the study's findings. Mr. Shields doubts Pemex can make up for lost output at Cantarell because it only discovers one new barrel of oil for every 14 it extracts at the moment, leading to falling reserves.
Other analysts agree with Pemex's official assessment, however. Matthew Shaw, head of Latin America research for Scotland-based oil consultancy Wood MacKenzie, says he has never heard of a major field declining as fast as the worst-case outcomes outlined in the study.
WSJ: Mexico's Oil Output May Decline Sharply.
Quotes:
Pemex Study Points to Possible Drop At Major Field, Which Would Strain Global Supply
MEXICO CITY – Mexico's huge state-owned oil company may be facing a steep decline in output that would further tighten global oil supply and add to global woes over high oil prices.
....
An internal study reviewed by The Wall Street Journal shows water and gas are encroaching more quickly than expected in Cantarell, Mexico's biggest oil field, and might cause output to drop precipitously over the next few years. Currently, Cantarell produces two million barrels of oil a day, or six of every 10 barrels produced by Mexico. It is the world's second-biggest-producing field after Saudi Arabia's Ghawar.
Pemex, Latin America's biggest company by assets and employees, says it is confident it can make up for any decline at Cantarell by squeezing more output from other fields, but some analysts outside the company are far less sanguine.
The study, carried out last year by Pemex experts, offers a rare glimpse inside the traditionally secretive oil company. It outlines five scenarios for a decline at Cantarell, four of which are more pessimistic than the company's current public forecasts.
....
Mexico has been bracing for a decline in Cantarell for years, and previous predictions of imminent decline have turned out to be wrong. But the internal study is the most complete look at the field to date.
....
"In my mind, this report suggests a collapse scenario is the most likely," says David Shields, an energy consultant in Mexico who first published the study's findings. Mr. Shields doubts Pemex can make up for lost output at Cantarell because it only discovers one new barrel of oil for every 14 it extracts at the moment, leading to falling reserves.
Other analysts agree with Pemex's official assessment, however. Matthew Shaw, head of Latin America research for Scotland-based oil consultancy Wood MacKenzie, says he has never heard of a major field declining as fast as the worst-case outcomes outlined in the study.
Wednesday, February 08, 2006
Army reports record enlistments ahead of Operation Alberta Freedom.
Enlistments up 100%, year over year! That's right; me and Jon Markman. (Actually, the list is long and getting longer: Boone Pickens, Peter Thiel, Charlie Maxwell, Jim Rogers, Gary Kaminiski, Jerry Castalini, Martin Whitman.)
msn Money: O Canada, can we have Alberta?
Quotes:
Last month, Canada threw out its namby-pamby liberal government and ushered in a new era of conservative rule. Thank goodness for small favors. Now when we run out of crude oil and natural gas down here in the United States, we won’t have to invade our neighbors to the north to make sure the lights stay on. We can just arrange a friendly annexation.
O Canada! We love your beer, your funny accents, your flag with the botanical theme. Now be a dear and just let us have Alberta. Hey, it’s just one province. You have 12 more. You can keep the ones named after a dog (Labrador) and an SUV (Yukon) and all the rest. We just want the one with those nasty, dirty tar sands. We’ll practically be doing you a favor.
Why the tar sands? It’s not just that it sounds like "Tarzan" after a couple of Molsons. (Funny, eh?) It’s just that, well, we think all that sticky, gooey mess up in the Athabasca region is North America’s answer to Saudi Arabia, as I explained back in mid-2004. And most of North America is already chez nous anyway, as they say in Quebec. So hand it over. Or else.
Stable, with a capital C
You may have heard that President Bush, in his State of the Union address last week, mentioned that the U.S. must slash its dependence on oil from “unstable nations” in favor of cute little science projects like ethanol, nuclear plants and solar panels. But surely you knew that was sort of an inside joke. Most of those projects are a decade away from viability.See the news
that affects your stocks.
What he really meant was that we’d rather strip-mine our BTUs from the perfectly stable Alberta tar pits, which are so close to home that they might as well be ours.
Scientists believe another 315 billion barrels will be recoverable when new technology comes online, which would expand Canada’s conventional oil reserves by a factor of 70x. If that works out as expected, Canada could ultimately produce as much as 25 million barrels of oil per day and leapfrog ahead of Iran, Mexico, China and Norway to become one of the world’s top three energy producers.
Worth taking?
It’s little wonder that Alberta opened up an office of its own in Washington recently, headed by former energy chief Murray Smith. All the easier to negotiate a peaceful surrender.
....
Victory, without firing a shot
If our play to put the Great White North under the Red White and Blue doesn’t work out -- and maybe it shouldn’t, come to think of it -- we could always just invest in the top tar-sands companies. The top Canadian oil sands pure plays rose more than 200% on average in 2005, and there’s probably still a long ways to go. Companies with a lot of exposure to oil sands will generate tremendous free cash flow for at least 20 years, judging from the current estimates of reserves and rates of production, even if they have to invest another $10 billion or more to get the job done. The projects break even when the world crude-oil benchmark is at $20 per barrel, or one-third the current price.
So if turns out we can’t take 'em, you might as well buy 'em (or pieces of 'em, anyway). This is going to be a long, long secular story: something like investing in Saudi Arabia in the 1940s. But I really do hope the State Department works out a friendly merger with our neighbors on the Athabasca plains one day, if for no other reason than it will give us a chance to shout, “Tar nation!”
Read the full story for the stock ideas.
msn Money: O Canada, can we have Alberta?
Quotes:
Last month, Canada threw out its namby-pamby liberal government and ushered in a new era of conservative rule. Thank goodness for small favors. Now when we run out of crude oil and natural gas down here in the United States, we won’t have to invade our neighbors to the north to make sure the lights stay on. We can just arrange a friendly annexation.
O Canada! We love your beer, your funny accents, your flag with the botanical theme. Now be a dear and just let us have Alberta. Hey, it’s just one province. You have 12 more. You can keep the ones named after a dog (Labrador) and an SUV (Yukon) and all the rest. We just want the one with those nasty, dirty tar sands. We’ll practically be doing you a favor.
Why the tar sands? It’s not just that it sounds like "Tarzan" after a couple of Molsons. (Funny, eh?) It’s just that, well, we think all that sticky, gooey mess up in the Athabasca region is North America’s answer to Saudi Arabia, as I explained back in mid-2004. And most of North America is already chez nous anyway, as they say in Quebec. So hand it over. Or else.
Stable, with a capital C
You may have heard that President Bush, in his State of the Union address last week, mentioned that the U.S. must slash its dependence on oil from “unstable nations” in favor of cute little science projects like ethanol, nuclear plants and solar panels. But surely you knew that was sort of an inside joke. Most of those projects are a decade away from viability.See the news
that affects your stocks.
What he really meant was that we’d rather strip-mine our BTUs from the perfectly stable Alberta tar pits, which are so close to home that they might as well be ours.
Scientists believe another 315 billion barrels will be recoverable when new technology comes online, which would expand Canada’s conventional oil reserves by a factor of 70x. If that works out as expected, Canada could ultimately produce as much as 25 million barrels of oil per day and leapfrog ahead of Iran, Mexico, China and Norway to become one of the world’s top three energy producers.
Worth taking?
It’s little wonder that Alberta opened up an office of its own in Washington recently, headed by former energy chief Murray Smith. All the easier to negotiate a peaceful surrender.
....
Victory, without firing a shot
If our play to put the Great White North under the Red White and Blue doesn’t work out -- and maybe it shouldn’t, come to think of it -- we could always just invest in the top tar-sands companies. The top Canadian oil sands pure plays rose more than 200% on average in 2005, and there’s probably still a long ways to go. Companies with a lot of exposure to oil sands will generate tremendous free cash flow for at least 20 years, judging from the current estimates of reserves and rates of production, even if they have to invest another $10 billion or more to get the job done. The projects break even when the world crude-oil benchmark is at $20 per barrel, or one-third the current price.
So if turns out we can’t take 'em, you might as well buy 'em (or pieces of 'em, anyway). This is going to be a long, long secular story: something like investing in Saudi Arabia in the 1940s. But I really do hope the State Department works out a friendly merger with our neighbors on the Athabasca plains one day, if for no other reason than it will give us a chance to shout, “Tar nation!”
Read the full story for the stock ideas.
Monday, February 06, 2006
Still the one.
CNBC: Manager targets Diamond Offshore, Barr Pharmaceuticals.
Quotes:
The impressive run-up in shares of oil and gas drillers has some on Wall Street wondering whether it’s time to take some money off the table. That would be a mistake, according to J.C. Waller of Icon Advisers.
“Drilling is the most attractive industry in the market,” Waller said Friday on CNBC’s “Squawk on the Street” “We have the average stock in the drilling sector trading 40% below fair value. If there’s one industry group in the market that I would want to be in, that’s the group.”
Drillers are among the holdings in the Icon Energy Fund ICENX Waller manages. He also oversees a health-care fund, the Icon Healthcare Fund ICHCX.
P.S. We're still having fun, right?
Quotes:
The impressive run-up in shares of oil and gas drillers has some on Wall Street wondering whether it’s time to take some money off the table. That would be a mistake, according to J.C. Waller of Icon Advisers.
“Drilling is the most attractive industry in the market,” Waller said Friday on CNBC’s “Squawk on the Street” “We have the average stock in the drilling sector trading 40% below fair value. If there’s one industry group in the market that I would want to be in, that’s the group.”
Drillers are among the holdings in the Icon Energy Fund ICENX Waller manages. He also oversees a health-care fund, the Icon Healthcare Fund ICHCX.
P.S. We're still having fun, right?
Saturday, February 04, 2006
My caution flags are up.
Though I will continue to post the usual stuff re: oil, personally my caution flags are up and though I will let the energy and oil service run, I am also letting cash build right now. These are my thoughts:
- The way energy stocks and oil service raced up in January, while profitable, makes me nervous, particularly since gold came along for the ride.
- I watched Jim Cramer's MadMoney show from Harvard and the first thought that came to my head was "Market Top". These are in theory America's best and brightest, with amazing futures ahead of them, entranced to a cult-like state by, as Mark Haines of CNBC accurately calls him, "Reverend Jim of the Church of What's Working Now" and his traveling show, which is admittedly entertaining. [Note that I don't mean to criticize Jim Cramer personally; he has a style that works for him and he is a smart guy, but I think of the show as more entertainment and market weather show than anything else.]
- I have noticed some very speculative stocks just skyrocketing.
- Some messy stuff is on the horizon: Iran, the Fed head transition, what the yield curve suggests, the possible ramifications as the housing boom slows, the slow burn of high energy prices.
- Finally, three smart investors have similar ideas about caution and/or cash: Jim Rogers, Peter Thiel (article to come..), and in this weekend's Barron's, Jeremy Grantham.
Barron's: An Asset-Class Act.
Quotes:
Barron's: Who is Hyman Minsky and why are you quoting him in your latest letter to clients?
Grantham: He was a serious economist. His thesis of stability being unstable was not at all mainstream. In fact, he had the good sense to keep writing and rewriting the point for 20 years. There is ironclad logic involved. If you have a wonderful stable world and, better yet, it is growing nicely and nothing is going wrong, you are likely as the years go by to take more risk and more risk and more risk, and the cost of taking it gets less and less because interest rates come down, and you can imagine that people will get carried away into thinking such conditions are permanent and take on record levels of debt. They think conditions will always be safe, they will always be good. And then all it takes is some small event to create instability.
....
Where are you funneling money to?
Cash -- plus anything that can do a little bit better than cash.
Which would be?
Conservative hedge funds.
- The way energy stocks and oil service raced up in January, while profitable, makes me nervous, particularly since gold came along for the ride.
- I watched Jim Cramer's MadMoney show from Harvard and the first thought that came to my head was "Market Top". These are in theory America's best and brightest, with amazing futures ahead of them, entranced to a cult-like state by, as Mark Haines of CNBC accurately calls him, "Reverend Jim of the Church of What's Working Now" and his traveling show, which is admittedly entertaining. [Note that I don't mean to criticize Jim Cramer personally; he has a style that works for him and he is a smart guy, but I think of the show as more entertainment and market weather show than anything else.]
- I have noticed some very speculative stocks just skyrocketing.
- Some messy stuff is on the horizon: Iran, the Fed head transition, what the yield curve suggests, the possible ramifications as the housing boom slows, the slow burn of high energy prices.
- Finally, three smart investors have similar ideas about caution and/or cash: Jim Rogers, Peter Thiel (article to come..), and in this weekend's Barron's, Jeremy Grantham.
Barron's: An Asset-Class Act.
Quotes:
Barron's: Who is Hyman Minsky and why are you quoting him in your latest letter to clients?
Grantham: He was a serious economist. His thesis of stability being unstable was not at all mainstream. In fact, he had the good sense to keep writing and rewriting the point for 20 years. There is ironclad logic involved. If you have a wonderful stable world and, better yet, it is growing nicely and nothing is going wrong, you are likely as the years go by to take more risk and more risk and more risk, and the cost of taking it gets less and less because interest rates come down, and you can imagine that people will get carried away into thinking such conditions are permanent and take on record levels of debt. They think conditions will always be safe, they will always be good. And then all it takes is some small event to create instability.
....
Where are you funneling money to?
Cash -- plus anything that can do a little bit better than cash.
Which would be?
Conservative hedge funds.
Friday, February 03, 2006
Ali Baba and the Forty Thieves.
AP: Foreign Companies Eye Oil Reserves in Iraq.
Tickers I could find, in order of speculative from high to low:
Heritage Oil - HRTIF
Western Oil Sands - WTOIF
Woodside Petroleum - WOPEY
I believe these two are hoping to do something in Iraq also.
Lukoil - LUKOY
ConocoPhillips - COP
The Iraqi oilfields: A safe place for your lotto ticket money.
Tickers I could find, in order of speculative from high to low:
Heritage Oil - HRTIF
Western Oil Sands - WTOIF
Woodside Petroleum - WOPEY
I believe these two are hoping to do something in Iraq also.
Lukoil - LUKOY
ConocoPhillips - COP
The Iraqi oilfields: A safe place for your lotto ticket money.
Wednesday, February 01, 2006
Smoke 'em if you got 'em.
To follow up on the post re: Sam Stovall's top 10 sectors, these were the top 10 sectors from the Fidelity Select Funds for January.
Energy service: 19.53
Natural resources: 17.07
Energy: 16.92
Natural gas: 16.05
Gold: 15.97
Networking and infrastructure: 11.06
Electronics: 9.49
Developing communications: 9.05
Brokerage & Investment: 7.93
Environmental: 7.23
If you aren't already invested in energy, I wouldn't be jumping in with both feet now, no matter what this theory suggests. The charts look very extended, they ran too far too fast, they need a pause/consolidation, etc.
And if you like to trade, this may be the time to consider letting some go, selling covered calls, etc, depending on what you think the charts tell you. In particular, I would point out the candlestick charts appear to show reversal signals.
Energy service: 19.53
Natural resources: 17.07
Energy: 16.92
Natural gas: 16.05
Gold: 15.97
Networking and infrastructure: 11.06
Electronics: 9.49
Developing communications: 9.05
Brokerage & Investment: 7.93
Environmental: 7.23
If you aren't already invested in energy, I wouldn't be jumping in with both feet now, no matter what this theory suggests. The charts look very extended, they ran too far too fast, they need a pause/consolidation, etc.
And if you like to trade, this may be the time to consider letting some go, selling covered calls, etc, depending on what you think the charts tell you. In particular, I would point out the candlestick charts appear to show reversal signals.
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.
Quotes:
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.
Quotes:
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.
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.
Quotes:
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.
Quotes:
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.
Quotes:
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.
- 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.
Quotes:
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.
Oops.
MarketWatch: Repsol cuts proved reserves by 25%.
Quotes:
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.
MarketWatch: Repsol cuts proved reserves by 25%.
Quotes:
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 www.mcdep.com.
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.
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.
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.
Quotes:
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.
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.
Quotes:
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 $1.50 a gallon. No, that’s gone," says Pickens.
Lunch time in oil service.
RBC Capital Markets analyst Kurt Hallead appeared on CNBC Friday morning. He's bullish on the oil service sector and thinks it goes up 30% this year.
That's great, except it's already up 17% or so.
Quotes:
It’s hard to find a better place to invest today than in shares of oilfield-services companies, according to Kurt Hallead, who analyzes the sector for RBC Capital Markets.
“Oil services are now attractive to many different investment styles, from value to growth to momentum,” Hallead told CNBC’s “Squawk Box” on Friday. “We expect to see substantial new money flow into oil services.”
That's great, except it's already up 17% or so.
Quotes:
It’s hard to find a better place to invest today than in shares of oilfield-services companies, according to Kurt Hallead, who analyzes the sector for RBC Capital Markets.
“Oil services are now attractive to many different investment styles, from value to growth to momentum,” Hallead told CNBC’s “Squawk Box” on Friday. “We expect to see substantial new money flow into oil services.”
Saturday, January 14, 2006
Two more weeks! Two more weeks!
S&P's Sam Stovall finds yet another way to slice and dice the sector data, and we've got ourselves a &*^%@$ 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.
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 thestreet.com.
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.
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.
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
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.
Quotes:
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.''
Quotes:
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.
Quote:
Lehman Brothers on Tuesday raised its price targets on Halliburton Co. (HAL.N: Quote, Profile, Research) and 18 other oil service and equipment companies.
Quote:
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.
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.
Quotes:
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.
FT: China signals reserves switch away from dollar.
Quotes:
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.
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.
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.
Star-Telegram: SHLACHTER, PEROTIN, FUQUAY, & CO.
Quotes:
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.]
Star-Telegram: SHLACHTER, PEROTIN, FUQUAY, & CO.
Quotes:
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.
Quotes:
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.
Maybe not.
WSJ: U.S. buyers are outbid in the natural-gas crunch.
Quotes:
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 $6.
Tom Ward too..
This has to be the most aggressive insider buying I've ever seen.
Matt Simmons: Sunrise in Oil Service?
A nice interview of Matthew Simmons in this weeks Barron's. Consider buying a copy, it's worth reading in it's entirety.
Barron's: Twilight for Oil? [$]
Quotes:
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 $25 oil other than their business model desperately needs that to happen to have their long-term strategy work. High oil prices are very bad news for big oil. The higher the price, the more proven reserves they've already booked they lose in these foreign concessions, because once their projects hit their payout targets, then the host government's share rises. I think the major oil companies are lost in the wilderness right now.
Barron's: Twilight for Oil? [$]
Quotes:
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
Quote:
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 www.mcdep.com.
WSJ: Center Stage in '06: Natural Gas, Iran, New Cancer Tests
Quote:
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 www.mcdep.com.
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