Jack Yetiv

ConocoPhillips: Why the Sell-off?

But wouldn't a pure E & P company that does NOT refine and also trades at low PE's and yields in excess of 12% be a better play?

I am thinking, of course, of the Canroys like PWE, AAV and PVX.

And if dividend isn't an issue, how about the more aggressive E & Ps' like CHK, EOG and COG?

Jack

In Light of Peak Oil, Financial Diversification Is a Bad Idea

To Mr. Pursley regarding Brazilian finds and how quickly they will come to production:

According to PBR's rather optimistic scenario (as noted in the link you attached), they expect to be pumping 20,000 bpd out of Tupi in 2009 (as the expert quoted in the article said, I also think that is pretty optimistic), 100K bpd by the end of 2010 (more than 2 years from now), and based on all of these finds (Tupi, Carioca, etc), PBR expects to be pumping 4.2 million bpd in 2015, versus 2.3 million now.

In other words, under PBR's own very optimistic schedule, they will produce an extra 1.9 mbpd seven years from now.

Question to you: If you add up depletion rates at Ghawar, Cantarell, and all the other fields in the world over the next 7 years (ie, by 2015), what does that total depletion add up to?

Many people believe global depletion to be running at 5-7%/year, but let's say 3% per year--and don't even compound it.

So, in 7 years, depletion is 20% of our current 85 mbpd--ie, 17 mbpd.

Certainly, PBR will not be the only source of extra oil--maybe the Middle East and Nigeria will settle down and pump fully (although I might note that human history is rather short on, if not entirely bereft of, epochs of global peace and harmony--man is the most contentious animal of all), and maybe the decision not to drill ANWR will be reversed (although I wouldn't hold my breath on that one), but not EVERYTHING will go the way of extra production.

In adddition, mark my words that by 2015, Tupi/Carioca/etc oil will cost at LEAST $100/barrell to produce, putting a floor of probably $130 (assuming a modest netback of $30/barrell) on the price of oil even without taking supply/demand into account.

My point: None of us know what real supply and real demand will be in 2015, but we all know that demand from developing countries will increase significantly, that all fields deplete naturally, that cost of production from the new fields will be far higher than the gushers of old, and that OPEC has made it clear that 2-digit oil prices are a thing of the past.

Thus, I believe that downside risk in the best oil/gas investments is rather limited while upside potential is pretty substantial.

Although I think the author has overstated the case that diversification is unnecessary, I will also say that my rather sizable stock account is 100% invested in a Canroy (PWE) and a solar company (TSL). Of course, my stock account only constitutes a small percentage of my net worth, so I can take the chance to put all of my eggs in the "energy" basket, but that is NOT the approach I would suggest to others less risk-tolerant than I.

I would, however, recommend that people overweight good energy and alternative energy investments in their account.

Jack

Russian Energy and U.S. Implications

Sorry, forgot to say that other than the above, I completely agree with the author's comments about the need for a meaningful energy policy because I think energy is much more threatening to the Western world today than all the 9/11 terrorists combined--times 10.

Jack

Russian Energy and U.S. Implications

I STRONGLY agree with Sirlacksalot,

Switching from one carbon-based, finite-supply fossil fuel to another is sheer folly for a whole host of reasons:

1) I believe nat gas pricing is on an uptrend and will continue to climb as oil does. The fact that we have lots of gas in the US will moderate this rise, but won't stop it completely. Also, you will see more gas-powered ppowerplants get built in the next few years as coal-fired plants become politically untenable.

On a per-BTU basis, gas is already too cheap compared to oil, which is why gas has moved from $8 a year ago to above $11 for much of the past couple of months.

Therefore, nat gas isn't going to be that cheap going forward, and if you want to figure the cost of nat-gas-powered transportation going forward, plan on $12 to $13/MCF. Don't use historical numbers like $8/MCF.

2) Nat gas still produces CO2.

3) The infrastructure to use nat gas as a public transportation fuel will cost tens (if not hundreds) of billions of dollars and will take at least a decade and probably much longer to install.

4) LNG terminals are pretty darn hard to get permitted--the ONLY one on our Pacific West coast is in Mexico, not the US.

5) By the time nat gas infrastructure would be ready, solar power will cost half of what it does now, and less than any fossil-fuel-based power plant (because all coal and nat gas plants will be obligated to have CCS equipment, and because coal and gas will probably be substantially higher than they are now).

There is NO doubt in my mind that the solution to transportation in the US (and Europe) is plug-in hybrids that are charged by renewable energy sources such as solar, wind, wave power, biomass, etc.

We already have THAT infrastructure built (your house wiring and transmission lines thereto), most people will plug in their cars at night because of TOU pricing (time-of-use pricing that will charge much more for peak KWH versus off-peak at night), and this will help balance the load (many power plants are essentially idled at night, thus increasing the cost per KWH).

Also, PIH's will average 100+ mpg because most people would never use the gas engine on short trips, and most commuting trips are short and within the battery range of most PIH's that are in prototyping right now.

Indeed, someone who makes almost all short trips within the capacity of the batteries will experience mileages of several HUNDRED miles to the gallon, and might only fill up their tank once or twice PER YEAR.

PIH's are undoubtedly the wave of the future. And several car manufacturers are expected to roll out PIH's before the end of next year, with large-scale rollouts in 2010 (I estimate that the US public will have 3-4 choices before the end of next year, and probably 10 choices by the middle of 2010--24 months from now).

Jack Yetiv