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Today's Energy and Capital: The One Energy Stock You Must Own
What makes domestic oil production companies even more attractive as long-term investments are the oil and gas discoveries, and the fact that these explorations are more appealing, given geopolitical tension.
You know as well as we do that prices would come down sharply if we started producing on our own. And it'd be a strong global signal that we're not willing to be hostages of oil rich companies.
Even the President agrees.
"Our problem in America gets solved when we aggressively go for domestic exploration," Bush said.
And we need all the oil we can get.
While the International Energy Agency's oil supply forecast won't be released until November 2008, there's growing fear of a sharp downward revision in supplies. That means supply could be much tighter than previously thought, a nightmare scenario if proven true.
Any pessimistic IEA view will shock the market, spawning oil super spikes. We've already seen prices rocket to $130, doubling year over year. And it'll only get worse on a dismal IEA forecast.
For years, the IEA has said that crude supplies and other liquid fuels would keep up with rising demand, topping 116 million barrels a day by 2030. But now there's fear that the IEA, basing findings on aging oil fields, could revise sharply lower and warn of a struggle to keep up with 100 million barrel a day demand over the next 20 years.
But IEA pessimism is nothing new. Just last summer, the IEA warned that spare OPEC capacity could fall to "minimal levels by 2012."
Even the U.S. Energy Department is embarking on its own supply studies, which could be finished by summer. But they, too, may have nothing positive to say. They already suggest that daily 73 million barrel daily output will level off at 84 million barrels. To then reach 100 million barrels a day by 2030, we'll need a sizeable boost from other fuel sources.
And if you need more of a reason for a rise to $150, $170, even $200, look no further than the Middle East.
Israeli-Iranian tensions over nuclear projects aren't doing much to help. There's a growing fear that in the event of war with Iran, the Strait of Hormuz (passageway for 90% of oil exported from Gulf producers) would be jeopardized. If that happens, we'd see an immediate oil super-spike.
Iran's Revolutionary Guards has already said it would impose controls on shipping in the Persian Gulf and Strait of Hormuz, which accounts for about 40% of the world's oil, if it were attacked.
Natural Gas Squeeze
Natural gas prices are rising just as fast as oil. Natural gas could be subjected to the same supply and demand issues that drove crude oil well above $130 a barrel.
That's as liquefied natural gas (LNG) shipments to the U.S. slow, and as companies like Cheniere and other companies drop plans to build more terminals.
Global natural gas demand has grown about 2.6% a year over the last 10 years. But in Asia, the Mid East and in Africa, demand has been more like 7% over the same time frame. And demand growth will only rocket further refinery and power growth in the developing world.
With that in mind, drilling domestically just makes sense, which makes this next buying opportunity even more attractive.
Warrior Energy (WEN.V)
This is a new natural gas company we're keeping an eye on with a focus on large undervalued assets in the Green River Basin (Wyoming).
We can tell you that the energy companies are drilling and applying for drilling permits like there's no tomorrow.
And Warrior Energy is no different. It's buying land on the cheap with expectations for considerable upside. They just paid $8 million for producing property with active development.
Warrior's current project - called Strike - consists of 3000 net acres with 11 producing wells that are already kicking off cash flow.
And the stock only trades at a scant sub-3 with long-term $10 potential upside.
Better yet, the future doesn't look too shabby.
Over the next two years they hope to demonstrate year over year growth of proven reserves, production and cash flow through acquisitions and development to justify $500 million in asset values.
The investment firm Macquarie gave Warrior a $50 million line of credit, which is huge for an early-stage energy company... and a testament to the company's game plan to increase production within a short period of time.
Again, this is a $10 stock masquerading at $3.
Companies already in the Rockies area don't seem to have a growth problem.
- Berry Petroleum bought Rockies assets on January 27, 2006, and watched its stock soar from $33 to $55 inside two years.
- Black Hills Corporation bought Rockies assets on March 9, 2006, only to watch its stock roar from $33 to $44.
- MDU Resources bought assets on May 1, 2006. Its stock ran from a $23 low to more than $32.
- Marathon Oil bought in July 2006, and watched its stock skyrocket from $35 to $65.
- EXCO Resources ran from $16 to $24 after buying Rockies assets on September 30, 2006.
- Encore Acquisition bought assets on January 17 and 25, 2007. Its stock ran from $25 to $65.
- Forest Oil ran from $45 to $66 after buying in January 2008. And Continental Resources jumped from $25 to more than $61 after buying Rockies assets on January 14, 2008.
The potential for Warrior Energy (WEN.V) to run significantly off lows is there. They just bought assets for only $8 million. With domestic oil and gas exploration experiencing a renaissance in the U.S., we expect small emerging plays like Warrior to give early investors exceptional returns.
Ian L. Cooper
In case you missed our other investment opportunity highlights, here's what we covered in Wealth Daily, Gold World, Energy and Capital, and your free blogs for the week of July 14, 2008.
The Gingrich & Boone Pickens Energy Plans: Which Energy Plan Will Work?
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Stooges Testify, Inflation Soars: Nothing But a Clown Show
Lost in the charade of yesterday's testimony by Bernanke, Paulson & Cox was an absolutely abysmal wholesale inflation number from the Labor Department. While the Three Stooges entertained, prices continued their journey to the moon.
Gold Mining in Mexico: An Undervalued Gold Producer Working Across the Border - Part 1
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The Next Major Banking Crisis: And What To Look For in Precious Metals
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Green Energy Investments: Where the Green Money's Going Now
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Renewable Energy in Europe: France Goes Green for Jobs
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Shadowboxing the Apocalypse: Energy and the Politics of Partisan Paralysis
If it weren't such a desperately serious situation, watching our fearless leaders trying to grapple with the energy and financial crises would be hilarious.
Offshore Oil Drilling: The One Offshore Oil Drilling Company to Play this Week
It is always good to have a plan. It's not, however, good to have a bad plan. That was my initial reaction last month when the President gave Congress several steps to reduce gas prices and foreign oil dependence.
Copper Mining Companies: Why Southern Copper is a Buy
In September 2007 Citigroup analysts Alan Heap and Alex Tonks called for the spikes in coal and iron ore prices "because of demand from China and congestion at ports in Australia and South Africa." And they were spot on. So when the same analysts upgraded outlooks for coal and copper, why argue?
Insiders Buy at 2-Year Lows
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