This morning, thoughts of the BP disaster filled my head.
No matter where you go, someone has something to say about it. After all, the failure of the “Top Kill” operation has led to a rush of criticism over what to do next. Everyone has their own guaranteed solution to the problem, despite the fact that most of these ideas are completely ridiculous.
This morning, inching along the Baltimore Beltway gave me some peace from it all. Finally, after more than an hour of crawling the fifteen miles to my exit, I was able to get to my desk.
Like you, I simply ignore the flood of ridiculous emails sent to me on a daily basis.
But today was different.
One message in particular stood out from the crowd, and the more I read, the more incredulous I became. Yet my skepticism wasn’t because the author was excited about trading the world’s largest, publicly traded oil companies; rather the fact that a few people actually believed him…
What scared me was that he got it all wrong. It’s that kind of advice that will cause my readers to lose a fortune.
And it’s why I’m writing to you about this very thing today.
Controlling the world’s oil supply
Let me tell you about a very common mistake — one this e-mail made right off the bat.
After gushing about the six supermajor oil companies, we were told that they control the world’s oil supply.
(For those of you who are new to the game, I’m referring to the six major international oil companies: ExxonMobil, Royal Dutch Shell, Chevron, ConocoPhillips, Total S.A., and BP.)
And we’ve heard it all before…
These companies are the reason oil prices skyrocketed to $150 per barrel in 2008 — the same companies that sit in smoke-filled conference rooms, dictating where oil prices will go and how best to price gouge us. The list gets longer and longer every year.
That couldn’t be further from the truth.
These companies are being discussed whenever you hear about “Big Oil” — and for good reason: During oil’s first run to $100 per barrel between 2004 and 2007, these six companies raked in a combined $494 billion in profits.
Not too shabby, right?
But if you sit down and crunch the numbers, the supermajors make up less than 10% of the world’s oil and gas reserves.
Meanwhile, more than 90% of the world’s oil and gas reserves are controlled by National Oil Companies (NOC). By 2008, NOCs accounted for the top 16 largest oil and gas companies in the world. And just in case you’re keeping track, Exxon managed to squeak into 17th place.
Take a look for yourself:
Whether or not you choose to believe that members of OPEC aren’t cooking the books — they are, by the way — the overwhelming amount of oil left in the world is still in the hands of a few state-run oil companies.
And believe me, some countries don’t play nice with others…
Anyone else remember when Exxon got dumped by Venezuela? In one fell swoop, Chavez effectively gave every foreign oil company the boot after nationalizing the country’s oil reserves.
Sorry, thanks for playing!
Or perhaps you might recall the time Russia forced Exxon and Shell to hand over most of their interests in the Sakhalin field — one of the largest natural gas deposits…
The supermajors investment flop
Still thinking of buying those shares of Exxon? You might want to think twice…
Even though the supermajors are struggling to replace reserves each year, I’m still amazed at how badly they perform for investors.
This is a chart that would make any long-term investor cringe:
Granted, oil prices plummeted to $33 per barrel in December 2008, and as we know, BP hasn’t exactly had the best month so far…
Still, only two of the six supermajors have had a positive performance in the last 12 months: ConocoPhillips and Chevron.
By all means, if that’s a kind of loss you like, then supermajors like Exxon are your type of play.
That’s why my readers and I prefer to stick with what works. Right now, our tiny oil stocks are crushing the supermajors — and for one very good reason.
On Monday, I’ll show you that rich oil patch is… and where the next oil boom is taking place.
Until next time,
Editor, Energy and Capital