Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: IQBAL LATIF who wrote (48912)	8/19/2005 8:08:37 PM
From: IQBAL LATIF	Read Replies (1) \| Respond to of 50167

The Next Round of 100% Energy Profits by Toby Smith Editor, ChangeWave Investing August 19, 2005SEND TO A FRIEND \| GET FREE ADVICE Man, I just had a phenomenal time out in Denver at the EnerCom conference. The No. 1 question I heard from dozens and dozens of CEOs, analysts, energy hedge fund managers and investors is, "Why are most of the people I see you with on TV NOT getting what’s happening in the energy world? Why are you the only energy bull we ever see on Fox?" A WORD FROM OUR SPONSOR Quantum Growth from Louis Navellier This weekly advisory service focuses on the strongest 0.5% of the stock market giving you the 15 to 30 highest ranking stocks in The Navellier database. Start your risk-free trial to Quantum Growth today and receive the list of Quantum Stocks about to become earnings crushers!I really think the answer is that most money managers or equity analysts on Fox News don't have enough background or haven't spent enough time really researching and understanding what I will now call the 21st-Century Energy Crisis. My buddy Pat Dorsey on Fox News’ "Bulls & Bears" is a good representative of the 20th-century view of the 21st-century energy crisis. His basic position during the last few years on oil prices was (and I paraphrase) "Energy is cyclical, it always has been and always will be. Oil and natural gas prices are 30%-50% overpriced due to speculation in the futures markets, not actual fundamentals. The cure for high oil prices is high oil prices. What goes up must come down, and we will be back to $25-$35 oil in the very near future." I think Patrick is one of the brightest guys I know in the analyst community, and his views are shared by a majority of money managers on Wall Street—but I think he is absolutely dead wrong on energy prices. I also am extremely grateful that so many on Wall Street share Patrick's view on energy. Without so many non-believers, we would not be able to earn the ridiculous profits we've made riding the DECADE-LONG energy supply/demand imbalance. I’m talking big wins like 99% in Suncor Energy, 62% in Parallel Petroleum, 35% in Natural Resource Partners and 53% in Knightsbridge Tankers, to name just a few. There are other key parts of the story that most analysts continue to miss, which is reflected in energy companies being priced as if their reserves are valued at $35 during the next 10 years. Before China, Asia and India became major importers of oil (and before their consumption growth rate represented more than 40% of the overall growth in oil demand), supply demand WAS extremely cyclical. Oil prices were cyclical because there was a 5 million to 10 million barrel a day surplus of supply. It was OPEC's ballistic missile that was used to keep the price of oil BELOW the point where other competitive unconventional supply could be exploited. The calculus of energy supply/demand and price equilibrium has PERMANENTLY changed. This does not mean a worldwide recession would not reduce marginal demand and thus bring oil prices down below $50—it would. But a global recession would not bring oil back to under $30. Why? Because ALL the easy oil has been found and consumed—the oil reserves replacing this supply cost $15–$20 to get out of the ground and to a refinery. $30 oil prices would KILL energy exploration and development activities. Anywhere from 30%-50% of all exploration activities would STOP because they would not be economical in today's cost structure. The math is as simple as that. We are living in a new world of energy exploration and exploitation costs. That is what's new about the 21st-Century Energy Crisis. And if you understand that—and then do the math on the rapidly declining rates of our existing major energy fields—your calculus should tell you that, short of a major world catastrophe, we are living in an era where the cost and depletion inputs that are two of the major factors (demand is the other) in energy pricing are fundamentally and structurally DIFFERENT than at anytime in the oil era. That fact is what most people are missing about energy prices in the decade ahead. VALUES ARE STILL OUT THERE. Combine structural changes in exploration and production costs with higher depletion rates and lower rates of reserve replacement—then add in basically ZERO demand destruction in the U.S. until we hit $5.20 per gallon gas at the pump—and you HAVE to come up with a pricing forecast of $45-$65 oil over the next decade, with $100+ prices in the event of a major geopolitical catastrophe. All this means the best companies at finding energy are still 50%–100% undervalued UNTIL their reserves get priced above $50 versus near $30 today. Don't you make the same mistake that Wall Street does about energy, or you will miss the next round of 100% profits in the energy patch.