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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (93835)	11/22/2007 11:12:45 AM
From: Umunhum	Read Replies (2) \| Respond to of 206093

Interesting to me to see who will be calling it correctly. Pickens (in) vs. Icahn (out). Well you know who I have my money on. Right now oil demand is outpacing supply at $95 a barrel and worldwide inventory levels are shrinking. It is highly doubtful that anybody has any spare production capacity. Demand is about to be ratcheted up 2 – 3 million barrels a day, as the weather turns cooler. Chris Skrebowski privately told me if you use a 5% depletion rate, then we’ve already peaked. Matt Simmons and the former oil ministers from both Iran and Saudi Arabia have said we’ve peaked. Oil is about to break through $100 and everybody is coming up with every excuse in the world as to why it shouldn’t be this high. It’s simple – We’ve Peaked - and going forward prices are going to have to rise to choke off demand. Assuming the above to be true, how do we invest our shekels to profit from this? I don’t like the large integrated multinational companies because I think there is a risk of a windfall profit tax as oil goes above $120 on its way to $200. I want to buy the most reserves that I can in politically secure areas of the world. I also want to buy current production. I want a company that is taking advantage of the high prices and making profits right now. And again I want a company with the financial wherewithal to implement its business strategy. On a cash flow basis, TLM stands out from its brethren. Here’s some quick algebra on the valuation of TLM. The CIBC report has their cash flow at $5.46 for the year 2008 based on $68 oil. CIBC projects that 55% of TLM’s revenue is going to come from oil. If we use an oil price of $95 a barrel instead of $68, we get (95/68=1.397 or about 40% more revenue from the oil side of operations. 55% * .4 = 22% more overall revenue. This should go straight to the bottom line so cash flow should improve by about 22% or $5.46 * 1.22 = $6.66. So right now TLM is selling for 2.74 times 2008 cash flow based on $95 oil. At $120 oil, TLM is selling for 2.3 times cash flow which would come in around $7.74. 2.74 times cash flow represents a 36% return on capital. I don’t think it is a stretch to say that the market could easily revalue TLM at 4 times 2008 cash flow taking it to $26.64 (6.66*4). FWIW, I’ve been playing games with options again. 10,000 shares of the 35,000 I bought are from writing puts and using the money to buy calls. I wrote 100 Jan ’08 puts strike price $20 for $2.075 and used the money to buy July 2008 calls strike price $17.5 for $2.8. That said, I’m not in love with TLM. I just feel good about this trade. I intend on holding my COS companies forever (or more likely until they get bought out). I will probably dump TLM after it goes up about 50%. Buy oil stocks people. They are cheap right now. They have some catching up to do with the price of crude. Happy Thanksgiving everybody