The boiler room has been shut down by regulators in two states, but it thrives today.

Why wouldn’t it? Oil investing has to be easy as pie today right?

Not a chance. The big guys are way too expensive and you have to tie up a ton of money to cash their so-so dividends.

So, I thought I’d run a few tips buy you about how to avoid getting scammed by the slick con men who are pitching mini oil deals today.

These tips are right from the SEC, which has likely seen every investment scam in the world.

FRAUDULENT SALES TECHNIQUES

Fraudulent oil and gas deals are frequently structured with the limited partnership (or other legal entity) in one state, the operation and physical presence of the field in a second state, and the offerings made to prospective investors in states other than the initial two states. Thus there is less chance of an investor dropping by a well site or a nonexistent company headquarters. Such a structure also makes it difficult for law enforcement officials and victims to identify and expose the fraud.

BOILER ROOMS & INTERNET PITCHES

In order to attract the interest of potential investors, unprincipled promoters frequently use the Internet and “boiler room” offices with banks of phones manned by salespeople with little or no background in energy exploration, but plenty of experience in high-pressure sales.

Their techniques include repeated unsolicited phone calls to members of the public, hyping the profitability of the deal. Some swindlers use professionally designed brochures.

Beware of unsolicited oil and gas promotions on the Internet and through e-mail. State securities regulators caution potential investors to beware of the following claims in a typical high-pressure sales pitch, whether through unsolicited telephone calls or e-mail messages:

• You will have an interest in a well that cannot miss;
• The risks are minimal;
• A geologist has given the salesperson a tip;
• The salesperson has personally invested in the venture;
• The promoter has “hit” on every well drilled so far;
• There has been a tremendous “discovery” in an adjacent field;
• A large, reputable oil company is operating or planning to operate in the area;
• Only a few interests remain to be sold and you should immediately send in your money in order to assure the purchase of an interest;
• This is a special private deal open only to a lucky chosen few investors.

Finally, let’s close today with a quote I pulled from a Forbes piece that was penned by Donald H. Straszheim, vice chairman of Roth Capital Partners in Los Angeles

“It has been almost 35 years since the first oil shock in October 1973. At that time, OPEC raised oil prices from $2.71 per barrel to roughly $8 per barrel…”

And, yup, this one is a fresh quote. It’s from the May 28, 2008 Forbes.

The line that finishes Straszheim’s quote is

“and we still don’t have an energy policy. What’s the hurry?”

Have a great weekend.

Andy

P.S. To let me know what you thought of today’s article, send an e-mail to: feedback@investorsdailyedge.com.

Source: Have I Got an Oil Well For You

As I said on Friday, Congress just passed a US$57 billion alternative energy plan – that promises to do little but make the headlines.

Meanwhile, in another chamber of Congress, executives of big-oil firms were called on the carpet to account for recent sky-rocketing crude oil prices.

Congress wants to know why crude oil is soaring past US$135 a barrel – double the price of last year! Hmm… more demand than supply maybe?

Of course Congress just doesn’t get it! As the CEO of ConocoPhillips correctly points out, “The fundamental laws of supply and demand are at work.” We are getting squeezed by oil exporting nations that are “managing demand for their own interest,” and severely restricted access to energy reserves both at home and abroad.

Today, the International Energy Agency said that a major supply crunch is looming unless the world’s oil majors can ratchet up production by 12.5 million barrels a day within the next seven years. Uh… don’t count on it.

Decades of underinvestment in new energy exploration and development, and a seismic shift in who controls access to new energy deposits means sustainable high prices for years to come. Fossil fuels are a dead-end for American big-oil firms – it’s time to embrace an alternative energy future!

MIKE BURNICK, Senior Editor & Global Markets Analyst

Source: Congress Doesn’t Understand $135 Oil

Does the fact that oil touched US$127 in futures trading contribute to BHP Billiton’s earnings and its war chest for its pursuit of Rio Tinto (ASX: RIO)? BHP thinks the answer is yes.

BHP Billitons’s oil projects showed up in a research report we reviewed yesterday. The report tried to answer the question of where future global oil production would come from. There is a 32 million barrel per day gap between what the world produces today (about 87mbdp) and where the International Energy Agency reckons the world will be in 2030 (117mbpd).

In other words, the world needs another OPEC if oil supply is going to keep up with demand. OPEC currently produces 32mbpd. The IEA says OPEC can double that figure if it invests about US$2.4 trillion in exploration and production. OPEC is not as sure. As you can see, the gab between global production capacity and global consumption is, ahem, pretty tiny right now.

Source: BHP Billiton, IEA

According to BHP’s oil man Mike Yeager, BHP’s cost of production for a barrel of oil is between $6 and $12 a barrel. For the last three years, production at BHP’s various oil fields has hovered around 300k bpd. That makes it the world’s 25th largest oil producer, according to the company, which is not bad if your main business is mining.

It’s an axiom that the mining business and the oil business don’t mix. Energy exploration and production sucks up the capital, while project life is uncertain and cash flows variable. There are lot of known unknowns, and on the exploration side, some unknown unknowns.

But BHP Billiton does know that oil production increased to 378k per day last month, and 415k per day last week. It knows that the fifth LNG train from the North West Shelf is scheduled to begin production this year. It knows that its Neptune field in the Gulf of Mexico, though delayed this week, should begin cranking out 50kbpd in June of this year.

It also knows that by this time next year the Shenzi field in the Gulf of Mexico should begin producing about 100kbpd and that by 2010 the Pyrenees field in Western Australia should produce about 96kbpd. And there are more projects in LNG on the way, too.

That is a lot of good news for an oil company that’s not an oil company. By market value alone, BHP Billiton is bigger than BP (NYSE: BP) and not far behind Exxon Mobil (NYSE: XOM) and Royal Dutch Shell (NYSE: RDS.A). If the company is valued as an energy company and not just a miner, then yet another reconsideration of its value may take place. Rio Tinto should be worried about that. All that energy translate into cash for a bid sweetener.

BHP Billitons’s cost of production is going to rise. There is huge cost inflation across the entire oil industry as projects move further off-shore and deeper underwater. But this is an example of Australia’s exposure to straight-forward bull markets in energy and resources. The businesses aren’t easy, but they are not conceptually complicated.

What’s so astonishing about Australia’s resource economy right now is how it’s filtering down from gold and oil to base metals, bulk commodities, and even lead. “The great minerals land grab by China Inc continues with Hunan Nonferrous Metals Corp looking to buy one of Australia’s best untapped lead deposits,” reports Kevin Andrusiak in today’s Australian.

Lead?

“Yesterday Hunan launched a takeover bid for Perth-based Abra Mining, saying it is prepared to spend just $67.3 million to control one of the nation’s best untapped lead deposits. Hunan, which has received the backing of the Abra board for the takeover play, has offered 83c for 70 per cent of the remaining Abra scrip it does not already own.”

Hunan’s offer puts a 44% premium on Abra shares. A 44% premium on lead. If lead gets that kind of premium, what would BHP’s oil and energy reserves (1.3boe) and its resource base (3.5boe) command? The resource grab is well and truly on, and it’s moving at the speed of lead.

Dan Denning
The Daily Reckoning Australia

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Source: The Oil Company That is Not an Oil Company