Time to “Go Underground” for Great Returns

Of course, you might think one of the last places for toe dipping would be the oil and gas industry. A recent OPEC announcement that no additional production cuts were planned for March should serve to keep oil prices low… for now.

That’s not good news for drillers, producers and anyone else in the oil industry supply chain. Many deep-water projects need oil prices of $60-70 a barrel to be considered economically viable.

But there’s one exception: pipeline operators. You see, they get paid to move or store oil and natural gas products.

One operator that sits apart from the rest is TransCanada Corporation (NYSE:TRP). TransCanada is actually two businesses: a pipeline operator and a power producer.

Its revenues are split nearly equally between the two businesses. And with shares down nearly 40% in the last year and trading at just 11 times projected 2009 earnings, the stock is sitting at historical lows.

In its pipeline operation, TransCanada owns and operates pipelines in both Canada and the U.S. It moves oil and gas from drilling sites to tank farms, refineries, processors and electrical power utilities.

Right now, the company is building its Keystone pipeline that will carry crude oil from Alberta’s oil sands operations to refineries in the south-central U.S. This line was one of four proposals that eventually won out over the competition.

It’s also applied to build a second 1,703 mile-long line that will carry crude oil, and it would supply mid-western pipelines and refinery operations in the states.

These projects aren’t cheap: this one has a projected cost of nearly $3 million dollars… per mile. But that’s fine as TransCanada has plenty of free cash flow to pay for it.

Unlike most other pipeline operators, TransCanada’s business model affords it some measure of protection from wild swings in volume and oil and gas prices, as it typically signs long-term contracts with its customers.

That’s a big plus, and one of the reasons TransCanada typically trades at slightly higher P/E multiples than its competitors.

And in a market where it seems every day another company announces it’s slashing its dividend to preserve capital, TransCanada announced just the opposite: effective at the end of March, it’s increasing its dividend. The stock now sports a yield of nearly 5%.

In summary, TransCanada is a great conservative way to play the oil & gas sector, and represents the best of the pipeline bunch.

Source: TransCanada Corporation (NYSE:TRP): Stock of the Day

Don’t expect oil prices to remain at these low levels for long, says Byron King. Demand weakness for crude is temporary. And oil-producing nations cannot sustain their own economies unless oil prices are close to $100 a barrel. Byron says it could be time for investors to slowly build up a position in oil service stocks.

This from Whiskey & Gunpowder:

Along with the market decline, the price of oil has fallen. It’s down 50% within three months. Back when oil hit $147 per barrel in July, I said that the price “ought” to be in the range of $100-110, with the possibility of a drop into the $90s. That’s what the fundamentals told me back then.

Most of the decline in oil price from $147 down to about $100 was directly related to the strengthening of the dollar. So the oil price slide in July, August and the first part of September was mostly a monetary phenomenon.

Then we had the mid-September credit crunch and market meltdown. That dragged the price of oil from $100 or so per barrel down into the $70s (with price excursions down into the $60s). The demand weakness for oil has become clear in the past six weeks or so. Everybody just sort of woke up and figured out that the world was entering into a recession. The flip side is that inventories are building back up.

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The Fed’s Handout Line Open to All Failing Companies

Who will be the next failing company to come to the Fed with hands out ready for a handout? It’s hard to tell…unless you have the right information.

One quick look at the secret 100-F document of Lehman Bros. and AIG would have predicted their collapse. Find out which company will be next by clicking here.

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This has taken down all of the oil and oil-service companies. Among the latter, Superior Energy Services (NYSE:SPN), Halliburton (NYSE:HAL) and Baker Hughes (NYSE:BHI) have all tumbled. Even the perennially “too expensive” Schlumberger is way down.

The thing about the oil service companies, though, is that a lot of their business is all but recession proof. And much of the oil service business is immune even to wide swings in oil prices. That is, many oil company capital budgets are drawn up a couple of years ahead of time. So oil service companies should have work despite the macroeconomic situation. Not as much as in the boom times, maybe. But it’s not going to be as bad for the oil service companies as a lot of people seem to think.

There are many reasons for this. Sometimes an oil company has leases that are going to expire if it does not drill within a certain time frame. So the oil company has to drill. Or maybe the oil company has a rig under contract. So it has to drill before the contract expires and the rig moves on to other sites. Or maybe there is maintenance or a major workover on a well or field that just plain has to get done for reasons of safety or the environment. As I said, there can be a lot of reasons.

So keep an eye on the oil service companies. As Monty Python once said, they are “not dead yet.” The oil service companies are way down from previous high prices. I believe that this is a time to nibble. Don’t blow your whole wad of cash, but begin to accumulate a position while we watch how the larger economy unfolds. I think we’ll see stronger oil prices sooner, rather than later.

Oil Exporters Surprised, and Waiting at the Rope Line

Speaking of how the larger economy unfolds, some of the most surprised people on the planet are the folks who run oil-exporting countries. Hey, they believed their own press releases. They thought that oil prices would continue to rise upward, ever upward. All they had to do was figure out what to do with all the money that was going to pile up in their bank accounts. No waiting at the rope line for these worthies. But right now, demand destruction trumps even market manipulation by OPEC, not to mention the inexorable effects of depletion.

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Get Gold Cheap… Before It Takes Off Again

Gold is giving you another chance to get in for the inevitable ride up at a bargain.

Here’s how to get it at a discount and multiply those gains. Click here to read more…

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So what are the OPEC people thinking? They are hopping mad. The OPEC folks sure got used to high oil prices in a hurry. They don’t like these low oil prices. It costs money to run a petro-welfare state.

According to the International Monetary Fund, Iran, Venezuela and Nigeria need oil prices above $95 per barrel just to cover their respective national budgets. Saudi Arabia requires oil prices above $75 to cover its budget. Well over half of the revenues of the Russian Federation come from taxes on hydrocarbons. Mexico gets over 40% of its federal revenues from taxes on Petroleos Mexicanos (Pemex), the national oil company.

So low oil prices are causing problems for the oil-exporting states of the world. No major oil exporting country can long afford to see oil prices where they are now. Come what may, OPEC is going to turn valves and reduce supply. It’s just a question of how soon this will occur, how much oil OPEC will take off the market and what that will do to pricing. No less an authority than Hugo Chavez of Venezuela recently stated that “Venezuela can live with a price of $90 to $100 per barrel. But not less than that.”

“The Era of Cheap Oil Is Finished”

According to Iranian Oil Minister Gholamhossein Nozari, “The era of cheap oil is finished.” When a reporter from the New York Times asked Nozari what price Iran would want for its oil, Nozari declared, “The more the better.” Nozari stated that he is urging his fellow OPEC members to cut production by up to 2.5 million barrels per day.

How much oil is 2.5 million barrels? By comparison, the $6 billion BP (NYSE:BP) Thunder Horse Platform — 20 years in the making in deep water in the Gulf of Mexico — should produce 250,000 barrels per day by the end of 2009. So with one move by OPEC, there goes the equivalent of 10 Thunder Horses.

OPEC representatives are touring national capitals, urging non-OPEC oil producers, such as Russia, Mexico and Norway, to follow the cartel’s lead and cut production, according to Reuters news services. OPEC is trying to engineer a coordinated move to drive oil prices back up over $100 per barrel.

Most OPEC nations have already reached their own version of “Peak Oil.” Traditional oil-export powerhouses like Iran and Kuwait have admitted as much. Aside from Saudi Arabia, most OPEC exporters see a window of less than 20 years for significant international oil exports. By then, internal rising demand and falling output (due to depletion) will severely constrain the world oil markets. So all OPEC nations are interested in selling oil now for as much as they can get.

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The End of Cheap Oil

You wouldn’t think so. After all, oil prices just plummeted…

But the fundamentals are clear as day. Oil is destined to get a lot more expensive.

It’s going to change life in the U.S. and the world…forever…but you can protect yourself and prosper… Click here to take advantage of oil’s temporarily lower prices.

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“We Want the Money Now”

Last May, I attended the Offshore Technology Conference in Houston. I had a revealing discussion with an oil manager who works for the national oil company of an African country. He told me this:

“The Saudis think there is an ‘optimum’ price for oil. They don’t want to raise prices too much, too fast. They say it will kill the economies of the West. But for my nation, we disagree. There is no ‘optimum’ price for oil. We don’t care about the economic effects on Western consumers. If Western consumers want to drive, they will pay. Or they can walk, like millions of people do where I come from. So we pump oil every day. We want to get as much as we can for the oil. We want the money now so we can fund the priorities of our national government. We cannot tell the people that they have to live in poverty for another generation because we are afraid that Westerners will not be able to drive their Mercedes-Benzes.”

So you can see why the odds favor rising oil prices within a few months.

Source: Oil Prices Down…for Now

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