CNOOC and Sinopec will form a 50-50 joint venture to buy the stake in the so-called Angola Block 32, which has 12 previously announced discoveries. The Chinese energy giants purchased the stake from U.S.-based Marathon Oil Corp. (NYSE: MRO), but the sale is still subject to government and regulatory approval.

Marathon’s existing partners in the block – France’s Total SA (NYSE ADR: TOT), Portugal’s Galp Energia SGPS SA, Exxon Mobil Corp. (NYSE: XOM), and Sonangal, Angola’s state-owned oil company – have a right of first refusal. Marathon will keep a 10% interest in the block.

The oil field “is a significant resource base with estimated recoverable light crude oil reserves of 1.5 billion barrels,” Goldman Sachs Group Inc. (NYSE: GS) analysts wrote in a report, according toMarketWatch. “The $1.3 billion consideration compares with our valuation of $1.4 billion to $1.65 billion and Marathon’s publicly disclosed offer of $1.8 billion to $2 billion.”

The acquisition will build on CNOOC’s “growing deepwater exposure” and values the recoverable reserves at $4.30 a barrel, the analysts said.

The acquisition will also build on two of Beijing’s broader objectives: Securing long-term energy resources and expanding its presence in underdeveloped, and riskier, countries in Africa and the Middle East.

Since last fall, China has been using the Western world’s financial crisis as an opportunity to stock up on commodities while prices are low.

Sinopec recently paid $7.22 billion to acquire the Addax Petroleum Corp., a Canada-based energy company with operations in West Africa and Iraq.

Meanwhile, Sinopec’s rival, China National Petroleum Corp. (CNPC), made its own foray into Iraq, winning the first contract in more than 30 years to develop the Rumaila oil field.

China’s involvement in Africa has an even richer history.

In 2006, Beijing hosted the China-Africa Cooperation Forum – an event attended by more than 40 African heads of state.  At the forum, China unveiled $9 billion in preferential loans, export credits, and trade incentives – all part of a strategic plan to achieve a preferential status with key African nations.

The meeting was more than a mere publicity stunt to play up Beijing’s humanitarian efforts. It was a symbolic acknowledgment of growing cooperation between the regions.

China has invested tens of billions of dollars directly into African-infrastructure and social-development projects, all in an effort to tighten its grip on the continent’s resources. Some examples:

• In Freetown, the capital of Sierra Leone, office blocks, military headquarters and a refurbished stadium are all the work of planners from Beijing.
• In Uganda, the new State House was built with Chinese money.
• In the city of Rwanda, Chinese companies built 80% of all new roads.
• And in Nigeria, China’s Civil Engineering Construction Corp. is building an $8.3 billion railroad linking Lagos and Kano.

And Money Morning Investment Director Keith Fitz-Gerald says this is only the beginning.

“It’s a virtual certainty that China will maintain this policy going forward,” Fitz-Gerald said. “My contacts in China and Africa have told me point blank that China’s leaders ‘don’t care about human rights or nukes or hostile governments.’ What matters is anyone who provides oil to China no matter what the rest of the world thinks.”

Source: China Tightens Grip on Africa’s Energy Resources with Stake in Offshore Field

Editor’s Note: In a market as uncertain as the one investors face now, it helps to have a guide. And the ideal guide is The Money Map Report, the monthly investment newsletter that’s a sister publication to Money Morning. In fact, a new offer from Money Morning is a two-way win for investors: Noted commentator Peter D. Schiff’s new book – “ The Little Book of Bull Moves in Bear Markets” – shows investors how to profit no matter which way the market moves, while our monthly newsletter, The Money Map Report, provides ongoing analysis of the global financial markets and some of the best profit plays you’ll find anywhere – including such markets as Taiwan and China. To find out how to get both, Check out our latest offer.

After dropping from $147 last July close to $30 this past winter, crude oil is now trading within a reasonably tight track around $40 and $57.

Now it’s on the move again, breaking through $60 right at the beginning of the summer driving and hurricane seasons.

But oil companies’ proud profit margins of yesteryear have disappeared… along with the easy credit that allowed investment banks and hedge funds leverage crude prices to record highs.

Suddenly, not even the most pink politician is talking punitive taxation against oil companies any more. The euphemisms “surcharge” and “windfall profits” have gone with the wind. Share prices of Exxon (NYSE:XOM) and Royal Dutch Shell (NYSE:RDS.A) are down 30-40%… just like the rest of the market.

Our team of analyst has compiled a concise list of the five oil companies you should have in your portfolio. They represent a strategic selection… ranging from U.S. refiners benefiting from lower crude prices and tight inventories to tiny, undervalued oil producers working in regions that will represent a hotbed for demand from China and Russia.

Oil Stock #1: The Refiner

There are companies that have been benefiting nicely from oil’s reversal of fortune. Especially refiners, whose cost basis has been cut by 70% over last year’s peak, assisted by lower crude prices and a stronger dollar.

Take Calumet Specialty Products Partners, L.P. (NASDAQ: CLMT). This U.S.-based refiner and maker of petro-based specialty products just reported Q1 net income of $75.6 million, compared to a net loss of $3.4 million in the first quarter of 2008.

Its adjusted EBITDA of $50.1 million for Q1′09 reflects an increase of $35.2 million over Q1′08.

Despite the substantial drop in gasoline demand (Calumet’s quarterly sales actually fell 30% from the year-ago period!), the increase in gross profits was primarily due to the drop in crude oil prices.

Adjusted EBITDA of $50.1 million for the first quarter of 2009.

The Indianapolis-based refiner and processor of specialty lubricants just declared a quarterly cash distribution of $0.45 per unit on all outstanding units.

But let’s reminisce: The steepest increase in crude prices last year occurred in the second quarter. While the biggest drop in gasoline consumption appears to be behind us—mostly in Q4′08 and the past, dreary first quarter of 2009. Even if oil prices keep increasing from current levels, the cheaper inventory purchased in the past 6 months, combined with increasing demand, should make for a gangbuster second quarter.

Gasoline inventories were reported to have dropped by a larger-than-expected 4.1 million barrels in the second week of May, bringing current inventories to the middle of the historical average.

The stock today is trading at just under $13. Buy up to US$14 in the coming days, with a 25% profit horizon by July… when gasoline demand will stretch inventories and send U.S. refiners soaring.

Oil Stock #2: The Acquisition Target

The best part of the oil and natural gas business is its predictability. The last several years should be all the proof you need.

Here’s how the story goes: A soaring economy increases demand, which causes prices to surge. Eventually, demand reaches its peak, the market is oversupplied and prices fall. It’s classic economics.

Right now, according to my models, we are just past the peak of the fall, which makes this a fantastic buying opportunity.

Over the past six months, the world’s natural gas and oil producers could not close their valves fast enough. Nearly every week, we heard rumors of OPEC quietly cutting more and more production. Remember, less supply equals higher prices.

Now that many economists believe the worst of the financial fiasco is over, demand will begin to rise. Current reserves, which are significantly above historic averages, will dwindle and producers will be forced to open their valves once again.

But there is only one thing that will persuade them to get the energy flowing once again… prices. Futures traders are going to have to push oil and natural gas prices even higher before financially cautious companies open the tap.

That way, when they do start pumping, they know their pipelines will be filled with profits.

Watching Apache (NYSE:APA) and its burgeoning balance sheet, we tried to find out what company might be the target of a possible acquisition bid.

There are multiple possibilities, ranging from speculative companies with a large access to oil sands to some of the nation’s largest natural gas producers.

With energy prices making it tough to boost the bottom line, Apache and its competitors are surely going to use their cash and stock reserves to go on an acquisition spree. While I have my opinions, telling you what company I believe Apache will target would be a speculative guess at best.

We can make the same sort of profits, without the unnecessary risk: Instead of targeting one company and risk missing the mark if another target suddenly appears, why not take a stake in a company that will benefit no matter who buys what?

That company is Anadarko Petroleum (NYSE:APC). With a Street value of about $23 billion, this company is not going to get acquired by anybody but the industries biggest players. If it were to happen, they would have to pay one hefty premium for a portfolio of global reserves.

It is an unlikely scenario.

What is likely is an up-tick in industry M&A activity that boosts the value of the entire sector, including Anadarko and its steady revenue stream.

By now, you have certainly heard of value-destroying flaws with mark-to-market accounting. As the value of a company’s assets drop, they must change their value on the balance sheet, whether the company intends to liquidate them or not. Anadarko just took a $240 million hit. It hurts now, but as energy prices slowly increase with a once-again expanding economy, the so-called flaws in mark-to-market accounting will look like a blessing.

At current prices, Anadarko is undervalued. If M&A activity kicks into high gear, it will look even more undervalued. And if energy prices continue their bullish surge, oh boy, shareholders will do quite well.

My recommendation is buy shares of Anadarko Petroleum (NYSE:APC) at or below $47. This is a mid-term play that could put 25% gains into your pocket within the next 6 months.

The energy industry just hit its earnings bottom, making this a great time to be a buyer, no matter if you are a shareholder or a major producer looking to acquire some extra growth.

Oil Stock #3: The Power Broker

Total S.A. (NYSE:TOT) acts as the big brother to the entire European energy-producing industry. This is a $130-billion, French-based conglomerate that has all the capital and power it needs to become a global dominator as Europe’s energy supply chain suddenly breaks.

TOT as was a $90 stock in June of 2008. It’s a $57 stock today. And it could be a $150 stock if crude prices continue to move and the EU is afraid of becoming too dependent on Russian energy imports.

Think of it Total as a football team’s back-up quarterback. With Russia in control of Europe’s natural gas supply, it is forced to sit on the sideline and watch the game unfold.

But as soon as Russia is checked, Total will run in and take the crowd by storm. It has everything it needs to be a continental dominator: The company has operations all across the globe, but is strategically positioning itself to take advantage of growth in Western Europe. It has operations in all of the key countries mentioned above.

But even better, it has a huge downstream business that will soar in value as Russia battles with the west. Just like it did this past winter!

Total has enormous amounts of refining capacity: Over 2.5 million barrels per day. In fact, it is the largest refiner in Western Europe. Even more important than Total’s industry-leading refining capacity is its ability to produce unfathomable amounts of natural gas. During the third quarter of this year, the company pumped the equivalent of more than four billion cubic feet of oil each day.

Total has staggering amounts of production capacity. At current levels of demand, the company has more than enough supply. But when Moscow gets aggressive and closes its pipelines, European demand will go through the roof. That means Total’s natural gas will sell for a premium. Its shareholders will get rich.

Sarkozy is hell-bent on making France the predominant player in the European Union.

France is all about advancing the interest of French industry. It’s one of the cornerstones of its policies. And it has always been the main directive of its government.

This means that Sarkozy will leverage the current crisis to the exclusive benefits of French companies. And the main beneficiary is Total.

Action Alert: Buy shares of Total (NYSE:TOT) at or below $58!

Oil Stock #4: Oil’s Great Game

BMB Munai Inc (AMEX:KAZ): The former Soviet republic of Kazakhstan rarely creates headlines in the American media. It is far more popular with Russia and China.

Both countries consider the Kazkhstan an important strategic point in Asia. And both love its oil and natural gas reserves.

The company you need to know about, BMB Munai, a tiny oil producer based in Kazakhstan. The company is young, financially well positioned and, more importantly, working in an ultra-rich, under-utilized part of the planet, the Caspian Sea.

This company has strong ties to the American and Russian government. Its current CEO used to be a big shot at Haliburton. He has “Inside-the-Beltway” written all over him…

How about the company’s chairman? Boris Cherdabayev has been a top employee at Exxon and Chevron. He has even worked for Lukoil, Russia’s largest oil producer. And BMB Munai’s president, Askar Tashtitov? This guy used to be a government consultant.

When it comes to being politically connected, it doesn’t get any better than this. BMB Munai’s wholly-owned oil-pumping subsidiary, Emir-Oil, was even created by the Kazakhstan government. With a market cap of just $66 million, the company’s $1.40 share price could double, even triple with just one turn of a pipeline valve.

(In fact, we just saw an incredible 65% spike in a single day… caused merely by expectations that talks between the Kazakh Chamber of Commerce and a Chinese trade delegation from Sichuan Province would generate good news for Kazah oil.)

By investing in this stock, you are investing in the company the American and Russian governments expect to be (or should I say will make) the region’s next big oil producer.

Action Alert: Buy shares of BMB Munai (AMEX:KAZ) at or below $2.00.

Oil Stock #5: Striking Black Gold

The next company you need to know about is Toreador Resources (NASDAQ:TRGL).

Toreador has stakes in the energy-rich Black Sea, a region expected to have more than enough natural gas and oil reserves to power Turkey and its neighbors for a long, long time to come.

Toreador Resources will be a prime investment target when Russia resumes its hostile activities. It was part of a team that first discovered natural gas in the Black Sea. It has the tools and products to find oil where no other companies were successful. Because of its technological prowess, it is sitting on a huge stockpile of black gold.

When Russia invaded Georgia last summer, Toreador showed its potential to smart investors. Share price soared by as much as 30% in just a few days.

Imagine what could happen to this $70 million company if the stakes are even higher. If Turkey becomes the next big target like so many experts believe, shares of this $3.40 stock could easily be selling for as much as $20, or more.

Invest in Toreador Resources now and profit as the next global crisis unfolds. When these predictions come true, you will look like an investing prophet.

Action Alert: Buy shares of Toreador Resources (NASDAQ:TRGL) below $4.00.

Source:The Top 5 Oil Stocks for 2009

Here he tells us that his recommended stocks have “upward potential” and that “The Eastern European energy crisis is far from over… and I believe we will be served well holding on to these stocks for the long term!”
This from Amberger:

Back in November 2008, I went on record predicting an energy stand-off between Russia and Ukraine that would pitch Europe into a deep freeze. (Here’s what I said.) It came to pass on New Year’s Eve, when Russia shut down gas deliveries to Ukraine.

On the surface, this conflict was about natural gas. Russia, through its capitalist arm Gazprom, wants to become the energy monopoly of the EU. Ukraine is in the way: While George Bush was president, the country sought to join NATO and the EU—breaking for good with Soviet-era Russian hegemony. And while the Nordstrom pipeline beneath the Baltic Sea is still in the planning stages, most of the gas destined for delivery in Europe has to pass through Ukrainian pipelines.

And Ukraine may just refuse to play ball.

Because Russia has shifted into a placeholder war pattern within Ukraine—attempting an escalation of the political war between Western-minded President Viktor Yushchenko and the ambitious pro-Russian populist Prime Minister Yulia Tymoshenko.

One of our recommended stocks, BMB Munai Inc. (AMEX:KAZ) went up over 31% today. Toreador Resources Corporation (NASDAQ:TRGL) was up 24%. And Total (NYSE:TOT), the main long-term beneficiary, ended the day up a respectable 8%.

Of course, timing is everything, and our initial positions had taken a beating in the collapse of energy prices and foreign equity markets.

But today’s moves validate our initial assessment of these stocks upward potential.

Read the full article here: Gas wars re-ignite in Ukraine!

As prices have recently touched lows of $33.20 per barrel, inexpensive oil has caused severe problems for Venezuela’s Hugo Chavez and Iran’s President Mahmoud Ahmadinejad. Chavez just invited oil companies Chevron (NYSE: CVX), Royal Dutch Shell (NYSE: RDS.A) and Total S.A. (NYSE: TOT) back into the country. And Ahmadinejad is fighting re-election troubles caused by a government used to surpluses and excess cash.

Apparently inefficient state-run energy companies can’t squeeze out profits like the professionals. And when they aren’t screwing production up, Russia has proven that it can simultaneously show the world it’s a bully – in addition to cutting off it’s income stream.

And things certainly don’t seem to be getting any better for these three. OPEC just released its 2009 demand forecast that spells out a dismal outlook for the coming year. But it’s not just low demand.

Oil inventories are at all time highs, “contango” opportunities abound, and OPEC hasn’t cut production anywhere near to where it needs to be to level out prices. And even if it did, the “bad boys,” mentioned above, would still be pumping it out at full speed to meet their obligations.

Lets fact it, oil could be down for much longer than they expect.

Source: Oil – U.S. State Department’s Newest Ally

This from Money Morning:

Iraq recently signed its first oil deal in 35 years with a foreign company.

And –- quite surprisingly to many observers -– the company wasn’t one of ours.

Not surprisingly, the US news media barely acknowledged the deal –- even though the agreement was major news throughout the rest of the world.

According to reports from Baghdad, the 22-year deal between the Iraqi government and the China National Petroleum Co. involves $55 billion, or 87% of Iraq’s current total revenue at a conservative long-term estimate of $100 a barrel.

The deal is actually a renegotiated version of a 1997 agreement between China and a Saddam Hussein-led Iraq.

That original deal included production-sharing rights, but under the new contract China will be paid for its services, but will not share in profits,The New York Times reported. The payments will be made in cash – and won’t be “in kind” payments of crude oil, the newspaper said.

While this deal, on its face, appears to be just another global oil-services contract, it’s actually a very significant development in the hunt for long-term energy supplies.

In fact, it actually demonstrates that -– when it comes to nailing down those long-term oil supplies –- China is an expert, and is playing a very deep game. And the outcome of that game will certainly have substantial long-term implications for consumers and investors both here in the United States, and in markets abroad. Here’s why:

• With estimated reserves of 115 billion barrels, Iraq is tied with Iran for the world’s No. 2 position, trailing Saudi Arabia, which has estimated reserves of 264 billion barrels, according to estimates from the Energy Information Administration.
• In a country where electricity is in short supply, the oil produced from the Ahdab Oil Field will help fuel a planned power plant that would be one of the largest in Iraq. By helping Iraq with this key initiative, China can expect to gain a solid foothold in one of the most oil-rich nations in the world, analysts say.
• At the end of the day, the deal clearly highlights something that most U.S. investors haven’t focused on yet – namely that the eventual winners in this game may not be such well-known giants as Chevron Corp. (NYSE:CVX), ExxonMobil Corp. (NYSE:XOM), or other household names. Deals like this one and the host of others that are undoubtedly close behind suggest that tomorrow’s winners may have names most English-speaking investors can’t pronounce, since they’ll be distinctly Arabic or Chinese in nature.

China’s Shrewd Long-Term Oil Plan

The important thing for investors to understand now is that oil ownership, as I have said for many years, is an illusion. It does not guarantee price, nor profit.

What really matters in the end is having secure supply lines and sources from the Middle East (and other parts of the world).

Under this new contract, CNPC will provide technical advisors, oil workers and equipment to help develop the Ahdab oil field southeast of Baghdad, said Assim Jihad, a spokesman for Iraq’s Oil Ministry.

While China won’t participate in the profits from the oil it helps pump, it is shrewd enough to realize there will be long-term benefits. Analysts who see the bigger picture here agree with our view.

“There are some political profits for China,” Ibrahim Bahr al-Ulum, a former Iraqi oil minister, told The Times. “They need access to Iraq, and when they need oil, at least the Iraqi people will feel that China has done something for them.”

And that’s not all. Before 2003, Iraq had oil agreements with China, Russia, Indonesia, India and Vietnam –- three of which included production-sharing agreements, The Times reported. But the big jump in oil prices, the new government and a myriad of other changes that have taken place since that time prompted Iraq to reconsider the terms of those deals, Iraqi officials said.

Iraq continues to negotiate other service contracts with ExxonMobil, Royal Dutch Shell PLC (ADR:RDS.A, RDS.B), Total SA (ADR:TOT), BP PLC (ADR:BP), Chevron, and some smaller oil companies. The deals have been reduced in length from two years to one after Iraq took a lot of flak for not putting the contracts out for competitive bidding.

But China’s contract was the first major one to be completed -– and for one simple reason, Jihad, the Iraqi Oil Ministry spokesman, said. CNPC had “wide experience in this field,” and because many foreign oil companies were not willing to come to Iraq.

China has apparently learned how to play the global oil game with a pro’s touch. Ironically, it was the United States that crystallized this vision.

By invading Iraq, the United States dealt China’s central planning commission an embarrassing wake-up call when the second Gulf War summarily wiped out China’s oil interests in Iraq.

What China fears most is that there will not be enough oil to go around in the very near future and that a US-dominated supply chain could effectively “strangle” China’s growth.

So, it has done what the United States and other great powers have done at other times in history and gone on a buying spree from Darfur to Peru that’s turned heads and ruffled feathers all across the world.

What’s been especially frustrating for hapless Western leaders who do not understand that their actions caused this in the first place, is that China’s not afraid to do business with rogue nations like Iran, Sudan and Burma. It has even gotten chummy with Venezuela and Russia – much to the consternation of our present administration.

It’s a virtual certainty that China will maintain this policy going forward. My contacts in China and Africa have told me point blank that China’s leaders “don’t care about human rights or nukes or hostile governments. What matters is anyone who provides oil to China no matter what the rest of the world thinks.”

So, in as much as the US media has dismissed this deal as only one in a long string of recent Chinese oil purchases, it’s arguably the most important deal yet. The reason: It suggests that China will go to extraordinary lengths to obtain the oil it wants and needs.

To add to its stable of captive oil suppliers, China will pay far more money, endure limitless criticism for ignoring human-rights issues and endure harsher business conditions than our companies can or will undertake.

While US firms must worry about sanctions, bad publicity or simply security, China worries about one thing, and one thing only –- getting oil.

It’s a lesson initially learned from us. Then they refined it. Perhaps it’s time we re-learned this lesson from China.

Source: How China is Beating the United States in the Global Oil Game

Don Miller says industry insiders are now betting on triple-digit crude oil prices for the next decade. And long-term oil futures show demand will continue to outstrip supply, as Asia industrializes and proven reserves diminish.

Don says Transocean Inc. (NYSE:RIG), StatoilHydro ASA (NYSE:STO), and Petrobras (NYSE:PZE) are likely to benefit from new drilling projects. And the company that supplies equipment lines for 90% of oilrigs, National Oilwell Varco (NYSE:NOV), is also well placed for profits.

Want to know what the price of a barrel of oil will be in eight years? Exactly $119.50 a barrel.

There’s no shortage of pundits predicting where oil prices are heading. And every day seems to bring new reasons to change the forecast – a resurgent dollar, Americans curtailing their driving habits, oil supply reports… The list goes on.

But the guys who really know the future of oil prices are those sitting right in the driver’s seat – oil producers.

Every day, they make bets about the direction of petro prices on the futures market. And right now, they’re telling you – in no uncertain terms – oil’s got a floor price of $100 a barrel for years to come.

“Oil-flation” is here to stay, but this free report reveals four ways you can beat it starting now…

The Future Price of Oil – And Why You don’t Need a Crystal Ball

Crude oil is the world’s most actively traded commodity. Every day, oil producers trade futures contracts on the New York Mercantile Exchange (NYMEX) to hedge against price swings.

At the end of the day, they – along with speculators who bring liquidity to the market – determine the price of oil, which is simply a reflection of the market’s attempt to balance supply and demand.

So, that prediction of $119.50 a barrel? That’s a recent closing price on NYMEX for the December 2016 contract.

Fact is, NYMEX has over 1,000,000 active futures contracts or “open interest” on crude oil for the next eight years and not one trades below $112 a barrel.

That means the guys in the business – the ones who make their living producing and selling oil – are predicting oil will be priced over $112 a barrel for most of the next decade.

Why are they predicting the continuation of triple digit oil prices?

Plain and simple, the markets are telling us future demand for oil will outstrip supplies.

Demand for Oil Keeps Growing

Although demand is highest in the developed world, exploding economies like China and India are quickly becoming large oil consumers.

The United States is still the world’s largest consumer of petroleum and our thirst for oil is growing rapidly. Between 1995 and 2005, U.S. consumption grew from 17.7 million barrels per day (bpd) to 20.7 million bpd – a 17% increase.

In the same time frame, China’s consumption vaulted from 3.4 million bpd to 7 million bpd – a 106% increase. And that number’s rising, as China surpassed 8 million bpd for the first time in June.

Meanwhile, India’s oil imports are expected to more than triple from 2005 levels by 2020, rising to 5 million bpd.

All totaled, Asia accounts for 60% of the world’s new oil demand.

Putting a worldwide number on it, the International Energy Association recently increased its 2009 oil demand forecast to 87.8 million barrels a day.

On top of that, The U.S. Energy Information Administration projects world consumption of oil to increase to 98.3 million bpd in 2015 and 118 million bpd in 2030. That’s a 35% increase by 2030.

Oil Production Dropping?

By now, you’ve probably heard of the Peak Oil theory – that worldwide oil production has peaked and is now dropping. Consider:

• The U.S. Energy Information Administration Energy contends that world production leveled out in 2004, and reached a peak in the third quarter of 2006.
• Oil tycoon T. Boone Pickens recently told Congress, “I believe you have peaked out at 85 million bpd globally.”
• And at a recent industry conference, the chief executive officer of Total SA (ADR: TOT), the French oil major, said the industry would be lucky to produce 95 million bpd by 2020.

But whether you believe Peak Oil is true or not, at least nine of the largest 21 oil fields on the planet are in decline.

In 2006, a Saudi Aramco spokesman admitted that its mature fields are declining 8% per year. It’s now clear that Ghawar, the largest oil field in the world, has peaked.

The second largest, the Burgan field in Kuwait, started down in 2005. And Mexico announced that its giant Cantarell Field entered depletion in 2006.

Reserves Don’t Equal Production

Then there’s the matter of oil reserves, a moving target if there ever was one.

You see, oil reserves are classified three ways: proven, probable and possible. Proven reserves have at least 90% to 95% certainty of entering production. Probable reserves have 50% probability. And possible reserves have a 5% to 10% chance.

A 2007 report by the Energy Watch Group pegged total world proven plus probable reserves at between 850 and 1,250 billion barrels. That’s 30 to 40 years of supply if demand holds steady – which it won’t.

But as Sadad I. Al Husseini, a former VP of Aramco, said in October 2007, “Reserves are confused and inflated. Many of the so-called reserves are in fact speculative. They’re not delineated, they’re not accessible, they’re not available for production.”

By Al-Husseini’s estimate, 300 billion of the world’s proven reserves should be re-categorized as speculative.

On top of that, about 70 oil-producing nations don’t reduce their reserves to account for yearly production. As noted investor Jim Rogers says, “Despite consistently pumping 8 million bpd for over two decades, Saudi Arabia has repeatedly stated their reserves are at 267 billion barrels.”

Organization of Petroleum Exporting Countries (OPEC) member nations even have economic incentives to exaggerate their reserves, as the OPEC quota system allows greater output for countries with bigger reserves.

The reality is this: it’s highly likely we have a lot less than 1,200 billion barrels to burn in the next 30 to 40 years.

And increasing demand could have us running on fumes in an even shorter span.

New Production — a Pipe Dream?

Even though we continue to hear about new oil discoveries, new oil reserves will be harder to find and extract.

Take Kazakhstan, for instance. Its oil fields are slated to be the third largest in the world. The heralded Kashagan field should produce 1.5 million bpd at its peak. But technical problems continue to plague the project.

In 2005, production was scheduled to start in 2009. A year ago that was moved to 2011 and now it’s been pushed back to 2013. And the projected cost has risen to a whopping $50 billion.

Canada’s oil sands are another example. Production could reach 5 million bpd by 2030 in a “crash program,” but the oil contains contaminants such as sulfur and carbon that are difficult to extract and leave highly toxic tailings.

Frankly, the most easy-to-extract oil has been found. Price increases have led to exploration where high technology is required and where it is much more expensive to extract the oil.

We are replacing OPEC oil that costs $3 per barrel to produce with deep-water and other nonconventional sources at $60 per barrel and up.

And that’s why the markets are predicting triple digit oil prices are here to stay.

Four Ways to Play “Oil-Flation”

Here’s a four-prong strategy to help you ride the oil bull market into the future and get your share of the profits.

Lehman Brothers predicts that oil producers will spend a record $369 billion on energy projects this year. With oil prices still in record territory, oil companies are drilling wells in waters previously considered cost-prohibitive. And with President Bush calling for the reopening of offshore drilling, look for the trend to accelerate.

Money Morning Investment Director Keith Fitz-Gerald recommends StatoilHydro ASA, an integrated oil company headquartered in Norway. The company is now the world’s largest energy operator in waters more than 100 meters deep and produces, on average, 1.7 million barrels of oil equivalent per day.

It has proven reserves of more than 6 billion barrels of oil, has operations in 34 countries, and is expanding aggressively to diversify internationally.

You might also look at Transocean Inc., the world’s largest provider of offshore drilling services for oil and gas wells. Its fleet includes ultra-deepwater and harsh environment semisubmersibles, and drill ships.

In November, Transocean merged with GlobalSantaFe, combining the world’s No. 1 and No. 2 offshore drilling companies. The company now owns 138 offshore rigs, twice the number of its nearest competitor.

It also just signed a $1.69 billion agreement with Petrobras, Brazil’s government-sponsored oil company to provide rigs for its newly discovered Tupi field. With over 40 billion barrels in reserves – three times the size of Alaska’s Prudoe Bay field – Tupi could be a bonanza for both companies.

Another way to capitalize is buying companies that outfit drilling rigs with pipe, fittings, and provide oil-exploration and field-management services. National Oilwell Varco is the “picks and shovels” play in the oil services industry, with the lion’s share – over 60% – of the market for rig gear.

The company’s huge product line is found on about 90% of all drilling rigs. It’s been growing revenues at almost 40% for the past three years while increasing earnings per share by a whopping 68%.

And don’t ignore the burgeoning alternative energy field. Both Sens. Obama and McCain are pledging over $150 billion in renewable and alternative energy initiatives during the next decade.

As Fitz-Gerald likes to say, “alternative energy is an alternative no longer.” Vestas Wind Systems (PINK: VWDRY) is the world leader with over 35,000 wind turbines installed in 63 countries. It is the industry leader in wind technology with 23% of the market worldwide, and a full 85% share of the market for turbines with a capacity of 2 megawatts and higher.

Be cautious with this one as its stock is up over 300% in the last 18 months. But with a surging government investment climate in alternative energy in the U.S., the company should continue to benefit.

Source: Four Ways to Fight the “Oil-Flation Epidemic”

The new agreement, valued at $1.2 billion, is a variation of a deal struck with the state-owned China National Petroleum Corp. in 1997, when Iraq was in the clutches of Saddam Hussein.

“The Chinese contract was signed with the former regime,” Hussein al-Shahristani, Iraq’s oil minister, said in an interview that appeared on Iraqi news Web site al-Noor. “It’s valid. It was unfair because it was a production-sharing contract. We have negotiated with them for a year. It was turned from a sharing contract into a service contract.”

Al-Shahristani, will put the finishing touches on the deal during a visit to China early next week, when he is joined by Latif Hamad, governor of the Wasit province – where the Ahdab field is located.

“The governor will discuss the logistic cooperation with the Chinese company, especially the security side,” provincial spokesman Majid al-Atabi, told The Associated Press.

The deal with China is one of several contracts Iraq is touting in an effort to boost oil production by roughly 500,000 barrels a day, from 2.4 million barrels to 3 million barrels by the end of 2008. Iraq then hopes to increase production to 4.5 million barrels a day by 2013.  As it stands now, the country sits on estimated 115 billion barrels of reserves, but exports a meager 2 billion barrels a day – 10th in the world.

Thirty-five foreign oil majors were invited to bid for contracts to provide technical support and help boost production in eight oil and natural gas fields last month. However, it was recently reported that oil majors are balking at the commitment, as the terms of the contracts have been shortened, and security concerns and political gridlock have undermined any progress.

“It appears that on present form (the Iraqi government) probably won’t proceed with most of these or all of them,” Charles Ries, coordinator for Iraq’s economic transition at the U.S. embassy told reporters earlier this week. “But I think that some of the companies are open to continued discussions even on relationship grounds, and some of the companies… don’t think it’s worth their time.”

Ries said that the contracts lost much of their appeal when Iraq reduced the length of their terms from two years to one, and when it became clear that companies who signed wouldn’t be given any preferential treatment for future long-term deals. Ries added that the deals, worth about $500 million apiece, “were never going to be hugely lucrative.”

Iraq has been negotiating with Royal Dutch Shell PLC (RDS.A, RDS.B), BHP Billiton Ltd. (ADR: BHP), BP (BP), Exxon Mobil Corp. (XOM), Chevron Corp. (CVX), Total S.A. (ADR: TOT), and a consortium of smaller firms led by Anadarko Petroleum Corp. (APC),  according to Reuters.

Anadarko has already pulled out, but officials insist negotiations are ongoing. An anonymous Iraqi official responded to reports that talks had disintegrated Wednesday, telling the AP that deals with Shell, BP, Exxon, Chevron, and Total were “still on the table,” and “none of them has pulled back.”

Development of the energy sector will be crucial to Iraq’s reconstruction and development, as oil accounts for 90% of export earnings and 70% of the country’s gross domestic product.

Source: China and Iraq Finalize Oil Contract, as Western Oil Majors Waver

Crude oil futures gained $1.66 to settle at $114.53 a barrel on the Nymex. The euro, meanwhile, inched up 0.1% against the buck, off a six-month low of $1.4630.

Energy and oil expert Byron King says investors can expect oil to continue to head northward for all the familiar reasons. Oil’s long-term fundamentals are little changed since hit spiked to $147 a barrel at the end of July. And you can now pick up resource plays in 2008 at 2005 prices…

It’s not like anyone is finding new large oil deposits out in exploration land. Indeed, a whole lot of looking is leading to not very much finding in the exploration patch.

The big oil companies are taking oil out of the ground. But generally, they are not replacing their reserves through reserve growth or resource expansion. To the extent that the oil companies are expanding reserves in the short term, it’s by searching further out in the ocean or further north in the ANWR And that raises the cost structure for production.

It’s a rare oil company that replaces its annual output with new reserves.

Compounding the problem, much of the world is off-limits to the traditional exploration and production model. The large national oil companies (NOCs), such as Saudi Aramco, Sonangol, Petroleos de Venezuela, Gazprom (LON:GAZP), Rosneft (LON:ROSN), etc., control the bulk of the world’s resources. About 85% of the world’s oil and gas reserves are controlled by NOCs. About 7% of the world’s hydrocarbon reserves are controlled by the Western companies.

Working Hard in a Tough Environment

So the traditional Big Oil outfits (Exxon Mobil <NYSE:XOM>,Shell <NYSE:RDS.A /RDS.B>, BP, Total <NYSE:TOT>, etc.) are scrambling hard to replace the reserves that get pumped out via normal production. Even in the places where the Western companies can operate, it’s no picnic.

The Washington Post — in an editorial, no less — was downright sympathetic as it described the difficult operational scenario for Shell Oil Co. on a major lease in the U.S.:

“The five leases that have made up the Shell Perdido project off Galveston since 1996 are not classified as producing. Only when it starts pumping the equivalent of an estimated 130,000 barrels of oil per day at the end of the decade will it be deemed ‘active.’ Since 1996, Shell has paid rent on the leases; filed and had approved numerous reports with the MSS [Minerals Management Service], including an environmentally sensitive resource development plan and an oil spill recovery plan that is subject to unannounced practice runs by the MMS; drilled several wells to explore the area at a cost of hundreds of millions of dollars; and started constructing the necessary infrastructure to bring the oil to market.”

The Washington Post concluded, “The notion that oil companies are just sitting on oil leases is a myth.”

So it’s tough out there in the field. It’s hard work to find reserves and lift them to the surface. There are rising production costs, and now the producers are selling into a declining market price.

Stock prices are down. Yes, it hurts if you’ve been buying shares in the past year or so. But the other way to look at it is that some great companies are now on sale. You can pick up resource plays in 2008 at 2005 prices.

Keep your eye on the long term, and don’t panic out of any buying opportunities.

Source: Oil Exploration – A Lot of Looking, Not Much Finding

The contracts will be awarded in 2009, as Iraq’s oil minister, Hussein Shahristani, hopes to increase production by 2 million barrels of crude oil per day by 2013.

Iraq has the world’s third largest proven petroleum reserves, according to the Energy Information Administration (EIA). While Iraq boasts proven reserves of 112 billion barrels, the EIA estimates that up to 90% of the country remains unexplored. Only 2,000 wells have been drilled in Iraq, versus approximately 1 million in the state of Texas alone. The war-torn country could have another 100 billion barrels of oil buried in its uncharted territories.

The energy sector is crucial to Iraq’s economy and development, as crude oil export revenues represented around 60% of its gross domestic product (GDP) and 89% of government revenue, according to the March 2007 review by the International Monetary Fund (IMF).

However, wars with Iran, Kuwait and the United States have roiled the country’s infrastructure. Adding to the pain, political and economic sanctions have set Iraq’s development back decades.

Its failed invasion of Kuwait and the resultant trade embargos caused Iraq’s oil production to drop from 3.5 million barrels a day to about 300,000 barrels a day. Production in the country has regained some of its footing since then and currently stands at an approximate 2.5 million barrels per day. However, Iraq’s Shahristani has pledged to lift out put to 4.5 million barrels a day by 2013.

To accomplish this, Shahristani is offering to pay foreign oil majors such as ExxonMobil Corp. (XOM), BP PLC (ADR: BP), Total SA (ADR: TOT), and Royal Dutch Shell PLC (RDS.A, RDS.B) for their training and consultancy services. Shahristani draws the line, however, at offering foreign companies any portion of the oil to be extracted.

In fact, at a news conference in Baghdad, Shahristani was openly critical of the Kurdish regional government for signing deals that offer foreign companies shares of the oil they extract. Any firm that has already signed an agreement with Kurdistan, such as IGI Group, was left off the list of potential bidders for Iraqi service contracts.

“We do not see the necessity to have anyone sharing the Iraqi people’s oil,” the Los Angeles Times quoted Shahristani as saying. “The Iraqi oil will remain under complete Iraqi control under the auspices of the national oil company once it is established.”

The issue of sovereignty remains a sensitive subject, as many critics have theorized that the U.S. invasion of Iraq was, at its core, a plot to seize control of the country’s natural resources. Three U.S. senators have already urged the Bush administration to stop these deals for fear they would inflame sectarian tensions in the wore-torn country.

Another point of contention is that Iraq’s parliament has yet to approve a national oil law to regulate foreign contracts. Discussions remain deadlocked in discussion over how oil revenue is to be divided among the country’s diverse and volatile regions.

Source: Iraq Looks to Rebuild Once Prominent Energy Sector by Opening its Doors to Foreign Oil Majors

• In reporting a $164.8 million loss (or $1 per share), electronics retailer Circuit City Stores Inc. (CC) suspended its 4-cent dividend. The company also forecast a wider second-quarter loss but said it expects a “gradual recovery” in the second half, Reuters reported.

• Mitsubishi Motors Corp. (PINK: MMTOF) plans to introduce a line of plug-in hybrids as soon as 2013. The company’s all-electric i MiEV minicar plans to be charged from a standard electric outlet. About 1,000 of them will go on sale to fleet customers starting April 1, 2009, Bloomberg reported.

• Continental Airlines Inc. (CAL) and United Air Lines Inc. announced yesterday (Thursday) that despite deciding not to merge in April, the two carriers would form an alliance that includes linking their networks and operations worldwide, The New York Times reported. As part of the deal, Continental will join the Star Alliance, of which United is already a member.

• Western oil majors will return to Iraq for the first time in 36 years, The New York Times reported yesterday (Thursday). Exxon Mobil Corp. (XOM), Chevron Corp. (CVX), Royal Dutch Shell PLC (ADR: RDS.A, RDS.B), BP PLC (ADR: BP) and Total SA (ADR: TOT) are at the forefront for contracts on the countries largest oil fields and are currently in talks with the government’s oil ministry, MarketWatch reported.

• Shares of Citigroup Inc. (C) dropped over 1% with a 23 cent decline to close at $20.17 yesterday (Thursday) after Chief Financial Officer Gary Crittenden said there would be “substantial” additional write-downs and losses on consumer loans, Bloomberg News reported. Citigroup has already written down $42 billion, or approximately 10% of the $396 billion in total write-downs.

• Matthew Tannin and Ralph Cioffi, two former Bear Stearns Cos. Inc. (BSC) managers, were arrested yesterday (Thursday) on securities fraud and other charges linked to the collapse of a hedge fund that bet heavily on subprime mortgages before the market collapsed, The Associated Press reported. The FBI announced Thursday that it had arrested about 300 real estate industry players since March.

• Transocean Inc. (RIG) said yesterday (Thursday) that BP PLC (ADR: BP) extended an ultra-deepwater drilling contract for five more years, The Associated Press reported. The extension for the semi-submersible vessel GSF Development Driller II begins in November and is expected to generate up to $1.06 billion in revenue over the life of the contract.

• Bank of America Corp. (BAC) expects to complete its acquisition of mortgage lender Countrywide Financial Corp. (CFC) by July 1, a source familiar with the matter told Reuters yesterday (Thursday). Bank of America has agreed to pay about $4 billion for Countrywide.

Source: Global Investing Roundups: Friday, June 20th, 2008