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The Days of Cheap Oil are Over

While these higher oil prices wreak havoc at the pump they also present an excellent alternative investment opportunity for the accredited investor.

For the past several years we have been alerted to the fact that the day of cheap oil is over. During this time oil has gyrated from the low 30′s into the 70′s. For awhile the public did not pay a lot of attention to the significance of what was happening. However, as gasoline prices increased to the three dollar level eyes began to open. Today they are wide open. While these higher oil prices wreak havoc at the pump they also present an excellent alternative investment opportunity for the accredited investor. You are going to get hit at the pump so what is wrong with being on the other side of this equation?

There is a vast amount of recoverable oil and gas remaining in the United States in millions of existing wells. New and proven enhancement methods and technology are destined to make a material impact by significantly increasing production from existing oil and gas wells. It appears apparent that during the next five years we will continue to see these higher energy prices. During the last four years they gyrated between the 30′s and 70′, during the next five years they can very well be between the 60′s and 130′s. These higher levels should produce profits not commonly experienced before.

National Geographic

-China is the world’s second-largest consumer of oil. It has about 20 million cars and trucks now. By the year 2020, that may be 120 million.-

By Robert J. Samuelson
Newsweek 

The interesting question about the advent of $50-a-barrel oil is whether it signals a new era in the economics and politics of energy. To sharpen the question: have we entered a period when, owing to consistently strong demand and chronically scarce supplies, prices have moved permanently higher? We don’t know, but the answer could be “yes” for at least one reason: China.

Americans consume almost 21 million barrels of oil a day, a quarter of the world total of 84 million barrels a day, reports the International Energy Agency. But China is now second at 6.4 million barrels a day, and its demand could double by 2020, various analysts told a conference held last week by the Center for Strategic & International Studies (CSIS) in Washington. Moreover, China will import most of its new needs; its domestic output is steady at about 3.5 million barrels a day. It’s unclear how much China’s extra demand—and that of other developing countries, especially India—will stimulate extra oil production.

Oil markets do undergo seismic shifts. Until 1974, the United States was the world’s largest oil producer. Supplies were plentiful; Americans controlled their own oil prices, as Daniel Yergin explained in his 1991 book “The Prize.” With surplus production capacity, the Texas Railroad Commission—which, despite its name, regulated oil—limited output to stabilize prices while maintaining a “security reserve” for times of crisis, wrote Yergin. In March 1971, the commission allowed all-out production to meet rising demand. America’s oil surplus had vanished. Worldwide prices rose, and OPEC (the Organization of Petroleum Exporting Countries) became more powerful.

We could now be at a similar inflection point, where the global oil system changes dramatically. Certainly the short-term outlook already has. From 1991 to 1999, world oil demand rose annually about 1 million barrels a day, Guy Caruso, head of the U.S. Energy Information Administration, told the CSIS conference. But in 2004, demand unexpectedly jumped 2.7 million barrels a day. A third of the increase came from China, and much of that reflected electricity shortages. Unable to get reliable power, factories installed their own generators. China’s regular power plants overwhelmingly use coal, but the new generators used imported diesel fuel. China could solve this problem by building more power plants and easing rail bottlenecks that hinder coal shipments. But there will still be new sources of oil demand. China now has about 20 million cars and trucks, energy consultant James Dorian said; by 2020, it could have 120 million. (In 2001, the United States had about 230 million cars, vans and trucks.)

Higher oil demand has now strained the global production system to its limits. Spare capacity of about 1.5 million barrels a day is the lowest in 30 years, said CSIS’s Frank Verrastro. Most is located in Saudi Arabia. Higher prices partly reflect fear of more supply disruptions—from terrorism, war, political upheavals, weather or accidents. In theory, higher prices should be partially self-correcting. They should dampen demand and encourage supply. But theory must always be revised for new realities. Here, there are two.

One is that in rich countries—notably the United States—rising incomes make it easier to afford higher energy prices. In the latest month, American oil demand was actually up 2 percent from a year earlier (and, yes, adjusted for inflation, today’s gasoline prices are still roughly a third below levels reached in 1980 and 1981). A second reality is that big oil companies seem less willing or able to find new oil. A study by Credit Suisse First Boston reports that major companies have replaced more than half their depleted oil reserves by buying reserves from other companies or re-estimating existing reserves. In 1990, companies replaced two thirds of reserves with new discoveries. The poor performance may partly reflect the fact that 72 percent of the world’s oil reserves are controlled by state-owned oil companies, says Verrastro. Private companies can often get exploration rights only on terms that involve (to them) too much risk and too little profit.

Anything could now happen to oil. Prices could drop, if the immediate fears behind today’s buying don’t materialize. But the long-term trends are unpromising. Global demand is rising inexorably; global supply seems less expansive. Dependence on precarious Persian Gulf oil will probably increase. The global economy remains hostage to uncertain or expensive fuel. Producing countries may become stronger, consuming countries weaker. There may be more competition among consuming nations to secure long-term supply contracts. China has already made a few such deals.

The message for Americans is simple. We import nearly 60 percent of our oil. We can’t any time soon eliminate imports, but we could limit them by producing more at home and conserving more (meaning higher fuel taxes, tougher gasoline standards, smaller vehicles and more hybrid engines). That would lessen our own vulnerability and ease pressures for the rest of the world. The debate that pits greater production against greater conservation is wrong. We need both.

© April 4, 2005 Newsweek, Inc. 

Oil and gas investors focusing on new reservoir technology

By Elliott Bouillion, Murphree Venture Partners, Boulder, Colorado

It has often been said that competition, costs, and crises are key drivers to accelerating innovation in any industry. Consider this:

• New oil and gas discoveries are smaller, and reservoirs are becoming depleted more quickly.

• Finding and development costs are up substantially.

• Publicly held exploration and production companies are under intense pressure to improve short-term profitability, production, and reserves.

• Worldwide demand for energy is outpacing the E&P industry’s ability to find and develop new reserves.

In recent years, investment money has flowed to advancing technology innovation in the exploration side of the E&P business. The result has been a sharp upswing in discovery rates. Today, approximately 85 percent of newly drilled wells find hydrocarbons.

Although discovery rates are higher, there is general industry belief that up to 65 percent of discovered hydrocarbons are being left in the ground. Despite these facts, the industry has only been able to stay even in producing oil and gas. As many industry pundits have said, we are “running up the down escalator.”

So, what’s next for meeting the energy demand? Many venture capitalists are betting their investment money on new technology focusing on reservoir production, especially technologies that help recover part of the 65 percent of hydrocarbons that are currently unexploited.

And with the industry having downsized significantly in the last two decades while capital spending has doubled, companies must accept the fact that there are fewer people handling more responsibilities. Couple the above with the looming talent void as workers are aging, companies would do well to realize that reservoir production technology could aid them in leveraging the expertise and knowledge of their workforce.

Oil and gas companies are no strangers to technology. Prior to the 1980s, E&P companies invested in research and development with many innovations such as 3D seismic exploration, horizontal drilling, and measurement while drilling (MWD) coming out of these efforts.

The price crash in the 1980s saw R&D spending fall to about one percent of E&P company budgets, resulting in the service sector doubling its investment to deliver new technology. Yet new technology has been hampered by slow adoption, little incentive to be an early adopter, and a “prove it” mentality.

A McKinsey study showed that the E&P industry on average takes more than 20 years longer to adopt new technology compared to the fastest adoption cycles, which occur in consumer products.

Recognized as one of the most revolutionary technologies in the oil patch, 3D seismic technology moved through the adoption cycle a bit faster than the average. As a result of the financial community embracing 3D seismic and its ability to deliver superior results, oil and gas companies either adopted the technology or faced losing out on investment dollars.

Traditionally, early technology adopters are visionaries or enthusiasts who embrace technology for technology’s sake or are seeking a solution to a previously unsolvable problem. Early adopters in the E&P industry are generally rare, with most seeking new technology only for the most difficult and complex problems. Although this industry is fraught with risk, it becomes nearly risk-adverse when approached with new technology.

Today’s increasing competition, rising costs, and looming oil crisis may just be the needed drivers to accelerate technology adoption. To be sure, the financial community is betting on technology that has been proven in other industries, such as aerospace, industrial engineering, and information technology, and is ripe to be applied to the E&P industry.

To this end, venture capitalists are joining hands with forward-thinking oil companies and service companies and taking an active role in introducing new technologies to the E&P industry through newly formed energy forums.

It is the intent of both groups to bring together entrepreneur-innovators, O&G industry players, and investors to break down barriers to new technology adoption. Both hope collaborative partnerships between innovators and users will increase understanding of the technology’s value and usefulness.

Ultimately, each believes these forums will lead to E&P company executives endorsing new technology more quickly and investing alongside VCs and service companies in jointly developing new technology

MANAGEMENT DECISION MAKING Vol.81, No. 47 

If you want lower energy bills…  Conservation is your only real option.

High prices will be around for a while. Oil’s recent downtrend won’t continue.  It’s the result partly of a modest improvement in inventory levels before winter sets in, and partly of some traders taking profits on a rally that put prices over $55 a barrel.

The core factors haven’t changed much:  Demand is strong, fueled by fast growth in China, India and other developing countries. But supplies are still constrained.  Output in Saudi Arabia has maxed out. Big gainsin Russia and elsewhere won’t come soon. And the risk of disruption is high, in Nigeria, Venezuela, Russia and the Mideast. That’s adding about $10 to a barrel of oil.

Fortunately, there’s still lots most firms can do to trim use. And, because fuel prices will stay high, even costly moves can pay off.  Existing technologies can improve energy efficiency by about 20%. Among the most effective and economical options: Motion sensors. At about $25 each, they turn off lights, copiers, etc., in empty rooms. High-efficiency fluorescent fixtures can trim lighting bills 50%. Nighttime water chillers reduce air-cooling expenses up to 30%. Upgrading air-conditioning systems cuts $1/year per square foot of space.

Low-friction, adjustable-speed motors use 10% to 20% less power. And turning to “green” building designs for new construction. Energy-efficient buildings are tremendous cost savers from day one.

Not sure where to begin? Get an energy audit for expert advice… free from the Energy Dept. for manufacturers with annual energy bills under $2 million. Others should contact their local utility companies.

Hard Times Bring Difficult Questions

-Finding a return worth investing in makes one wonder if it’s overrated-

By Scott Burns, Houston Chronicle

Here’s a deeply rude question: Should we stop investing?

I’m serious. Under current conditions, saving and investing are worse than frustrating. It isn’t worthwhile. There must be better uses for our money than investing in stocks, bonds or money market funds.

Yes, I know: This is close to blasphemy on the financial pages of a daily newspaper. But that’s how it looks. There are thousands of investments out there. Most of them aren’t providing a decent return. Maybe that’s why Bill Gates is planning on giving his $3.2 billion dividend to charity. Let’s start by comparing four places to put our money: stocks, bonds, cash and objects. We’re going to consider total returns and the impact of taxes and inflation. When we do this, cash comes out worst. Stocks are a sorry best — but we’ll work our way up from the bottom.

 Cash. This is the money we keep in money market mutual funds, Treasury bills and other highly liquid forms of investment. Right now, money market mutual funds yield about 1 percent. Many are earning less. The difference between 1 percent and one-half of 1 percent doesn’t mean much. Once your yield is pathetic, it’s pathetic all the way down. Taxing this yield could be the new definition of “adding insult to injury.” Assuming a 25 percent tax bracket, a 1 percent yield is down to 0.75 percent.

Bonds. We can do better than cash. All we have to do is buy bonds and take the risk that interest rates will rise. If they do, our return on bonds may well net to the return on cash, as it did for most investors over the last 12 months. (In the 12 months ending July 23, according to Morningstar, the average total return on PIMCO Total Return, Vanguard GNMA and Vanguard Total Bond Market funds — the three largest fixed-income taxable bond funds — was 2.98 percent. All three did better than their category averages.)

But let’s not worry. It’s pretty easy to get a 4 percent yield on an intermediate-term Treasury these days; we’ll go with that. After we pay income taxes, our 4 percent is down to 3 percent.  That means our after-tax, after-inflation return is a loss of 0.9 percent — provided interest rates don’t rise.

Stuff. The sales force of the investment/retirement complex won’t tell you about this because it won’t put food on their tables, but buying canned food for our tables (and other stuff) is a pretty good use for money. If what we buy rises in price with the general rate of inflation and we still have it at the end of the year, you’ve broken even. We have no tax liability. Our “return” is 0.0 percent.  True, the return won’t put us on the cover of Money magazine. But it beats bonds and cash.

…

Conclusion? It’s time for us to reset our investing habits. Except for savings dollars going into 401(k) plans where the employer matches our contributions, we need to look at other uses for the money we save.

Energy Exchange helps individuals profit from the energy crisis

Energy Exchange offers a potentially profitable alternative to Americans suffering the double whammy of the slow economy and soaring prices.

“It appears the energy industry may be on the verge of a huge upswing,” said David Mangum, founder of Energy Exchange. “The energy industry is scrambling to do more exploration, drill more wells, build more refineries, and fund additional research of all kinds in order to meet the growing demand for energy. Energy Exchange helps energy companies get the funds they need – and helps individuals take part in the energy boom. Energy Exchange acts as a sort of MLS service for energy projects, helping funders and projects get together. Our site, www.enex.com, lists dozens of energy related projects that need funding in order to succeed. Individuals who would like to consider a financial stake in such projects can contact Energy Exchange in order to get detailed information and an introduction to the energy company or entrepreneur seeking funding.”

Energy Exchange has facilitated hundreds of millions of dollars in funding for energy projects since its inception in1983.  ”We are responding to the pressing need for additional energy production by revamping our web site, increasing our team of analysts and consultants, and expanding our scope to include more foreign-based energy projects. Our goal is simple: connect energy projects with financial sources.”

About Energy Exchange

Energy Exchange is a leader in linking energy companies with funding sources – similar to the way real estate’s Multiple Listing Service connects homebuyers with home sellers. Since 1983 Energy Exchange has facilitated hundreds of millions of dollars in funding for energy projects. Headquartered in Houston, Texas, The Energy Exchange is an association of technical and financial professionals, providing a clearinghouse for oil and gas projects available for sale. Energy Exchange is the oldest project listing service in the petroleum industry. The Exchange is also recognized as a pioneer on the Internet by establishing the petroleum industry’s first commercial website, (www.enex.com). Energy Exchange has technical and financial associates located around the world.

Energy Exchange plays a leading role in solving United States energy crisis

Energy Exchange, a leader in connecting energy projects with financial sources, is playing a lead role in helping solve the nation’s energy crisis.  The Exchange is helping to source the enormous funding needed to make this two-part project possible. In phase one, three refineries will be refurbished and in the second phase, two new, high-capacity refineries will be built. These refinery projects brings together multiple players from across the petroleum industry and around the world.

About Energy Exchange

Energy Exchange is a leader in linking energy companies with funding sources – similar to the way real estate’s Multiple Listing Service connects homebuyers with home sellers. Since 1983 Energy Exchange has facilitated hundreds of millions of dollars in funding for energy projects. Headquartered in Houston, Texas, The Energy Exchange is an association of technical and financial professionals, providing a clearinghouse for oil and gas projects available for sale. Energy Exchange is the oldest project listing service in the petroleum industry. The Exchange is also recognized as a pioneer on the Internet by establishing the petroleum industry’s first commercial website, (www.enex.com). Energy Exchange has technical and financial associates located around the world.

As our ancestors passed the Statue of Liberty and entered Ellis Island, Immigration Center, they read the following words on a brass plaque.
“Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tossed to me.
I lift my lamp beside the golden door.”

In an interview with David Mangum, President of the Energy Exchange, Mr. Mangum said that the Congressional changes to the U.S. Immigration Policy, may cause some observers to wonder if it might be more appropriate to modify the plaque to say:

“Give me your energetic, your rich,
Your wealthy entrepreneurs yearning to get richer,
The affluent business men of your teeming shore.
Send these, the well-educated elite to me.
I lift my lamp beside our closed door.”

Mangum is referring to the United States Immigration Service Policy, called the EB-5  Immigration Program. The EB-5 program allows a foreigner to effectively purchase citizenship in the United States by investing into the U.S. economy.  Mangum said that, through the EB-5 Immigration Program, foreigners can simply invest their way to a U.S. Citizenship for as little as $500,000 cash and, in only a short while thereafter, become official U.S. citizens. 

Congress created this employment based Visa Preference Category in 1990.  This program is available to immigrants seeking to enter theUnited Statesby simply investing in a new commercial enterprise that will benefit theUSeconomy, and create at least 10 full-time jobs. The EB-5 investor can either create new commercial enterprise or invest in a trouble business.

To qualify for US Citizenship the immigrant must:

• Invest at least $1,000,000. (If the investment is made into an area that has been designated as a Targeted Employment Area, then the minimum investment requirement is only $500,000.)
• Benefit the U.S. economy by providing goods or services to U.S. markets.  
• Create full-time employment for at least 10 U.S. workers.  
• Be involved in the day-to-day management of the business.

Lately, with energy prices on the increase, the Energy Exchange has been approached by Regional Immigrant Center to provide energy investment opportunities that will take advantage of the EB-5 Immigration Program.  Energy Exchange is there to help them set up and manage their own private oil company in the United States.  Energy Exchange is a Multiple Listing Service (MLS), of various energy investment opportunities.  The Projects listed on the Energy Exchange include Solar, Wind, Bio-fuels, Coal, Nuclear, Oil, and Natural Gas Projects.  The Energy Exchange will assist the EB-5 investor with the set up of the new corporation and afterwards, assist with the ongoing management of the new company.  

Mangum believes that the American petroleum industry offers a wide variety of safe and high-return investment opportunities that will satisfy the investment requirements for the EB-5 immigrants.

David Mangum is a Petroleum Engineer/Geologist/MBA and President the Energy Exchange in The Woodlands, Texas.  The Energy Exchange is a Multiple Listing Service that connects energy projects with financial sources. The Energy Exchange is the oldest energy project listing service in the United States. The company’s website (www.EnEx.com) was the first website in the petroleum industry. The Company’s tag line is “If you don’t own oil wells, we will help you get some.”

By:  Princess Grace J., Public Relation Specialist

$10 million initially to drill and complete multiple Natural Gas Wells.  Total funding required is $40 million.