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Energy, Oil and other musings July 11, 2014

Posted by shaferfinancial in Uncategorized.
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I have made big investments in energy stocks. Just thought I would put my thoughts down, based on the research I have done over the last year.

1. Demand for oil continues to go up. This is a fact.
2. Existing wells are producing less oil. This is going on whether it is old-school land based [Middle East] wells, underwater wells, or tight oil [so called shale oil]. The depletion rate has been increasing for quite a few years, yet gets little analysis. This is a fact.
3. The tight oil drilling that is going on in North America is great for the US. But it has no chance of making us independent of imported oil. Great for jobs in Texas and the Dakota’s, but it clearly faces some issues, not the least the rapid depletion rates. Technology has made it all possible, but this technology took 3 to 4 decades to come on board. Can we really expect new technology to make drilling more efficient and profitable to come on in the next few years?
4. Most of the shale oil drillers are not profitable. They have burned up much Wall Street capital. But at least 2 of the CEOs of the major integrated oil and gas companies have withdrawn their companies from shale oil plays because it does not provide the IRRs they felt their companies required.
5. The major oil and gas companies are reeling from decreasing profit margins from their now highly depleted resources. The cost of getting a barrel of oil is increasing.

So, in short what we have is increasing demand, decreasing ability to meet that demand, and a tight oil market that apparently is not very profitable.

In 2013 the majors took a break from their massive investing in new resources to get their balance sheet more to their liking. However, eventually, and by eventually I mean by next year, they will need to produce more oil to feed their system of production and distribution. So how do they do that?

Tight oil helps, but it is never going to cover the depleting existing wells, let alone the increased demand. So where will this new oil come from? The vast majority of the known reserves exist under the water around the globe. The Arctic, the North Sea, GOM, off of South America [Brazil, Argentina, etc.] Africa, off of Nova Scotia and even the eastern Mediterranean all have proven deposits of oil.

Even if Russia and other countries start to drill for tight oil on land, there still is much unmet demand. The existing land wells are not going to miraculously start to produce more oil. That leaves drilling under the water as the only viable place to get the oil. There pretty much has to be a significant UW drilling program invested in by the major oil producers.

Wall Street interests would have you believe that the tight oil phenomenon will solve our oil demand problem. It won’t. They would have you believe that all this oil being taken out of shale deposits is going to make you rich if you invest in all these drillers. I doubt that. The big money has already been made. And if I have an accurate picture of how Wall Street and its interests work, then currently there is a movement going on to pull Wall Street investments out [with a great profit] and get retail investors in. Time will tell on this one.

Above is what led me to the underwater drillers like Seadrill [SDRL].

There is much misinformation about energy, investing in energy, our country’s position in energy, etc. Much of it can be characterized by political or Wall Street propaganda. But it doesn’t take long to dig through that and find out what is really going on. So use Google and take a look for yourself.

Here is an interesting article: http://oilprice.com/Energy/Energy-General/Orwellian-Newspeak-And-The-Oil-Industrys-Fake-Abundance-Story.html

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