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How Qatar and Russia Just Improved Our LNG Prospects

by Dr. Kent Moors | published January 2nd, 2012

Welcome to 2012!

The weather has been great here in the Bahamas. I’ll be back in the U.S. one week from today.

But that doesn’t mean that I can take even a day away from the energy markets.

Already, developments are well underway that will have a major impact on energy investments deep into this new year.

Take this brewing situation between Qatar and Russia, for example.

It may not be on some analysts’ radars yet, but this event will likely boost natural gas prices in the United States.

And that is something we’ve been waiting to see for quite some time.

Maya Crude Output, Frack to the Future, and More Damn Statistics

by Dr. Kent Moors | published December 28th, 2011

[With Kent on vacation this week, I thought it’d be valuable to go back and revisit some of best questions we received and published in 2011.

From time to time, Kent answers your questions on both major events and stories that are on no one else’s radar.

Here are three that really stand out for their ongoing timeliness and the likelihood that we will be revisiting the issues addressed moving forward.

In 2012, we plan to answer more Oil & Energy Investor questions. So, remember, if you have a question or comment, we’d love to hear from you.

Just remember to register at the bottom of the page, and leave your comment.

And have a safe and happy New Year.

~ James]

Okay… Let’s get to it…

Q: Kent, I believe Mexico is the eight-largest producer of oil, and its output equals Libya’s and Iraq’s combined. What is the quality of Mexico’s oil, and whom does it supply? Thanks. ~ Kirk (February 2011)

A: Kirk, the Mexican national oil monopoly, Petroleos Mexicanos (Pemex), is currently producing about 2.6 million barrels a day (mbd), while Libya (before its slide into civil war) and Iraq combined come in at around 4.3 mbd. So not quite equal.

That’s because Mexican production has experienced more than a 25% decline since reaching its peak in 2004. And there remain serious questions about the ability of Pemex to increase volume due to the lack of finding new fields of any size and a heavy debt load.

Mexico has been a major supplier to the U.S. market. However, given the problems south of the border, there are widespread opinions that Mexico will become a net importerof oil by 2020, with any guarantee of export flows to the U.S. fading by as early as 2017.

While production levels have appeared to stabilize over the last several months, prospects for any additional volume are not good.

Most of Pemex’s production comes from the huge offshore Cantarell field in the Gulf of Mexico. When discovered in 1976, it was the third-largest field in the world. Today, it is in rapid decline. From 1.2 mbd in January 2008, the field is now producing barely 480,000 barrels per day. And Pemex has nothing new coming in to replace any of this loss.

And then there is the quality of this “Maya crude” oil…

A Trade War May Scuttle This Huge Solar Breakthrough

by Dr. Kent Moors | published December 23rd, 2011

As investors in the energy sector, these are the stories that we’re always looking for.

But unless you’re an avid reader of technical journals, you probably missed this one.

Every energy source available has its own “breakthrough” promise that will transform the sector and make the source the most energy efficient. But it’s very rare for engineers to find and actually achieve them.

We usually call these sorts of breakthroughs a “Holy Grail.”

For solar energy, that elusive prospect has been something called “Multiple Exciton Generation” (MEG).

MEG equals the amount of energy flowing from the external circuit of a solar cell divided by the amount of energy flowing into it. If the MEG measurement comes out above 100%, then look out…

Because something very big is happening.

No photovoltaic (PV) cell (the most common type of solar cell) has even been able to return to the circuit anything like the energy of the photons (i.e., light) that are hitting it.

In this sense, by definition, any cell developed so far has been inefficient on its face, limited in its ability to provide electricity to the grid at a reduced cost.

Until last week.

Click here to continue reading…

Russian Disaster Reveals Growing Problem in Supply Access

by Dr. Kent Moors | published December 19th, 2011

Early yesterday morning, an oil platform sank off the Russian Pacific coast in frigid, stormy waters.

The Kolskaya had been stationed off far northeastern Russia, and capsized when engineers were moving the jack-up rig from ongoing drilling projects in the Sea of Okhotsk to the western coast of Sakhalin Island. Accounts from the 14 survivors mention waves in excess of 20 feet.

That is enough to flood the operations base and sink the rig.

Details are still coming in on how this tragedy occurred.

But the question of why is one that deserves reflection this morning.

The Kolskaya disaster is a sobering reminder of a growing problem for Russian producers as they push offshore in search of more and more crude supplies.

But it is also a warning that tragedies like this will likely occur again if budget shortfalls and company shortcuts continue to intensify in the years ahead.

Click here to continue reading…

The Untold Story about Canada’s "Defection"

by Dr. Kent Moors | published December 14th, 2011

Even after the scores of lectures I’ve sat through on environmental economics, or the long discussions about energy policy with think tanks at the Johns Hopkins D.C. campus…

I never expected this to happen.

At least not from the perpetrator in drama…

Not Canada. They were supposed to live by example for the West…

But, on Tuesday, citing economic and political concerns, Canada became the first country to officially withdraw from the Kyoto Protocol, a 1997 agreement under which 37 countries committed to reduce carbon and greenhouse gases below 1990 levels.

On the surface, this represents a breakdown in transnational climate negotiations.

But underneath, there’s more important trend. And it’s very good news for oil and energy investors like you and me.

So… while policy wonks debate “what’s next” for climate talks, we need to discuss what this means for the future of energy investment in North America.

And it’s positive… for now.

Click here to continue reading…

The Changing Nature of Global Gas Projects

by Dr. Kent Moors | published December 9th, 2011

It’s 4 a.m. in Moscow, and my flight back to the U.S. leaves in a few hours.

One thing is certain about my trips to Russia – the time schedule is always off.

But I can’t complain; this weeklong visit has provided many benefits.

Last Friday I told you the primary purpose of my trip was to evaluate natural gas projects in northern Russia. As I said, it’s becoming increasingly necessary to estimate global-wide gas prospects in order to determine effective price levels.

That’s because the age of “spot” market prices in the gas sector is rapidly approaching.

And it’s about to change the way the markets operate for everyone involved.

Click here to continue reading…

Power Politics and the Price of Oil

by Dr. Kent Moors | published December 5th, 2011

Over the past three days, two events at different ends of the globe have reminded us that political developments can directly influence global oil prices.

First, on December 2, just as I was departing the United States, the Senate gave notice that it was prepared to tighten sanctions against Iran over its nuclear program.

And yesterday, the parliamentary elections here in Moscow didn’t quite provide the results Prime Minister Vladimir Putin and his party had expected.

The catalysts of each event were quite distinct, and each event was not directly the result of energy policy or related costs. However, both events will likely influence the international oil market in similar ways.

Both will likely restrict the flow of oil. And this constriction should be a sign to investors that crude prices will be going up.

Click here to continue reading…

Why A 1,315% Growth Rate Tells Us Little…

by Dr. Kent Moors | published November 30th, 2011

A Note from Kent: My next Oil & Energy Investor will be coming to you Friday morning, while I am in transit to Russia.

But today I wanted to let you know – personally – about some fantastic news.

I started out a couple years back wanting to provide first-hand information and analysis for the “regular guy” looking to make a buck in the energy markets. Yet lately, they are moving faster than ever – faster than me, certainly. So many new developments crop up, every day, that I have a hard time handling it all in just two installments.

I need someone qualifiedto help me cover all of this opportunity.

So I am delighted to introduce you to James Baldwin.

A former Wall Street and energy consultant, James has crafted unique leadership roles in financial publishing, competitive and market intelligence, corporate advocacy, and financial planning. He’s also a bona fide journalist. He’s covered the financial crisis, corporate governance, executive leadership, and the oil and energy markets. These days, he’s concentrating on energy policy. And that’s what really made him stand out as the man for the job.

(The opportunity came along to lock him in just before Thanksgiving,and I jumped all over it.)

Each Wednesday – starting today – James will be writing an additional, third column for OEI readers.

I hope you find his perspectives interesting and profitable. Because remember: Energy remains the single most lucrative segment in today’s investment markets.


Why A 1,315% Growth Rate Tells Us Little…

by James Baldwin

Dear Oil & Energy Investor,

While Kent prepares for his trip to Moscow this weekend, I’m settling into my new office for a little light reading…

On tap: catching up on a stack of earnings reports and press releases that built up over the Thanksgiving break. (Don’t worry; I actually enjoy this sort of thing.)

My attention turns to a familiar topic: Midstream oil and gas plays poised for growth in this new age of domestic energy production.

But in the last two weeks, there has been a lot of talk about the huge boost in year-over-year earnings-per-share (EPS) from these players, particularly in the Master Limited Partnerships (MLPs).

This was highlighted by the jubilance of investors that Genesis Energy’s (NYSE: GEL) forecasted EPS-growth rate soared to 1,315% just last week.

Now, the average investor might see that percentage and think it warrants a boost to the long-term share price.

But we have to be careful in these waters.

It’s critical that you understand something about EPS and MLPs – something that some analysts are just now beginning to recognize…

EPS Doesn’t Tell the Full Story

It’s quite simple to understand why.

No doubt about it: Midstream operations remain hot right now.

Remember, the midstream players connect those producing fields (upstream) with refineries, distribution, and retail sales (downstream). With oil and gas flowing, the market needs operations in transportation, processing, storage, and marketing. There has also been a flurry of M&A activity in the sector.

And they’re just getting started.

The intense boost to recoverable North American shale oil and gas and our growing energy needs will push domestic midstream investments to more than $8 billion per year through 2035, according to the Interstate Natural Gas Association of America.

So, with job growth and production booming in shale fields around the United States, there’s good money to be made in this portion of the value chain.

And a 1,315% forecasted year-over-year growth rate is an astonishing figure… on the surface.

But the reality is, we have to be very careful when we evaluate stocks based on metrics like EPS (MLPs actually use a similar figure, but they call it earnings-per-unit).

This metric doesn’t tell the full story of the partnership’s potential performance.

And if you look at the chart below, you’ll see immediately why Genesis’ forecasted growth rate is misleading…


The grey lines represent the consensus EPS forecasts for each quarter through September 2012. The yellow represents GEL’s actual earnings.

The 1,315% is a calculation of the December 2011 forecast divided by the company’s actual EPS in December 2010.

As you can see, in the fourth quarter of 2010, GEL reported earnings of two cents per share.

So why is growth of 1,315%, moving forward, misleading?

Because the 2010 figure includes a great deal of management compensation expenses tied to its general partner from previous years. At that time, Genesis also acquired large stakes in Marathon Oil’s interests in several pipeline systems. This included a 28% interest in Poseidon Oil Pipeline, a 29% interest in Odyssey Pipeline, and a 23% interest in the Eugene Island Pipeline System.

In other words, two cents in 2010, compared to a relatively mild 26-cent forecast for December 2011, makes it appear that the company popped… even though the stock has remained in a similar price range year-over-year.

This doesn’t mean the company is a good or bad investment; it just paints an incomplete picture.

Now, this EPS “problem” should only be a concern to an investor if they are trying to gain both a yield and price appreciation. Short a complete collapse, the yield will still be strong even if the stock price is experiencing temporary negative pressures.

So if earnings-per-unit isn’t complete, what is the best way for us to measure our MLPs growth potential?

Click here to continue reading…

An Early Look at Things to Come

by Dr. Kent Moors | published November 28th, 2011

I made it back late Saturday night from my meetings in Germany.

While I was there, the German Central Bank (the Bundesbank) was unable to sell its full complement of bonds… for the first time ever.

That resulted in an immediate market dive in both Europe and the United States. Thus far, investors have regarded Germany as a “safe haven” and the Continent’s strength amidst an ongoing debt crisis.

Now fears have emerged that even the strongest of the European economies has begun to feel the pressure.

This sets the stage for a shaky upcoming week of discussions about Spanish and Italian bailouts, the future of the euro, and the eroding power structure in Brussels.

The impact of the credit situation also took center stage during my meetings in Frankfurt.

Click here to continue reading…

Why the Oil VIX is Broken<br /> (and How to Profit Anyway)

by Dr. Kent Moors | published November 14th, 2011

As we brace for another bout of volatility in crude oil prices, I’ve got some bad news…

The main yardstick used by market makers to measure that volatility is no longer working.

In fact, the oil market we’re now facing is fundamentally different from the one we encountered even one year ago.

And it requires a fundamentally different approach.

Click here to continue reading…

The Keystone Quandary

by Dr. Kent Moors | published November 11th, 2011

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Double Your Profits in the New Age of Natural Gas

by Dr. Kent Moors | published November 7th, 2011

I recently got an email from one of your fellow subscribers, who posed a very interesting question. Take a look:

I bought a nice position in CQP. It is not clear to me if they are in a position to benefit earnings-wise from future expansions of the business. Is a future dividend increase in the cards? ~Harry M.

The broadening initiative to export liquefied natural gas (LNG) from the U.S. to Europe and Asia has put a few companies in the spotlight.

Cheniere is certainly one of them.

Click here to continue reading…