Oil and Gas Investment to 2010

Transcription

1 Oil and Gas Investment to 2010 By Kurt H. Wulff Boston, Massachusetts June 27, 2006

2 Summary and Recommendation Invest in oil and gas for the long-term Vision of $150 a barrel in 2010 Six-year oil futures at $70 in steady uptrend Stocks priced at about $47 a barrel Opportunities in near-term divergence Natural gas futures at wide gap to oil Two-thirds of stocks off upward trend Corporations buying on pullback

3 Outline Summary and recommendation Demand Energy geographically Oil and gas geographically Coal geographically Energy by fuel Supply Reserves Points of view Price Oil Natural gas Oil to 2010 Oil futures curves Oil futures momentum Divergence Natural gas Oil price lower in stocks Stock price momentum Deals McDep portfolio Mega Cap Producer/Refiner Large Independent Small Independent Income Natural gas pure play Conclusion

4 Asia Accelerates Energy Demand Global Energy Demand Geographically 80 Million Barrels Oil Equivalent Daily Asia Pacific Europe & Eurasia North America Other Source: BP Statistical Review of World Energy

5 Asia Oil & Gas Share Low Global Oil and Gas Demand Geographically Million Barrels Oil Equivalent Daily Asia Pacific Europe & Eurasia North America Other Source: BP Statistical Review of World Energy

6 Asia Coal Share Too High Coal Share Geographically 70 Coal Percent of Primary Energy Asia Pacific Europe & Eurasia North America Source: BP Statistical Review of Source: BP Statistical World Review of World Energy 2006 Energy

7 Asia Coal Boom is Unsatisfied Oil and Gas Demand Global Energy Demand by Fuel, Million Barrels Oil Equivalent Daily Oil Coal Natural Gas Nuclear/Hydro Source: BP Statistical Review of World Source: BP Energy 2006 Statistical Review of World Energy 2006

8 World Oil and Gas Reserves Billion Barrels Equivalent Natural Gas Oil Total Russia Saudi Arabia Iran Qatar Iraq

9 Points of View Peak Oil Twilight in the Desert ExxonMobil Cambridge Energy Bin Laden Chavez Putin Ukraine Bernanke

10 Oil Price History Pre-1970 price base Crude Oil Price, $2 International 60 $3 U.S. 50 Pre-2000 price base 40 $20 International $20 U.S price vision Dollars Per Barrel $ times $20 base

11 Oil Price Overlay Overlay 1965 to 1980 onto 1995 to s Scenarios to to 2010 Not 10 Times to 2010 More than 4 times Dollars Per Barrel times Actual 4 times CPI Up 4 Times in 30 yrs

12 Oil Price in Futures Light, Sweet Crude Oil Futures Aug-04 Aug-05 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11 Aug-03 6/22/2006 6/27/2005 6/28/2004 6/25/2003 6/27/2002 Aug-02 Dollars Per Barrel

13 Oil Futures Momentum Positive Six-Year Commodity Price Meter Indicator of Resource Value Trend Oil 40 week North American Gas 40 wk 12/29/03 3/29/04 6/28/04 9/27/04 12/27/04 3/28/05 6/27/05 9/26/05 12/23/05 3/27/ Dollars per Barrel Dollars per Million Btu

14 Natural Gas Diverges Oil/Natural Gas Futures Ratio 12/28/2001 4/28/2002 8/28/ /28/2002 4/28/2003 8/28/ /28/2003 4/28/2004 8/28/ /28/2004 4/28/2005 8/28/ /28/2005 4/28/2006 Crude Oil Price/Natural Gas Price, Million Btus Per Barrel Source: McDep, BP 2006, Energy Information Administration 9.00 Source: McDep, New York Mercantile Exchange Six-Year One-Year Million Btus Per Barrel

15 Oil Price in Stocks Diverges Estimate Present Value at long-term real oil price of $60 a barrel; natural gas, $10 a mmbtu; oil refining, $10 a barrel crack; 7% a year real return. Median McDep Ratio (Market Cap and Debt to Present Value) about 0.78 Stocks priced for $47 oil (60 times 0.78)

16 Stock Price Momentum Mixed Ratio to Ratio to 200 Day 52-W eek Average High Gazprom OGZPY Canadian Oil Sands Trust COSW F PetroChina PTR Encana ECA Lukoil LUKOY Chevron CVX XTO Energy XTO C o n o co P h illip s C O P Anadarko APA Devon Energy DVN San Juan Basin Royalty Trust SJT Encore Acquisition EAC Source: Bloom berg as of June 25, 2006

17 Divergence Sets Up Deals ConocoPhillips/Burlington Resources 4.6 times cash flow, $36 billion Shell Canada/Blackrock 35 times cash flow, $2 billion Energy Partners/Stone Energy 3 times cash flow, $2 billion Anadarko/Kerr-McGee/Western Gas 8 times cash flow, $21 billion 9 times cash flow, $5 billion

18 Mega Cap Energy Companies Portfolio Equity Weight McDep Symbol (%) Ratio Mega Cap BP plc BP Total S.A. TOT Royal Dutch Shell plc RDS-A Exxon Mobil Corporation XOM ConocoPhillips COP Chevron Corporation CVX Gazprom OGZPY

19 Producer/Refiners Portfolio Equity Weight McDep Symbol (%) Ratio Producer/Refiners - Large Cap and Mid Cap Petro-Canada PCZ Marathon Oil Corporation MRO Imperial Oil Limited IMO Norsk Hydro ASA NHY Suncor Energy SU PetroChina Company Ltd. PTR Lukoil Oil Company LUKOY

20 Large Independent Producers Portfolio Equity Weight McDep Symbol (%) Ratio Independent Natural Gas and Oil - Large Cap and Mid Ca Encana Corporation ECA XTO Energy Inc. XTO CNOOC Limited CEO Anadarko Petroleum Corp. APC Occidental Petroleum Corp. OXY EOG Resources EOG Devon Energy Corporation DVN

21 Small Independent Producers Portfolio Equity Weight McDep Symbol (%) Ratio Independent Natural Gas and Oil - Small Cap Berry Petroleum Company BRY Energy Partners Ltd. EPL Cimarex Energy Company XEC Encore Acquisition Company EAC

22 Energy Income Stocks Portfolio Equity Weight McDep Symbol (%) Ratio Income Penn West Energy Trust (US$) PWE San Juan Basin Royalty Trust SJT Canadian Oil Sands Trust (US$) COSWF Portfolio Composite (Five Groups)

23 Natural Gas Pure Play Commodity Price and San Juan Basin Stock Market Price (indexed to oil at $38 a barrel in 1980) Dollars Per Barrel SJT/Supron Natural Gas Oil

24 Conclusion Oil cycle is long Peak price appears years away Volatility renews opportunity Sound, long-term oil and gas investments likely to be rewarding, in our opinion