Oil
Your Portfolio
Oil experts have been warning us for years that in the near future
the supply of oil will be unable to keep up with demand. This information
is available from a variety of public sources including the U.S.
Energy Information Administration. The government contends that
are approximately 1,000 billion barrels of oil worldwide (A Trillion
Barrels) in reserves. At the current rate of worldwide consumption
one could assume that the oil will last 40 years. And by then we
will have found more, or better yet, alternative fuel sources -
so no worries
Wrong!!!
This estimate makes several critical and false assumptions:
First, it relies on distorted estimates of reserves. Some oil experts
have placed the world oil reserves at only 500 billion barrels.
Since it is nearly impossible to measure the reserves, only educated
guesses can be made.
By adding up all the figures provided by all the private oil companies,
the world oil reserves shows only 500 billion barrels. There are
some 18,000 oil fields worldwide. Each oil company reports the size
of each field. There is no way to determine whether these estimates
are padded or accurate. The U.S. Energy Information Administration
relies on these private reports to create its own reserve estimates.
A second mistake is to pretend that production will remain constant.
As a well reaches 50% empty the pressure of the oil field decreases
to near zero making it necessary to pump the oil out, slowing the
production down considerably. Generally, the slower the oil is pumped
the more economical it is to produce. Eventually the oil becomes
too expensive to pump and the field is abandoned. We can immediately
subtract 10% to 20% of the world's oil reserves as unproducable.
Hence we should not count it. If we believe that there are only
500 billion barrels and 20% is unproducable, that puts the available
reserves at 400 billion barrels.
Third, - as well after well reaches this 50% point, (the pressure
point), the world production of oil will begin to decrease, putting
more demand on pressured wells shortening the time these pressured
wells reach their pressure point. The result is the beginning of
a rapid overall decline in world oil production when only a few
large wells have reached their pressure point.
Forth and most important, it assumes that world oil demand will
remain constant. As China industrializes an estimated 1 billion
addition cars will be consuming oil, 4 times as many as the US,
putting world oil demand at 3 times what it is today.
The candle is burning at both ends. OPEC in beginning of 2004 decided
to reduce oil production because many wells are reaching the pressure
point. President Bush convinced OPEC to keep production levels high
and return the levels to previous levels. As the wells run dry the
oil will become more and more expensive to pump, eventually OPEC
will have no choice but to slow production.
We know that 800 Billion Barrels have already been produced and
burned in the world to date. So from this we can conclude that we
are just past the pressure point. Oil production will have to slow
to remain profitable. How soon? Not within years but months.
So assuming
there are 500 biliion barrels of oil left, then we can substact
20% of this oil as unproducable leaving 400 billion barrels, this
gives us a 16 year supply, with a growning world demand for oil
we can reduce the supply to 10 years. with slowing production we
can reduce it even further.
As oil production begins to slow prices rise proportionately.
From an economic perspective this is devastating. Oil is the lifeblood
of the US economy. Consumers will have less money to spend and they
will be buying products which cost more due to higher transportation
costs. The Auto industry will suffer economic hardship as sales
slump. Especially sales of gas guzzling SUVs.
As the economy slows the dollar will begin to lose value. The Fed
will want to raise interest rates to strengthen the dollar but it
will also want to keep rates low to stimulate the economy. The scenario
is not pretty. World production of oil will decrease 10% within
the next year. Prices at the pump will hit $4 within this years
and $5 within 3 years.
Hardest hit from rising oil prices and rising interest rates will
be the real estate market- an economic bubble created by decreasing
interest rates.
Here's what happened: - Declining interest rates have allowed home
buyers to afford higher priced homes pushing the price of houses
up faster than the ratio of price to income ratio. Buyers 'panic
buy' as they see home prices rising and buy heavily leveraged pushing
the demand up even higher. Currently the ratio of income to price
is 3:4 which is 20% higher than historical averages. By all definitions
this is a bubble. By these historical standards prices should fall
by 20%, but now we can add both rising oil prices and rising interest
rates to the equation.
Rising interest rates is a double-edged sword. First it means new
home buyers can afford less and less cooling demand for new home
purchases. Second it means current homeowners who bought with variable
rate loans will pay more for their mortgages. Both of these conditions
will cool the economy. Third and most important is the psychological
factor. The instant homebuyers think prices are dropping they stop
panic buying, they stop buying period! Using the same psychology
they did when panic buying, now homebuyers will not buy in a declining
market. Down she comes. Foreclosures increase as heavily leverages
buyers cant cope with the addition burden, further cooling the market.
A downturn in the housing market means a downturn in the economy
as all home-related services generate less revenue. Home building,
mortgaging, selling, improvement. Less refinancing means less money
poured into the economy, stimulating an economic slump. In other
words a slump in the real estate market creates an economic slump.
According to experts a 10% decline in home prices will cause a 2%
decline in the economy. This is because the housing industry and
the money released into the economy through the housing industry
is 20% of the total economy
In conclusion: oil prices are now at their lowest, interest rates
are now at their lowest and home prices are at their highest right
at this moment. So what should we do???
The solution is to sell all heavily leveraged real estate and invest
in South Chine Sea oil exploration companies. The best company to
invest in is Husky Oil. Husky is a small cap Canadian based company,
aggressively searching for oil in the South China Sea. Here are
news releases from Husky:
Husky owns several South China Sea oil leases and is planning on
wildcat drilling within the next few years. They also have several
partnership agreements with CNOOC to explore for oil in the region.
Here a 2 major news releases from Husky:
News Release
For immediate release December 6, 2002
Husky Energy Continues South China Sea Expansion
Calgary, Alberta - Husky Energy Inc. announced today that it has
signed another petroleum contract with China National Offshore Oil
Corporation (CNOOC) for the 40/30 block in the Pearl River Mouth
Basin of the South China Sea. The block is located 100 kilometers
south of the Wenchang 13/1 and 13/2 oil fields, and 400 kilometers
southwest of Hong Kong. The new block is 6,704 square kilometers
(approximately 1.7 million acres) in size, in water depth averaging
600 to 1,500 meters. A single exploration well is required on the
block in the first three years of the contract.
"Our interests in the South China Sea are a key component of
Husky's long-term growth strategy," said Mr. John C.S. Lau,
President and Chief Executive Officer of Husky Energy. "The
40/30 block is our fifth petroleum contract with CNOOC and provides
Husky with a deep water exploration play to diversify our development
and exploration portfolio in China."
In September, 2002 Husky announced that it had signed petroleum
contracts for two exploration permits in the shallow water Beibu
Wan Basin, north of Hainan Island, and within 80 kilometers of the
Weizhou oil fields. Husky holds a 100 percent interest and is the
operator of all its South China Sea
exploration blocks. CNOOC has the right to participate in any development
programs with a 51 percent interest. Husky Energy Inc. is a Canadian-based
integrated energy and energy-related company headquartered in Calgary,
Alberta. Husky is a publicly traded company with shares trading
on the
Toronto Stock Exchange under the symbol HSE.
Certain information contained in this release may contain forward-looking
statements. Husky's annual report to
Shareholders and other documents filed with securities regulatory
authorities describes the risks, uncertainties
And other factors, such as changes to business plans that could
influence business reports.
July 26, 2001,
China National Offshore Oil Corporation (CNOOC) signed with Husky
Oil China Ltd the petroleum contract for Block 39/05 in the Pearl
River Mouth Basin of South China Sea. Husky Oil China Ltd. is a
subsidiary of Canadian Husky Energy Inc.
It is the second Petroleum Separation Contract CNOOC signed with
foreign oil companies this year. So far CNOOC has signed 148 petroleum
contracts with 70 companies from 18 countries and regions worldwide.
Husky to drill
first deep water well in Chinese waters
11-09-03 Canadian oil and gas company Husky Energy is expected to
drill the first deep water well in Chinese water, in the western
South China Sea, by the end of this year, a top official with the
China National Offshore Oil Corporation said.
CNOOC sees good hydrocarbon production prospects in that area of
the South China Sea, and aims to double oil and gas output there
in the next three years, from an annual 700 mm cm of oil and gas
equivalent now, said Zhu Weilin, President of CNOOC's subsidiary.
Zhu also said CNOOC has sweetened its production-sharing terms to
encourage more foreign investment in China's deep water oil and
gas exploration in the South China Sea.
"CNOOC will share the risk in the exploration period, which
is longer than in shallow water blocks," he said. "It
(Husky) is looking for rigs now to drill the well. Drilling is expected
to start late this year," he said.
Husky's well will be the first one drilled in China's deep-water
areas, which by definition means water deeper than 500 meters. Husky
signed a $ 10 mm production-sharing contract with CNOOC last December
to explore the 40/30 Block in the Pearl River Mouth Basin.
This was the first and only deal so far resulting from CNOOC's tender
of 12 deep water blocks for international investment made in February
2002. The Block is about 100 km southeast of Hainan Island, covering
an area of 6,704 sq km, with water depth ranging from 600 meters
to 1,500 meters.
The contract calls for three phases of exploration beginning with
a 1,600- meter exploration well. The minimum spending on exploration
is about $ 10 mm.
Zhu noted that for shallow water areas, foreign companies now take
100 % exploration risks in China, meaning that if they don't make
commercially-exploitable finds, they lose their investment costs.
CNOOC avoids such risks by only getting involved when foreign companies
make commercial discoveries. For new deep water prospecting, CNOOC
will provide up to 30 % of exploration costs, he said.
Zhu said CNOOC is now negotiating with several foreign companies
on other deep-water blocks delineated in February 2002. He said
foreign companies are likely to form consortia for joint oil and
gas exploration and production in these areas, in order to reduce
their exposure. CNOOC will also increase seismic surveying in the
deep-water areas, he said.
"We will conduct three-dimensional surveys and get to know
the (oil and gas) structures better," he said.
Also, CNOOC will start developing some of the marginal blocks discovered
over the last few years in the South China Sea. These efforts were
expected to raise its oil and gas production in the area by 60 %
or 100 % over the next three years, he said.
"We had shelved the development of these marginal discoveries
in the past due to cost concerns," he said. Now CNOOC is going
to rework the development scheme by grouping these discoveries together
and using common exploration and production facilities to make the
development feasible, he said.
Husky plans to invest $1.8 billion in its upstream assets in 2004,
including $1.15 billion in Western Canada. Activity in Western Canada
will
Focus on natural gas exploration in the British Columbia and Alberta
foothills, northeastern British Columbia and northwestern Alberta,
and oil
Exploration in the Central Mackenzie area of the Northwest Territories.
The 2004 East
Coast expenditures of $585 million include the construction
of the White Rose Floating Production, Storage and Offloading vessel,
and
drilling of the East Coast development wells for Terra Nova and
White Rose
projects. In addition, one offshore exploration well is planned
to be drilled
in the South Whale Basin, located approximately 350 kilometers south
of St.
John's, Newfoundland.
In the year 2004, international expenditures of $65 million include
the
planned drilling of at least two exploration wells and additional
seismic
programs in the South China Sea and East China Sea as well as three
development wells at Wenchang.
Capital expenditures in the midstream segment are planned at $100
million in 2004 primarily for debottlenecking initiatives at the
Lloydminster
Upgrader.
For the year 2004 production guidance, Husky estimates production
of 320 to 350 thousand barrels of oil equivalent per day. Light
oil and natural gas liquids (NGLs) production is estimated at 67
to 76 thousand barrels per day, medium oil is estimated at 35 to
40 thousand barrels per day, heavy oil
production is estimated at 105 to 115 thousand barrels per day,
and natural
gas production is estimated at 670 to 710 million cubic feet per
day.
Husky Energy is a Canadian-based integrated energy and energy-related
company headquartered in Calgary, Alberta. Husky Energy is publicly
traded on
the Toronto Stock Exchange under the symbol HSE.
Certain information in this release may contain forward-looking
statements. Actual future results may differ materially. Husky's
annual report to shareholders and other documents filed with securities
regulatory
authorities describe the risks, uncertainties and other factors,
such as
changes in business plans, estimated amounts and timing of capital
expenditures, drilling results, the uncertainty of estimates and
projections
of future production, that could influence actual results. Husky
assumes no
obligation to update forward looking statements should circumstances
or
management's estimates or opinions change.
Conclusion:
To protect
your portfolio against a housing slump and higher oil prices, put
some Oil in your portfolio. Husky is the best play in this drama.
Currently I
own several thousand shares of HSE, and I sold most of my real estate
holding.
I am not a licensed securities dealer
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