Sunday, August 07, 2005

Yergin Schmergin

Yeah, here I am, back from retirement. Y’all were getting used to those interesting, thoughtful and emotionally-appealing posts from my friend stc, but since my picture is on the cover of this rag, I still get to rant occasionally.

Anyway, I know y’all have been waiting for my recent thoughts about my favorite subject – OIL. (Actually I know that 99% of our 5 readers do not give a shit about oil, but hey, it’s MY blog. If ya wanna read something else, get yer own damm BLOG.

So this morning in the Houston Chronicle, Daniel Yergin published an editorial about all of the oil just waiting to come onto the market. Now if you don’t know Daniel Yergin, he is the Chairman of, Director of, or Grand PooBah of (or some such crap) the Cambridge Energy Research Associates – which happens to be the Harvard of the energy consulting firms. Not only that, but in 1990 he had the fabulous timing of publishing a tome on the history of petroleum, called “The Prize” about the same time that Bush the Elder was invading Kuwait and Iraq for the first time. Suddenly, he was all over the Sunday talk shows and the News Hour etc.

I read that tome, and found it interesting, but would never recommend it to someone who was not an oil geek.

Well to make a long story short, Danny Boy thinks there is just oodles of oil left in the world. And I have to admit that his word carries some weight with me (but not that much). After thinking about it (and after 3 glasses of Cabernet), here is what I think about his piece:

1. First of all, from the tone of the article, plus the fact that it is contrary to my own personal experience and contrary to what everybody else seems to be writing (including ChevronTexaco, Exxon, PFC Energy, etc.) I am not sure where Yergin is getting his information.
2. I would not put it past Yergin to shill for the administration, just to keep the riff raff from getting panicked about spending $50 to fill up their Suburban.
3. Danny Boy says that by 2010 the world will be producing over 100 million barrels of oil per day – a 20% increase from 2004. And where is this magic oil coming from – all over the place (except the US) including Canada, Kaskhstan, Brazil, Azerbaijan, Angola, Russian, Saudi Arabia, Nigeria, Algeria, and Libya. I don’t know about you, but that list, with the exception of Canada, is pretty scary to rely on.
4. Personally, I look at many of these countries for a living, and I don’t see what he seems to see. What I see is small volumes in very hard to get places, requiring not-yet-developed- technology to produce. I see the global oil industry trying to hit singles when they are down by 20 runs.

Some interesting connections and phenomena that I have observed are the following:

1. Major energy producing companies are valued in the marketplace (read Wall Street) at low price to earnings (P/E) multiples – indicating that investors do not think the AVALANCHE of money coming their way is long lived (ConocoPhillips and ChevronTexaco trade at P/E’s of about 9).
2. This seems justified to me because the major oil producers (Exxon, Shell, Chevron, ConocoPhillips, Total, BP etc.) seem to produce less oil every year than the previous one.
3. On the contrary, companies that have demonstrable long lived energy reserves (Canadian tar sand companies, coal companines, Comeco (uranianium mining), etc.) are trading at pretty high multiples to their earnings – meaning the investors are putting REAL MONEY down on the bet that long lived energy is going to be very valuable in the future

Am I certain that Yergin is blowing smoke? No! On the other hand, I have a large chunk of change riding on the likelihood of high oil prices for the forseeable future and well into my retirement. At least I put my money where my mouth is. Sometimes I wonder where Yergin’s mouth has been.