By Guest Author: Robert Williams, PhD, P.E.
The thrust of this industry perspective is to identify system supplier companies active in oil/gas process plants and to highlight their future earnings and charts for potential investment by our readers. The companies listed below are all international conglomerates that also provide process control systems for all the other industries as well. Therefore, their potential earnings are more dependent on the global economy rather than the oil/gas industry in particular.
Refineries, petro-chemical plants and all oil/gas processing facilities are extremely hazardous, i.e. explosive, processes because of the petroleum products and the very high pressures and temperatures involved in these processes. To this extent the industry has established stringent standards as to the safety of instrumented systems in order to protect personnel, environment and the process plant. In order to provide normal process control a distributed process control system (DCS) is engineered to provide central control of each process unit within the plant, e.g. refinery. In order to provide overall emergency shutdown of each process unit and the complete plant a safety instrumented system (SIS) is engineered for each unit. The SIS is a physically separate system from the DCS and generally utilizes dual or triple modular redundancy techniques to provide the extra reliability and availability in the event of process upset condition arising. Another process protection layer is provided by utilizing relief valves to relieve any high pressures that may arise during an upset condition.
Read Entire Post “Industry Perspective: Process Control Systems Suppliers” Here
Filed under Industry Spotlight by Tate Dwinnell
Quite a bit has been made of the dollar rally recently and its contribution to the demise of commodities over the last several weeks, so I wanted to put up a 10 year chart of the US Dollar Index to get an idea of just how far the US dollar may rally before pulling back, which could be the catalyst for a furious snap back rally in commodities.
As I’ve said to members a couple weeks ago, I think the major bull run in commodities is in great jeopardy and I’d be selling into a major rally, but in the shorter term there is going to be tremendous profit potential across gold, oil, coal, etc. We’re seeing some of that today which could be the beginning.
Look at the major downtrend of the dollar and the spike over the last month. This rally is nearly vertical and the largest in 3 years. If you believe that the dollar is going to be able to sustain this kind of move and blow through major resistance of a 6 year downtrend, then keep shorting commodities. If you believe the dollar will fail at this line of resistance, at least for a few weeks then place your bets!
More on this topic
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Why Plunging Commodity Prices Are Great for the Stock Market
(Gold Stocks Today, 4/17/13)
Stock Market Crash Coming, Then More QE & Then Commodity Price Spikes
(Gold Stocks Today, 4/13/13)
Every Commodity Dips Ahead Of The FOMC
(The Market Financial, 5/1/13)
Filed under Industry Spotlight by Tate Dwinnell
Aug
07
2008
Commodities Charts
Aug
07
2008
I was doing some searching around for a site with good free commodities charts and thought I’d share a list of decent resources. Ok, make that resource. I’ve had a heck of a time finding free charts of commodities, so if anyone has suggestions please leave them in the comments section. It’s greatly appreciated.
It’s interesting to look at historical prices of orange juice futures, frozen pork bellies and lumber. .. some of the commodities you never hear about.
Of course it’s also interesting to take a look at the parabolic runs in corn, wheat and oil. One decent free resource is TradingCharts.com. It’s not the most user friendly site you’ll ever use but they do have all the commodities charts and if you display on a monthly basis you can pull up a 10 year chart.
Can you say bubble?
The corn bubble appears to be popping.. don’t expect to ever see $750 again
Very skinny heady and shoulders top on wheat? 1250 will never be seen again.
Oil at $110 in the near future is all but a given and I think if we can’t hold there, we could see $90 by next year. Even if oil drops to $75, if still retains its bullish uptrend.
I’m looking for some kind of snap back relief rally in many of these commodities, but the longer term picture (6 months to year) doesn’t look good if you’re a commodity bull.
More on this topic
(What's this?)
Why Plunging Commodity Prices Are Great for the Stock Market
(Gold Stocks Today, 4/17/13)
Stock Market Crash Coming, Then More QE & Then Commodity Price Spikes
(Gold Stocks Today, 4/13/13)
James Dines Follows His Prediction of a Commodity Crash with Another One the Mainstream Media Is ...
(Jutia Group, 5/3/13)
Every Commodity Dips Ahead Of The FOMC
(The Market Financial, 5/1/13)
Filed under Industry Spotlight by Tate Dwinnell
Apr
30
2008
Peak Oil, Peak Water.. We’re All Gonna Die
Apr
30
2008
Let’s keep this in context.. gloom and doom sells. Period. I’m not disputing the fact that scarce commodities are becoming increasingly valuable but I don’t buy all the gloom and doom either. That being said, I just read a good article on Peak Water from Wired.
Here are the cliffs notes for those short on time:
* 1.1 billion people, about one-sixth of the world’s population, lack access to safe drinking water.
* Shortages are reaching crisis proportions in even the most highly developed regions, and they’re quickly becoming commonplace in our own backyard, from the bleached-white bathtub ring around the Southwest’s half-empty Lake Mead to the parched state of Georgia, where the governor prays for rain.
* … This is not to say the world is running out of water. The same amount exists on Earth today as millions of years ago — roughly 360 quintillion gallons. It evaporates, coalesces in clouds, falls as rain, seeps into the earth, and emerges in springs to feed rivers and lakes, an endless hydrologic cycle ordained by immutable laws of chemistry. But 97 percent of it is in the oceans, where it’s useless unless the salt can be removed — a process that consumes enormous quantities of energy.
* Freshwater is the ultimate renewable resource, but humanity is extracting and polluting it faster than it can be replenished.
* If moneyed special interests determine the going price of water, eventually they will edge out users who can’t afford to pay top dollar. Agriculture will be squeezed out, as will water rights for poorer communities. And the environment, it goes almost without saying, will twist in the wind
* "People need to get away from the idea that you just turn on the tap and all the water you want is there"
* Stripping seawater of its salt is a pricey way to obtain freshwater, cost-effective only for high-end uses like drinking, but not bathing or watering gardens.
* The country (Australia) was founded during the second-worst drought in its history, but the worst dry spell is unfolding right now. Rainfall, which has declined to 25 percent of the long-term average, is projected to plummet another 40 percent by 2050.
* The price of beer has been rising since a jump in barley prices, a development that many joke could lead to large-scale civil unrest. But it’s no joke: The global price of wheat hit its highest level in decades in December, partly due to Australia’s water shortage.
* Americans already use 20 percent less water per capita than they did a generation ago. Gains in industrial use are even more impressive: A ton of US steel manufactured today requires just 2 percent of the water it did in the 1940s. Still, we are using more than we have. Can we change enough, and soon enough?
Investing in companies that control, distribute and/or purify water are probably safe bets over the next several years. Two ETF’s provide a diversified way to do that – the PowerShares Water Portfolio (PBW) and the Claymore S&P Global Water Index ETF (CGW)
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Past Peak Oil
(Energy and Capital, 2/22/13)
How to Profit From Accelerating Global Energy Crisis
(Gold Stocks Today, 2/21/13)
U.S. May Be The Next Saudi, But Peak Oil Is Not Going Away
(EconMatters, 11/15/12)
Who Moved My Peak Oil?
(Wall Street Sector Selector, 10/9/12)
Filed under Industry Spotlight by Tate Dwinnell
A major international oil/gas industry perspective is that Exxon Mobil, British Petroleum, Royal Dutch Shell, Chevron, Total, ENI, etc. historically prevailed in global exploration and production developments. However, this perspective must now be amended to include the national oil companies of Brazil, Russia and China. Relatively new majors are Gazprom (Russia); Petrobras (Brazil) and three Chinese companies namely: 1) China National Offshore Oil Company, CNOOC, (SNP. NYSE); 2) China Petroleum & Chemical, Sinopec, (SNP.NYSE); and 3) PetroChina Corporation Ltd., (PTR.NYSE). The three Chinese oil companies is the thrust of this fourth oil/gas industry perspective. Please note that only the NYSE stock symbols are provided although these Chinese Corporations are also listed in Shanghai, and/or Hong Kong and/or London. SNP is listed on all four exchanges.
CEO (CNOOC Ltd.) is an independent offshore oil and gas exploration and production company with four offshore China production areas namely, Bohai Bay, Eastern, Western and Southern South China Sea. CEO is an offshore producer in Indonesia, Australia and Africa. In 2006 CEO acquired offshore licenses in Nigeria. Market Capitalization is $67,120 millions with estimated P/E of 16.7.
PTR (PetroChina Ltd.) activities include petroleum and natural gas within four business segments; 1) Exploration and Production, 2) Refining and Marketing, 3) Chemicals and Marketing, and 4) Natural Gas and Pipelines. PTR was established as a joint stock company as part of the restructuring of the China National Petroleum Corp. (CNPC). CNPC is the controlling shareholder of PTR with 88.21% shares. Market Capitalization is $274,350 millions with estimated P/E of 13.9.
SNP (China Petroleum & Chemical Co.) is an integrated oil, gas and chemical company with operating segments for exploration, production, refining, marketing, distribution and chemical manufacturing/distribution. Market Capitalization is $98,477 millions with estimated P/E of 12.4. SNP was setup in February, 2000 by China Petrochemical Corporation as the sole initiator, pursuant to the Company Law of the People’s Republic of China. SNP issued 16.78 billion H shares in Hong Kong, New York and London in October, 2000. The Company floated 2.8 billion A shares in Shanghai in July 2001. As of end 2006, The Company’s total number of shares was 86.7 billion, of which 75.84% was held by the State through Sinopec Group, 19.35% by H share holders and 4.81% by investors in China. SNP website provides stock quotations for all exchanges they are listed on. CEO, PTR and SNP company names above are hyperlinked to each company’s website. [A shares are principally for mainland China; H shares are listed on Hong Kong, New York and London]
PS
The following company is not included in the above perspectives but is of interest because of their Chinese exploration and development activities. Ivanhoe Energy (IVAN) is an independent international heavy oil development and production company. Core operations are in the United States and China. IVAN currently has oil production at the Dagang Project, in northern China and a production sharing contract for an exploration and production block in the Sichuan Basin.
Ivanhoe Energy Inc. (IVAN) plans to start the second phase of gas exploration at the Sichuan project in China through its subsidiary Sunwing Zitong Energy Ltd. The company says the new phase has drawn interest from Mitsubishi Gas Chemical Company Inc., which has a 10 per cent holding in the project. IVAN has a partnership with Mitsubishi Gas Chemical Co. and a 30-year production-sharing contract with PTR. IVAN recent stock price was 1.38 +0.03 (2.22%) Jan 28 4:00pm ET. Long term traders may consider this stock as a long term small cap investment which would be considered highly speculative.
Industry Perspectives
1) The Chinese government in November, 2007 ordered the nation’s refiners to run their plants at full capacity to increase supplies and end fuel shortages. Local governments were urged to set up an early warning system to ensure sufficient oil supplies at filling stations. SNP has almost 29,000 retail fuel outlets, according to its Web site.
2) SNP, a sponsor of this year’s Beijing Olympic Games, supplied almost two-thirds of China’s refined oil products in 2006, according to its Web site. China’s economy expanded 11.5 percent in the first nine months of last year, spurring demand for fuels and chemicals to run automobiles and factories.
3) PTR’s service stations totaled 18,846, an increase of 912 stations, or 5.09 percent increase from the same period last year.
4) For the period from January to September this year, the Company processed a total of 611 million barrels of crude oil, representing an increase of 30.4 million barrels, or 5.2 percent increase from the same period in 2006. Additionally, PTR’s capability to produce gasoline and diesel complying with the National Phase III and IV Motor Vehicle Emission Standards has been continuously developed.
5) CEO Limited announced its business strategy and development plan for 2008 with targeted net production of 195-199 million barrels of oil equivalent compared with the estimated net production of 169-171 million barrels for 2007. During 2008 ten new projects are expected to come on stream, including major offshore China projects. Source: Rigzone
6) Following the completion of the Lanzhou-Yinchuan Gas Pipeline, linking the West-East Gas Pipeline and Sebei-Xining-Lanzhou Gas Pipeline, PTR’s four key natural gas regions – Tarim, Changqing, Qinghai and Southwest – have been successfully connected,
7) There are four energy laws in China covering coal, electricity, energy conservation and renewable energy, but none on petroleum, natural gas and nuclear energy. Draft energy legislation won’t be ready in time for lawmakers to read at the annual session of the National People’s Congress ruling out discussion on a unified national energy body at the parliamentary session in March, 2008. The draft law emphasizes a unified management system to plan, run and supervise China’s energy sector, which is currently managed by a number of government departments and agencies.
8) Author has consulting engineering experience with China National Petroleum Company (CNPC) involved in the construction of a diesel oil pipeline in Pakistan. Consulting experience included coordination meetings in Beijing, Dubai and London. Gambay
9) CNPC has cooperated with Canadian counterparts in oil sands, including oil sands development, pipeline transportation, trading and technology exchanges, etc. The company has made an extensive study in terms of oil sands resources, market and technology and acquired 11 leases auctioned by provincial government of Alberta early this year. CNPC will further cooperate with the Canadian petroleum sector and jointly explore collaboration in oil sands development, crude oil pipeline construction and downstream upgrading.
10) Chen Tonghai, former general manager of the China Petroleum and Chemical Group (SNP), has been expelled from the Chinese Communist Party (CCP) and the government and officially charged with corruption. The CCP Central Commission for Discipline Inspection and the Ministry of Supervision announced the moves in a statement after a joint investigation on Chen, who was also the Sinopec Party chief, which began in June last year. Chen had been accused of taking bribes to help others, including his mistress, make unlawful profits, and he also led a "corrupt life," according to the authorities. Source: Rigzone.
11) China plans to speed up construction of oil and gas pipeline networks to enable more efficient delivery and better allocation of storage in the country, according to the country’s cabinet, known as the State Council. The national plan may coordinate separate plans set by China’s two oil majors – PTR and SNP and will likely speed up building of strategic and commercial oil reserves. PTR and SNP existing and planned domestic oil and gas pipeline joint ventures total more than 10, including a flagship west-east gas pipeline and a Sichuan-Shanghai gas pipeline. Source: Downstream Today.
12) China plans to expand natural gas consumption from 3% (2006) to 5.3% (2010). Natural gas will be transported from Western China and also imported from Russia, Turkmenistan and other Central Asian countries.
13) Similar to international companies, SNP has set up a standardized structure of corporate governance and adopted a management system of centralized decision-making, delegated authorities in management and business operations handled by specialized business units.
14) Coal accounts for 70% of China’s total energy consumption with reserves of over 1 trillion tons, or at least 100 years.
15) November 30, 2007, Anchorage, Alaska – Governor Sarah Palin announced that five companies had submitted applications for the exclusive right to build a natural gas pipeline to transport North Slope gas to market. The applicants are Alaska Gasline Port Authority, AEnergia LLC, TransCanada, Sinopec (SNP) and Alaska Natural Gas Development Authority. Source: State of Alaska website The Alaska gas pipeline project and its history will be the subject of a future Industry Perspective since the author was involved in the 1980 feasibility study, definitive cost estimates and frost heave test sites instrumentation and data acquisition.
16) China delivers oil revenue to Sudan as well as Chinese military equipment, including fighter planes and helicopters. Diplomatic support is also delivered, especially in the United Nations. Sudan is accused internationally of genocide in Darfur. Human rights groups claim Sudan systematically massacre civilians for clearing oil-producing areas. US companies are prohibited from investing in Sudan.
17) Last year China signed a $70 billion oil deal with Iran. Iran/Chinese business relationships will impact UN activities to isolate Iran diplomatically.
18) Is China democratizing? What are the prospects for democracy in China? Chinese leaders do not think of democracy as people in the West generally do, but they are increasingly backing local elections, judicial independence, and oversight of Chinese Communist Party officials. How far China’s liberalization will ultimately go and what Chinese politics will look when it stops are open questions. For Professor John L. Thornton paper addressing this subject please use this Council of Foreign Affairs link. Professor Thornton is at the School of Public Policy and Management at Beijing University.
Summary
The above perspectives include both financial and political considerations. Trading these three Chinese stocks is at each trader’s discretion based on their fundamental and technical analysis and their political conscience. Technically the charts above have responded to overall global economic weakening but others could consider the present pricing as potential trades.
Is this a conundrum or what? To invest or not to invest, that is the question. My suggestion is to add these stocks to your watch list to see if any upwards trends develop. Your personalized trading strategy and plan will define short and long term trends periodicity and let your plan’s money management take care of any down trends. That is, if you are not in a politically correct trading mode.
The more experienced may wish to consult Mr. Elliott and Mr. Fibonacci for guidance as to where and when to trade these stocks. If Mr. Elliott and Mr. Fibonacci are kind enough to provide such guidance we would be most pleased if you could share such guidance with us. It would be most interesting to determine if waves and retracements apply in these complex global scenarios.
Non-Industry Perspectives
A non-financial recommendation to those would-be Great Wall visitors is to use the cable car (see ticket thumbnail photo) which will not stress your calf muscles since portions of the wall are very steep, without steps, and easier traversed Author Bio
Robert is a valued contributor to Self Investors and provides great insight into the oil industry. He has 40 years of experience which includes oil/gas engineering in crude oil/petroleum products/natural gas, refining, processing and pipelines on all continents, except South America and Antarctica, from Alaska and Australia pipelines to S.E. Asia offshore, from UK North Sea to Los Angeles fuel truck racks and from Romanian pipelines to West Africa FPSO.
Chinese Proverbs
“Leave a good name in history; be remembered”
“Let every individual give full play to his or her talent”
“An outstanding man gives an air of sanctity to his birthplace; a fair place tends to produce outstanding people
Disclaimer: Author has no position in the companies mentioned above
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Investing in Coal in China
(Energy and Capital, 5/7/13)
Chinese Manufacturing Slump
(Wealth Daily, 5/2/13)
Fueling China's Crude Addiction
(Energy and Capital, 4/5/13)
(F) Ford Motor Raises Stake in Chinese Joint Venture
(Stock Blog Hub, 5/6/13)
Filed under Industry Spotlight by Robert Williams
Jan
17
2008
2030 Projections for the Oil & Gas Industry
Jan
17
2008
Oil & Gas Industry Perspective: What’s Ahead
by Robert Williams
Although these industry perspectives are designed to identify companies actively involved in all oil/gas industry aspects this issue focuses on year 2030 projections and Energy Industry Exchange Traded Funds (ETF). The first Industry Perspective highlighted oil/gas engineering companies and the second Industry Perspective focused on offshore crude oil exploration and production. The future energy use projections in this Perspective are based on industry reports issued by US Energy Information Administration (www.eia.doe.gov); International Energy Agency (www.iea.org; www.worldenergyoutlook.org) and American Petroleum Institute (API: www.api.org). The following perspectives are provided rather than churning out data tables and pie charts. Pie charts you can’t eat but candlestick charts you can take to the bank.
The question is will there be enough oil and gas in 2030 or will there be an excess due to Alternative Energy developments? Will we be driving hydrogen-fueled automobiles by 2030?
Industry Perspectives
1. Energy usage in the United States is forecast by the Energy Information Administration (EIA) to increases 34% in the next twenty-five years, or 1.1% annually.
2. Fossil fuels (oil, natural gas, and coal) account for 88 percent of the growth [out to 2030],” states the EIA “with coal use increasing by 53 percent, petroleum by 34 percent, and natural gas by 20 percent over that period.”The market share of oil, gas, and coal is expected to be approximately 86 percent in 2030, the same share as today. Globally, the story is much the same, with fossil fuels accounting for 83% of the increase in projected demand out to 2030.
3. Energy consumption continues to increase because of population gains and higher per capita usage from greater wealth and access to new appliances and devices
4. Globally, the Organization for Economic Co-operation and Development’s (OECD) International Energy Agency projects a 52% rise in energy consumption by 2030, a 1.6% annual increase led by developing countries many of which are expected to escape energy poverty and improve their living standards.
5. In 2030 the average real price of crude oil is projected to be $72 per barrel in 2006 dollars or about $113 per barrel in nominal dollars.
6. $100 per barrel crude oil could possibly be a psychological barrier to spur alternate energy development and really affect transportation consumption.
7. Worldwide new refinery and refinery expansion programs will be on-stream in 2009 and 2010 which will maintain crude oil demand, with a definite shift to heavy crude oil/tar sands refining.
8. The increase in China’s energy demand between 2002 and 2005 was equivalent to Japan’s current annual energy use
9. India is set to become the world’s third largest oil importer after the US and China before 2025, according to the International Energy Agency (IEA). India’s energy needs would overtake Japan as the third largest net importer of oil before 2025.
10. Despite high crude oil prices economic growth has been very strong especially for China and India but also globally. Is this the reason for high crude prices or pure speculation based on negative inventory reports and Nigerian violence news reports (as reported Jan 2, 2008)?
11. Is ongoing global warming going to continue affecting energy consumption for winter heating and summer cooling? Natural gas is extensively used for electric power generation.
12. Energy is consumed in four economic sectors of residential, commercial, industrial and transportation. All these economic sectors will continue to expand their oil and gas consumption.
13. Crude oil is still required for road asphalt, roofing, petrochemical plants, packaging waxes, pharmaceuticals, adhesives and even cosmetics. Transportation has been and still is almost totally dependent on petroleum products. Natural gas is still required for chemical and rubber manufacture.
14. Crude oil production has been ongoing since August 1859 and overproduction has driven prices down occasionally, but only temporarily.
15. China is the world’s manufacturing hub (if you had not noticed) due to current cheap labor costs, its market size and rapid technological modernization. Next Oil & Gas Industry Perspective will highlight China oil companies and their global development.
16. The transition to alternative and renewable energy will take a very long time which will be supported only by continued high crude oil prices.
17. US Strategic Petroleum Reserves (SPR) are currently just less than 700 million barrels of crude oil. Congress has designated that the SPR shall hold 1 Billion barrels whereas President Bush has targeted 1.5 Billion barrels in 20 years. The federally-owned oil stocks are stored in huge underground salt caverns along the coastline of the Gulf of Mexico. Current days of import protection in SPR are 56 days. The IEA requirement is for 90 days of import protection. Average price paid for oil in the Reserve is $27.73 per barrel
18. SPR allows the United States to meet part of its International Energy Agency obligation to maintain emergency oil stocks, and it provides a national defense fuel reserve.
19. Author has five years engineering through to operations experience with Saudi Strategic Storage Program where petroleum products were stored in underground tanks protected for nuclear, chemical and biological warfare. Saudis do not need to store crude oil underground.
20. Home heating oil reserves (in above ground storage tanks) also exists in North East US of about 2 million barrels.
21. New Federal buildings have new target codes to achieve at least 30% energy efficiency over prevailing building codes.
Oil & Gas Industry ETF
1) SELECT SECTOR SPDR -ENERGY (XLE: AMEX) – Includes companies from the following industries: oil, gas, energy equipment & services.
2) OIL SVC HOLDRS (OIH: AMEX) -. There are currently 18 oil service industry companies included in the investment most of which were identified in previous Industry Perspectives.
3) CLAYMORE ETF TRUST ENERGY (ENY: AMEX) – Correspond generally to the performance of an equity index called the Sustainable Canadian Energy Income index. The index is comprised of 30 stocks listed on the Toronto Stock Exchange (the "TSX"), AMEX, NASDAQ or NYSE.
4) ISHARES TR DJ OIL EQUIP (IEZ: NYSE Arca) – Includes companies that are suppliers of equipment or services to oil fields and offshore platforms, such as drilling, exploration, engineering, logistics, seismic information services and platform construction.
5) ISHARES TR DJ OIL&GAS EXP (IEO: NYSE Arca) – Includes companies that are engaged in the exploration for and extraction, production, refining, and supply of oil and gas products.
6) ISHARES TR DJ US ENERGY (IYE: NYSE Arca) – Includes companies in the following sectors: oil and gas producers and oil equipment, services and distribution.
7) ISHARES TR S&P GBL ENER (IXC: NYSE Arca) – Includes oil equipment and services, oil exploration and production, and oil refineries.
8) POWERSHARES ETF TRUST ENERGY SEC POR (PXI: AMEX) – The index consists of approximately 60 U.S. energy companies. These companies are principally engaged in the business of producing, distributing or servicing energy-related products, including oil services, pipeline, and solar, wind and other non-oil based energy.
9) PROSHARES TR ULTRA O&G PRO (DIG: AMEX) – The investment seeks daily investment results which correspond to twice the daily performance of the Dow Jones U.S. Oil & Gas index. The fund normally invests in equity securities and/or financial instruments (including derivatives).
10) PROSHARES TR ULTRASHORT O&G (DUG: AMEX) – The investment seeks daily investment results which correspond to the inverse of the daily performance of the Dow Jones U.S. Oil & Gas index. It may employ leveraged investment techniques in seeking its investment objective.
Please note that DIG and DUG are inverse to each other. Is there a profitable trading strategy that applies to switching between these two funds?
Summary
Hydrocarbons (crude oil and natural gas and their derivatives) are expected to remain the mainstay of the U.S. energy sector for the foreseeable future. Hydrocarbons are projected to remain the dominant energy source on a worldwide basis, as well. However, it is important to note that technology development has made current hydrocarbon use much more environmentally friendly compared to several decades ago (e.g., reduced sulfur in gasoline and diesel, reduced toxics in gasoline), and additional technology development promises to continue this trend.
Brief Bio
Author’s 40 years experience includes oil/gas engineering in crude oil/petroleum products/natural gas refining, processing and pipelines on all continents, except South America and Antarctica, from Alaska and Australia pipelines to S.E. Asia offshore, from UK North Sea to Los Angeles fuel truck racks and from Romanian pipelines to West Africa FPSO.
“You can cause happiness wherever you go, or whenever you go”
“A bus or a train stops at a station, so why do I have a work station on my desk”
“The stock market provides hope and greed which is easily converted to fear and pain”
Filed under Industry Spotlight by Tate Dwinnell
ABOUT: The following Oil & Gas Industry report is provided by guest author Robert Williams, PhD, P.E., and industry executive with over 40 years experience working for major oil corporations as well as smaller companies all across the globe. Robert has extensive petroleum, water and electrical industries experience regarding Supervisory Control and Data Acquisition (SCADA) systems, Management Information Systems (MIS/IT), Distributed Control Systems fire & gas/emergency shutdown systems, instrumentation, metering, communications, security/CCTV and electrical engineering on such major projects as Shell Bonga FPSO, Saudi Strategic Storage Project, Libyan Water Pipeline, Trans Alaska crude oil pipeline, Alaska Natural Gas Transportation System, Occidental Piper B and Saltire offshore platforms and many other worldwide projects.
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Oil & Gas Industry Perspective Part II (Offshore)
by Robert Williams, PhD, P.E.
See Part I – Oil & Gas Engineering
The major oil supplier areas of the world are Middle East (specifically Saudi Arabia), West/North Africa, Russia, Venezuela, Mexico, Indonesia and including the North American suppliers and consumers, USA and Canada. Major oil consumers are USA/Canada, Europe, Japan, China, India/S.E. Asia and Australia/New Zealand.
The crude oil process of converting to automobile gasoline involves finding the oil or gas by seismic surveys, drilling and extracting, producing and transporting crude oil. Crude oil may be refined at the supplier’s origin country and the petroleum products exported or the crude oil is transported for refining in the consumer country. Natural gas is pipelined to consumers otherwise it has to be transported as liquefied natural gas (LNG) tankers.
Oil and gas industry capital expenditures include exploration permits from national governments, seismic surveys, either buying or leasing drilling rigs, onshore/offshore processing facilities, crude oil/products pipelines and/or tankers including loading and offloading port facilities, crude oil/products storage terminals, fuel truck loading racks and gasoline stations.
These industry perspectives are designed to identify companies actively involved in all of the oil/gas industry aspects and specifically highlight those for potential investment on a long or mid-term basis. There are many companies who are industry leaders and there are others that have established a niche in these industries Their charts will be provided to identify possible long trades. No speculation will be made as to short or options trades in these companies. The first Industry Perspective highlighted oil/gas engineering companies whereas this Industry Perspective will focus on offshore crude oil exploration and production.
Finding and producing oil and natural gas deposits, converting these into petroleum products and transporting them to market makes the oil/gas industry the most international of all industries. Many offshore production and supplier companies are exchange listed in London, Oslo, Amsterdam or other exchanges, including Australia. These companies have not been identified in this Industry Perspective No. 2. Please contact author at riwilliams1@cox.net if you have international trading access and wish to know more about these companies.
Industry Perspectives
1. Maintained high crude oil prices are initiating new and old exploration fields to be developed. For example, Chile has just announced exploration and production contracts for new onshore development fields.
2. Driven by increased demand in China and India, Asia is now the largest consumer of oil products.
3. The production of oil and gas reserves is increasingly moving to remote, challenging locations, such as Russia’s Sakhalin Island, offshore West Africa (Angola, Nigeria, etc.), and Canadian arctic and deep or ultra deep offshore locations including the Gulf of Mexico.
4. A major oil company has made a new oil discovery in the ultra-deep offshore West African coast in water depths of approximately 6000 feet. Ultra-deep is an industry term which especially applies to the Gulf of Mexico where oil exploration and new discoveries are at depths of up to10,000 feet.
5. Anadarko Petroleum (APC) has made an oil discovery at its West Tonga prospect in the deepwater Gulf of Mexico. The discovery well, located in approximately 4,700 feet of water, was drilled to a total depth of 25,680 feet. The well was drilled by Diamond Offshore’s (DO) semi-submersible, Ocean Valiant. (Source: Rigzone 12/05/2007)
6. Chevron and Massachusetts Institute of Technology announced an energy research program to develop remote, ultra-deepwater exploration and production technology. The $5 million Chevron Remote and Ultra-Deepwater Research Program will focus on developing the technologies required to access hydrocarbons in water depths up to 10,000 feet in a safe, cost effective and environmentally friendly manner. (Source: Rigzone Newsletter)
7. Mexico’s national oil company (Pemex) has only nine years of proven oil reserves at current production rates, and the company is hoping to find new deposits in deeper waters of the Gulf to compensate for declining output at its traditional areas. Pemex plans to begin producing oil at deep water projects in 2014.
8. China’s electricity consumption has exceeded planned expectations to the extent that is affects reliability, i.e. shortages and many parts of China have electricity rationing programs. World Bank projections are for a doubling of energy consumption from 2000 to 2020. China are building a semi-submersible capable of deep and ultra-deep drilling for their offshore fields which is part of their long range planning to alleviate their dependence on imported crude oil.
9. The Shell Bonga field, offshore Nigeria, required a complex and extensive subsea system to extract the crude oil from 3000 feet deep water. Production facilities comprise one of the world’s largest Floating Production, Storage and Offloading vessels (FPSO) and deepwater subsea infrastructure. Author was onboard the Bonga during topsides assembly, prior to sailing to Nigeria, and can wholeheartedly verify its size. An FPSO is effectively a 2 million barrel stationary tanker with an offshore production platform on its deck.
10. Bonga subsea well clusters were drilled and completed from a mobile drilling unit and connected to the centrally located FPSO by production flowlines, risers and control umbilicals. The project’s estimated recoverable resources add up to more than 600 million barrels of oil. Production began in November 2005 and the current production is 225,000 barrels of oil and 150 million standard cubic feet of gas per day. Crude oil is offloaded onto tankers and gas is pipelined to onshore facilities. Field development costs were approximately $3.5 billion and the initial exploration contract was agreed in 1993. Source: Royal Dutch Shell (RDS)
11. An umbilical is an assembly of hydraulic hoses which can also include electrical and/or fiber optic cables used to control subsea structures from a platform or a surface vessel. A Riser is a pipe or assembly of pipes used to transfer produced fluids from the seabed to the surface facilities or to transfer injection fluids, control fluids or lift gas from the surface facilities to the seabed.
12. Offshore fixed platforms have been the norm for continental shelf oil/gas drilling and production; tension leg platforms are used to 3,000 feet water depths and floating production facilities are used for deeper waters. A Tension Leg Platform is a floating production unit anchored to the seabed by taut vertical cables, which considerably restrict its heave motion, making it possible to have the wellheads on the platform.
13. A semi-submersible is a floating drilling vessel that is supported primarily on large pontoon-like structures submerged below the sea surface. The operating decks are elevated above the pontoons on large steel columns. This design minimizes loading from waves and wind. Semi-submersibles can operate in a wide range of water depths, including deep water. They are usually anchored with six to twelve anchors tethered by strong chains and wire cables, which are computer controlled to maintain the semi submersible at the programmed location.
14. In ultra deepwater, riser systems become a technical challenge and a major part of the field development costs. Large external pressures in these great depths cause flexible solutions to run into weight and cost problems.
Major Oil/Gas Companies
Exxon Mobil Corporation (XOM); BP (BP) Chevron Corp. (CVX); Conoco Phillips (COP); Occidental Petroleum Corporation (OXY); Marathon Oil Corporation (MRO); Anadarko Petroleum Corporation (APC) are some of the international oil and gas companies involved in the exploration and production of crude oil and natural gas; the manufacture of petroleum products, and the transportation and sale of crude oil, natural gas and petroleum products. APC is a oil and gas exploration and production company whose major areas of operations are located in the United States, the deepwater of the Gulf of Mexico and Algeria. Anadarko also has production in China, Venezuela and Qatar, a development project in Brazil and is executing exploration programs in several other countries.
Independent Oil/Gas Companies
Apache Corp. (APA); Devon Energy Corporation (DYN); Murphy Oil Corporation (MUR) are independent energy companies that explore for, develop and produce natural gas, crude oil and natural gas liquids. APA’s exploration and production interests are focused in the Gulf of Mexico, the Gulf Coast, East Texas, the Permian Basin, the Anadarko Basin and the Western Sedimentary Basin of Canada. It has interests in onshore Egypt, offshore Western Australia, offshore the United Kingdom in the North Sea (North Sea), and onshore Argentina. DYN owns oil and gas properties principally in the United States and Canada and, to a lesser degree, regions located outside North America, including Azerbaijan, Brazil and China. Murphy’s exploration and production include the United States, Canada, the United Kingdom, Ecuador, Malaysia and all other countries.
Oil/Gas Offshore Services Companies
Transocean Inc. (RIG) is an international provider of offshore contract drilling services for oil and gas wells. RIG owns or operates 89 mobile offshore and barge drilling units. Its fleet included 32 high-specification semi-submersibles and drill-ships, 20 other floaters, 25 jack-ups and four other rigs as of February 2, 2007. RIG’s primary business is to contract these drilling rigs, related equipment and work crews primarily on a dayrate basis to drill oil and gas wells.
Diamond Offshore Drilling, Inc. (DO) provides contract drilling services to the energy industry worldwide and is also engaged in deepwater drilling with a fleet of 44 offshore drilling rigs. The Company’s fleet consists of 30 semi-submersibles, 13 jack-ups and one drill-ship. The Company offers a range of services worldwide in various markets, including the deep water, harsh environment, conventional semi-submersible and jack-up markets. The Company provides offshore drilling services to a customer base that includes independent oil and gas companies and government-owned oil companies.
Schlumberger Limited (SLB) is an oilfield services company supplying a range of technology services and solutions to the international oil and gas industry. SLB subsidiary WesternGeco is an advanced surface seismic company. SLB’s products and services include the evaluation and development of oil reservoirs (controlled digging, pumping and testing services), well construction and production consulting, and sale of software programs. The Company also offers storage tank and seismic monitoring services.
Halliburton Company (HAL) provides a variety of services, products, maintenance, engineering and construction to energy, industrial, and governmental customers. Its six business segments are: Production Optimization, Fluid Systems, Drilling and Formation Evaluation, Digital and Consulting Solutions, Energy and Chemicals, and Government and Infrastructure. It refers to the combination of Production Optimization, Fluid Systems, Drilling and Formation Evaluation, and Digital and Consulting Solutions segments as its Energy Services Group (ESG).
Flowserve Corporation (FLS) is a manufacturer and aftermarket service provider of flow control systems. The Company develops and manufactures precision-engineered flow control equipment, such as pumps, valves and seals, for critical service applications. It produces industrial pumps, industrial valves, control valves, nuclear valves, valve actuators and precision mechanical seals, and provides a range of related flow management services worldwide, primarily for the process industries.
Some companies involved with deep sea oil/gas developments have significant earnings projections.
Summary
The oil/gas companies combined performance charts (see chart) indicates a general uptrend and are all indicating increasing earnings. Please note that recent markets declines do affect these companies’ stock pricing but may very well provide excellent entry points depending on your market timing criteria.
The world is continuously expanding both crude oil consumption and development of new crude oil sources. See the next Industry Perspective for oil/gas projections to 2030.
——
If you have questions or comments for Robert regarding this report or the oil industry, you may submit them here at the blog using the comments form or click "Contact" above to submit and I will forward those on.
Disclaimer: The author Rober Williams, currently has no positions in the companies above. I do have a long position in Transocean (RIG).
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Filed under Industry Spotlight by Tate Dwinnell
Have home builders bottomed? That’s the million dollar question and a question that has popped up frequently recently following a two week 20 – 30% surge in shares of home builders. I’ll tip toe half way out the limb and say yes and no. When I’m looking for a bottom in anything, whether it be an entire sector or individual stock I’m looking at several key criteria:
FUNDAMENTALS
1. Is There a Rally On Bad News?
When a true bottom has been put in, more bad news doesn’t move the stock because it’s already been priced in. Traders begin to trade on relief rather than fear. It becomes, "oh, that wasn’t nearly as bad as we thought it would be". Case in point was the Toll Brothers (TOL) earnings report this morning.
Toll Brothers reported the first quarterly loss in 21 years (if you include the write down of 315 million) and the CEO responds by saying “fiscal 2007 was the most challenging of the 40 years that Toll Brothers has been in business” but the stock rallied more than 15% today as the company whooped analyst expectations of a .77/share loss (which typically don’t include write downs) by posting a .72/share profit (excluding the write downs).
At the top, analysts increasingly high expectations make it difficult for the company to beat leading to a sell off. At the bottom, increasingly lowered expectations creates a situation where a stock rallies on any glimmer of hope.
2. Insider Begin Buying
Nobody knows their company better than the guys at the top, unless of course you’re Kenneth Lay and you don’t know anything. When insiders feel their company is a great value they begin buying shares. Insider selling can occur for a variety of reasons so it’s difficult to place much importance on it, but insider buying particularly in large companies can often indicate a bottom in the stock price.
Case in point, NVR Inc (NVR) CEO Dwight Schar. He recently picked up 50 million worth of shares in his company. That’s still less then what he paid for his home in 2005, which at the time was the most expensive house in US history (Revlon founder Ron Perleman’s home), but 50 million isn’t the kind of bet you make in your company if you feel your shares are going much lower. Not a bad investment. He’s up over 25% on the position in just one month.
At KB Homes (KBH) two VP’s dabbled a bit and picked up about $93K worth of their company stock in late October/early November.
TECHNICALS
3. Capitulation in Stock Chart
Not all bottoms will show capitulation but it’s certainly another clue that I look for. It’s characterized by a day or full week in which the stock closes in the upper half of a long range with volume well above average. I haven’t seen this kind of action in the home builder stocks yet, so it’s certainly possible that we retest the lows again with one last bout of big panic selling, followed by a stampede of buyers.
4. Broken Downward Trend in Stock Chart
The best of breed home builders (see below) broke out of shorter term downward trends today but still face tough resistance. Let’s have a look.
NVR Inc (NVR) is my top home builder play because it’s technically the strongest and fundamentally the ONLY home builder to remain profitable every quarter through the housing meltdown. It was the first to break a downward trend back in November and busted through that resistance again in December. Like all home builders, it’s currently overbought in the short term but if I’m a long term buyer I’m looking to add shares between 450 – 500. I"ll have a more detailed technical analysis below
Toll Brothers (TOL) broke through its downward trend line today but doesn’t have far to go before testing the longer term trend line. It’s up nearly 30% in the past couple weeks so I would not be chasing it. I won’t be looking to add shares until it pulls back to 20 or lower. I rank TOL #2 right behind NVR and will highlight the technicals in more depth below.
I don’t feature the charts of DR Horton (DHI) and Centex (CTX) in this report, but they also broke out of downward trends today but are too extended in the short term.
The Bottom Line
The home builders have surged 20 – 30% in recent days on news of the government subprime freeze and anticipation of another Fed rate cut, resulting in a breakout above shorter term downward trend lines in the best of breed home builders. Technically, they are overbought in the short term, but there is some room to run to the upside, perhaps another 10 – 15%. The best opportunities will come on light volume pull backs from current levels. While there are some indications that a long term bottom is close, we’re not out of the woods just yet and the likelihood is very high that we’ll retest the lows of the home builders (anywhere from 20 – 30% below current levels), particularly if the bankruptcy of a major home builder such as Beazer Homes (BZH) becomes more likely. If I were a long term buy and holder (which I’m not), this is an area I’d begin significantly accumulating shares of the best of breed home builders such as NVR Inc (NVR) and Toll Brothers (TOL). Remember the stock price precedes a turn in the fundamentals. That is, well before the home builders turn it around financially, a bottom will have been put in place.
As another indication that the home builders aren’t out of the woods just yet, both the SPDR Homebuilders ETF (XHB) and the Ishares Home Construction ETF (ITB) have not cleared downward trends.
Best of Breed
Based on a combination of fundamentals and technicals I’ve come up with a Top 6 list of best of breed home builders:
1. NVR Inc (NVR):
It takes the top spot because of the big CEO insider buying, best technicals and the fact that the company has remained profitable in every quarter during this housing crash and is expected to remain so. CEO Dwight Schar has also been through a meltdown before, nearly bankrupting NVR several years ago. I’m sure he’s smart enough to learn from those mistakes. The second time around, Schar avoided the risky land investments and went with an approach called optioning where the builder makes a small down payment for the option of purchasing the plot of land in the future. Only when the contract is signed on the sale does NVR purchase the land and build the home. It’s a common practice among home builders now, but apparently NVR has done a better job of not over purchasing land.
The chart below provides a look at a longer term weekly chart to get a better sense of where it’s been and where it might be going. A few things stand out to me. One being the big support at level at 400, an area it has bounced from not only recently but in the summer in 2006 as well as summer of 2004. If I can get shares around 400, you can be sure I’ll be buying, but quite frankly I don’t think NVR sees those levels again. Depending on what the overall market is doing, what the housing market is doing and the individual action in NVR I’d be looking at shares in the 450 – 500 range. Note the potential double bottom base outlined in blue? If in fact this is a valid double bottom base, 400 is the bottom and we can expect a run to 850 – 950 within the next year.
2. Toll Brothers (TOL)
Like NVR, TOL recently tested an important level of support at 19 (a level it found support at back in 2004 as well) and bounced. Yes, there is some room to run to the upside but I wouldn’t be chasing it. Once the euphoria of the subprime rate freeze and looming Fed rate cuts wears off, home builders should pull back and offer a much better entry. Just how much is anyone’s guess, but keep an eye on on resistance above from the long downward trend line (in blue) and support at the bottom around 19. Price should continue to get squeezed between those two points over the next several weeks creating a big triangle formation. This will be the moment of truth for TOL. A break up out this formation indicates the likelihood of a long term bottom while a break down below 19 indicates further deterioration ahead, possibly to the next level of support around 16.
Best of the Rest……
3. DR Horton (DHI)
4. Centex (CTX)
5. Ryland Group (RYL)
6. KB Homes (KBH)
That concludes my initial report on a potential home builder bottom. What I plan to do is provide an update report every month for the next 6 months, so stay tuned!
Disclaimer: I currently hold no positions in any of the individual home builder stocks mentioned above or the two ETF’s.
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Filed under Industry Spotlight by Tate Dwinnell
Today I’m pleased to bring you a report on the oil/gas engineering industry written from the perspective of someone who has more than 40 years of experience working for major oil corporations as well as smaller companies all across the globe. Robert Williams has extensive petroleum, water and electrical industries experience regarding Supervisory Control and Data Acquisition (SCADA) systems, Management Information Systems (MIS/IT), Distributed Control Systems fire & gas/emergency shutdown systems, instrumentation, metering, communications, security/CCTV and electrical engineering on such major projects as Shell Bonga FPSO, Saudi Strategic Storage Project, Libyan Water Pipeline, Trans Alaska crude oil pipeline, Alaska Natural Gas Transportation System, Occidental Piper B and Saltire offshore platforms and many other worldwide projects.
Oil & Gas Industry Perspective Part I
by Robert Williams, PhD, P.E.
This is the inauguration issue of the Oil & Gas Industry Perspective published with the express purpose of keeping you abreast of industry trends and developments and to potentially identify investment opportunities. Industry sectors involved are the Integrated Companies, Services and Equipment Companies and Operations Companies. All these industry sector companies are involved with future developments capital expenditures either for exploration, production, distribution or for technological advancements. Not included in these Oil/Gas industry sectors is one industry which is highly involved with oil and gas developments. This industry is the engineering companies that are listed under engineering because many are also diversified into environmental, power, federal government, pharmaceuticals, nuclear and life sciences engineering projects.
Future Oil & Gas Industry Perspectives will address these sectors as well as major equipment and systems suppliers that specialize in these industries since they are also improving earnings due to the tremendous investments occurring in this industry. These future Industry Perspectives will have the express purpose of identifying potentially profitable investment opportunities.
The following summarizes some of the major engineering companies who are extensively involved in oil and gas engineering projects. These companies are identified as Engineering, Procurement and Construction or EPC. Their engineering projects are phased into Front End Engineering Design (FEED) and detailed engineering with follow on into field construction activities which include installation, startup and commissioning. Some of these engineering companies will also contract for operations and maintenance.
AMEC supply consultancy, engineering, and project management services to energy, power and process industries. AMEC have defined the following core businesses: Oil and Gas; Oil Sands; Minerals and Metals Mining; Nuclear; Industrial; Earth and Environmental; and Wind Energy. AMEC is an international organization but because they have acquired two US oil and gas engineering companies they are included in this summary. Stock is listed on the London exchange as AMEC.
CBI is an engineering, procurement and construction company specializing in projects for customers that produce, process, store and distribute natural resources. CBI is an integrated EPC service provider, providing conceptual design, engineering, procurement, fabrication, field erection, mechanical installation and commissioning. Projects include hydrocarbon processing plants, liquefied natural gas (LNG) terminals and peak shaving plants, offshore structures, pipelines, bulk liquid terminals, water storage and treatment facilities, and other steel structures and their associated systems.
FLR provides engineering, procurement, construction and maintenance services. Fluor serves a number of industries worldwide, including oil and gas, chemical and petrochemicals, life sciences, manufacturing, power, and transportation infrastructure. Fluor is also a primary service provider to the United States Federal Government. The Company is aligned into five principal operating segments: Oil and Gas, Industrial and Infrastructure, Government, Global Services and Power.
FWLT operates through two business groups, Global Engineering and Construction Group (E&C Group), and Global Power Group. The Global E&C Group designs, engineers and constructs onshore and offshore upstream oil and gas processing facilities, natural gas liquefaction facilities and receiving terminals, gas-to-liquids facilities, oil refining, and chemical and petrochemical, pharmaceutical, biotechnology and healthcare facilities and related infrastructure, including power generation and distribution facilities. Global Power Group designs, manufactures, and erects steam generating and auxiliary equipment for electric power generating stations and industrial facilities worldwide.
JEC provides engineering, design, architectural, and similar services; process, scientific, and systems consulting services; operations and maintenance services, and construction services, which include direct-hire construction and construction management services. JEC concentrates its services on selected industry groups and markets, including oil and gas exploration, production and refining; programs for various federal governments; pharmaceuticals and biotechnology; chemicals and polymers; buildings, which includes projects in the fields of healthcare and education, as well as civic, governmental and other buildings; infrastructure and technology and manufacturing.
KBR is a global engineering, construction and services company supporting the energy, petrochemicals, government services and civil infrastructure sectors. The Company operates in two segments: Energy and Chemicals (E&C) and Government and Infrastructure (G&I). The E&C segment designs and constructs energy and petrochemical projects, including large, technically complex projects in remote locations around the world. The G&I segment delivers on-demand support services across the full military mission cycle from contingency logistics and field support to operations and maintenance on military bases. KBR have been in the news recently because of their Iraqi involvement.
MDR is an engineering and construction company with specialty manufacturing and service capabilities. MII is the parent company of the McDermott group of companies, which includes J. Ray McDermott; McDermott Holdings, Inc.; McDermott Incorporated; The Babcock & Wilcox Companies; BWX Technologies, Inc. and Babcock & Wilcox Company. MDR is a worldwide energy services company operating in three business segments: Offshore Oil and Gas Construction, Government Operations and Power Generation Systems.
OII is a global oilfield provider of engineered services and products primarily to the offshore oil and gas industry, with a focus on deepwater applications. The Company also serves the defense and aerospace industries. The services and products the Company provides to the oil and gas industry include remotely operated vehicles, mobile offshore production systems, built-to-order specialty hardware, engineering and project management, subsea intervention services, nondestructive testing and inspection, and manned diving.
SGR is a provider of services to the energy, chemical, and environmental and infrastructure industries, including consulting, engineering, construction, remediation and facilities management services to governmental and commercial customers. The Company operates through segments, which include Environmental and Infrastructure (E&I), Energy and Chemicals (E&C), Fabrication and Manufacturing (F&M), and Maintenance.
WG is an independent international contractor serving the oil, gas and power industries and government entities worldwide. Willbros operates its business in two segments: the United States and Canada and International. It provides engineering; construction; engineering, procurement and construction (EPC), and specialty services to industry and governmental entities worldwide, specializing in pipelines and associated facilities for onshore, coastal and offshore locations.
WG (UK) is an international energy services company. The Group three businesses are 1) Engineering & Production Facilities, 2) Well Support, and 3) Gas Turbine Services which provide a range of engineering, production support, maintenance management and industrial gas turbine overhaul and repair services to the oil & gas and power generation industries worldwide.
******************
Industry Perspectives
1. All across the world major oil companies, Exxon, Royal Dutch Shell, Chevron/Phillips, Marathon, etc. and Middle East national oil corporations, e.g. Kuwait are all in various degrees of revamping their existing refineries with the express purpose of increasing overall refining capacity, and where necessary, adding heavy crude oil refining capability.
2. Major capital expenditure projects are financed by the continuously increasing crude oil prices. Current crude oil prices are sufficient to provide a return on investment and in most cases the necessary capital is already justified and committed to the refinery expansions. Refinery revamp projects are currently ongoing in California, Texas, Louisiana, Michigan and other states. Front End Design (FEED) and Engineering Procurement Construction (EPC) contracts have been placed with engineering contractors who have specialized skills to complete these projects.
3. Specialized skills include positive experience on similar projects, project management capability, project control systems with competitive rates and qualified engineering, procurement and construction personnel.
4. In 1982 there were 301 refineries in the USA but in 1992 there were only 199; 2002 only 153 and in 2007 the number of refineries was down to 149. Crude oil pricing went the opposite direction from $18.91 in 1990, to $23.17 (Jan, 2000); $28.00 (Jan, 2004); $35.16 (Jan, 2005); $55.12 (Jan, 2006); $54.63 (Jan, 2007); $94.44 (Nov, 2007), and January 2008 100 ++?? (Source: US Energy Information Administration) [Hyperlink to www.eia.doe.gov]
5. Gasoline refining in the US has not kept up with demand with the shortfall being made up by imports with an estimated current import of 1 million barrels. A good size refinery is about 250,000 barrels per day of crude oil.
6. No new refineries have been built in the US for the past 25 years.
7. Refined products consumption will continue to increase as will the political pressure for gasoline imports independence.
8. During the 80’s and 90’s the oil/gas industry suffered a major downturn and no major projects were initiated to replace older equipment and technology. A result is the ongoing maintenance shutdowns for US refineries.
9. Similarly, the major oil/gas companies and the EPC engineering contractors divested themselves of professionally qualified and experienced engineers of all disciplines. Newly assigned engineering projects are being partially staffed from returnee engineers, retired engineers and new graduate hires. A major experience gap exists in staffing these projects.
10. During the industry downturn there was a trend toward lump sum contracting for global capital projects. This trend has now reversed back to the cost plus reimbursable projects.
11. An EPC contractor does not make any major capital expenditures for the refinery revamp engineering projects since they only provide the necessary business requisites to supply experienced project managers and engineering personnel and supporting infrastructures, of buildings, computers, networks, etc.
12. One EPC contractor outlines the backlog of engineering contracts of up to five years without any new contracts being granted.
13. Domestic refining capacity is expected to grow based on the current capital expenditure projects to revamp existing refineries but this will be offset by increasing consumption. Is this another refining industry overbuild? It may very well be but this will not become apparent for quite a few years until these refinery revamp project deliver the increased production capacity which could be utilized to reduce crude oil and petroleum products imports rather than flood the US market.
14. In previous years capital investment was directed to lower carbon emissions and to meet low-sulfur regulations. These environmental investments do not expand capacity as the currently ongoing revamp projects will as they are also designed to increase heavy crude oil refining, i.e. Canadian tar sands.
US-Listed Companies – Annual Earnings Estimates
The oil/gas engineering companies combined performance charts (see chart) positively indicates that profits are being made and that it is not too late to invest in these companies. All are indicating increasing earnings and the Insider Perspective is that from three to five years of backlog are recorded by these companies. Backlog means that they would be busy for three to five years to complete existing client-approved capital expenditure projects without consideration for any new projects being negotiated or bids under preparation. Please note that recent markets declines do affect these companies’ stock pricing but may very well provide excellent entry points depending on your market timing criteria. Weekly charts provide trend direction determination whereas daily or even 60-mintue charts provide guidance as to trade entry points.
In summary, the oil/gas engineering industry is currently investing on crude-oil dependence growth which is a fundamental sign for improved earnings and rising stock prices.
Disclaimer: No position is owned in any of the companies written about above.
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