Investment Outlook 2007 - Part II - Energy (APA, CHK...)
Let us review a part of my first investment idea for 2007 - energy:
World Proven Oil reserve is at 1,200 billion barrels, and the world is consuming around 30 billion barrels annually in recent years. World Proven Gas reserve is at 6,400 Tcf (Trillion Cubic feet), and the world is consuming around 97 Tcf annually. Assuming the world maintains current consumption rate, the current proven oil / gas reserve will be depleted in 40 and 65 years!
Furthermore, oil and Gas is irreversible energy, and at the current energy price, there is no economically viable approach to provide alternative energy. Yes, the number may be conservative (some countries may not report accurate numbers); yes, there are twice amount of unproven oil reserve reported; yes, with future advanced technology, we will find more reserves; BUT you got the point, oil/gas is limited resource and depleting fast.
So, here comes a number of ratios when I evaluate the oil/gas stocks. (I give No.3 a heavy weight as I discussed above)
1. Low Debt Ratio. (i always like financially conservative company, though this is a capital intensive industry).
2. Low Production Costs (lower production costs provide a competitive edge especially when the energy price drops suddenly)
3. Low Enterprise Value / Adjusted Reserve. (in simple term, this ratio indicates, disregard everything else, how much do you pay per barrel for the reserve the company has)
4. Good Hedge Strategy (pay a price to get a contrct with a pre-determined sales price)
I bought ConocoPhilips (COP) 2 months ago, with the recent 20% up, it will soon become a sell candidate (will let you know when i decide to sell). Need a replacement, I use the above 4 criteria to search for oil/gas mid-cap companies, and have the following candidates:
APA, CHK, ECA, EOG and CNQ.
Among them, Apache (APA) and Chesapeake Energy (CHK) are my top candidates. They are in my watch list now, and not in a rush to buy. Energy price could be volatile. Take advantage when the price drops.
Invest Energy (e.g. Crude Oil), and Precious Metal Sector when price fluctuates.Before we dig into individual stocks, let's look at the following numbers to get a better understanding about the oil/gas industry. (numbers are quoted from BP Statistic Review of World Energy, a must read if you're interested in energy industry)
World Proven Oil reserve is at 1,200 billion barrels, and the world is consuming around 30 billion barrels annually in recent years. World Proven Gas reserve is at 6,400 Tcf (Trillion Cubic feet), and the world is consuming around 97 Tcf annually. Assuming the world maintains current consumption rate, the current proven oil / gas reserve will be depleted in 40 and 65 years!
Furthermore, oil and Gas is irreversible energy, and at the current energy price, there is no economically viable approach to provide alternative energy. Yes, the number may be conservative (some countries may not report accurate numbers); yes, there are twice amount of unproven oil reserve reported; yes, with future advanced technology, we will find more reserves; BUT you got the point, oil/gas is limited resource and depleting fast.
So, here comes a number of ratios when I evaluate the oil/gas stocks. (I give No.3 a heavy weight as I discussed above)
1. Low Debt Ratio. (i always like financially conservative company, though this is a capital intensive industry).
2. Low Production Costs (lower production costs provide a competitive edge especially when the energy price drops suddenly)
3. Low Enterprise Value / Adjusted Reserve. (in simple term, this ratio indicates, disregard everything else, how much do you pay per barrel for the reserve the company has)
4. Good Hedge Strategy (pay a price to get a contrct with a pre-determined sales price)
I bought ConocoPhilips (COP) 2 months ago, with the recent 20% up, it will soon become a sell candidate (will let you know when i decide to sell). Need a replacement, I use the above 4 criteria to search for oil/gas mid-cap companies, and have the following candidates:
APA, CHK, ECA, EOG and CNQ.
Among them, Apache (APA) and Chesapeake Energy (CHK) are my top candidates. They are in my watch list now, and not in a rush to buy. Energy price could be volatile. Take advantage when the price drops.
posted by Siyu LI at
2:28 PM
1 Comments:
What do you use to screen and come up with potential companies to invest in? I know of course there is knowledge that you obtain from sources around you - but do you use any screens (such as moneycentral.com or Fidelity?).
For instance, where/how did you find RICK?
Sam
By
Anonymous, at January 06, 2007 6:09 AM
Post a Comment
<< Home