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The Truth About Oil
In This Report...
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How to buy oil for $4.67 a barrel.
(Commodity traders are paying around $70 for a barrel of crude, but I'll
show you how to get it for less than $5.) |
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The oil investment that's
clobbering stocks. Stocks are up just +13.4% since January, but this
new low-risk oil investment is already up +104.3% and headed higher. |
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How to get reliable oil "royalty"
payments every 90 days. (It's an investor's dream: reliable payments
that grow over time. And they can be yours with this low-risk oil
investment.) |
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The oil discovery that changes
everything -- and how you can profit from it.
(This find may change the oil industry
forever. See how.) |
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Six oil scams to watch for. (There
are six "red flags" that every oil investor needs to be aware of before
making an investment. Learn what they are -- and how to protect
yourself.) |
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How to Buy Oil For Only $4.67 a Barrel
 Cheap
oil just got a little cheaper.
Recently, I looked at the value of the world's leading
oil companies and discovered how investors can buy oil
for a fraction of the commodity's current price.
What I found was shocking.
Instead of loading up on futures contracts, it's
possible -- and likely far more profitable -- to simply
buy the crude the oil giants have already found by
buying the oil giants themselves.
I divided each company's market cap by the number of
barrels in proven reserve.
The cheapest oil I found was $4.67 a barrel.
Here were the results of my initial investigation:
It would cost $26 billon to buy
every single share of Anadarko Petroleum (NYSE: APC). So
let's assume I (could) write that check.
What would I get in return?
From my perspective, the most
important thing I would own is Anadarko's 2.37 billion
barrels of crude oil reserves.
That oil is worth about $165
billion at today's prices. And it will be worth $237
billion on the day coming soon when I believe oil prices
will hit $100.
Bottom line: If I buy Anadarko
for $26 billion, I get $165 billion worth of oil.
Don't have $26 billion laying
around? Hey, don't feel bad. I don't either. But I can
buy a single share of Anadarko's stock for about $53.
That share, one of 450.9 million, entitles its owner to
a tiny share of the company's assets. That might not
seem like much, but it works out to 4.6 barrels of oil.
That's $312.80 worth of oil for $53 -- and you get the
rest of the company, which also has significant natural
gas inventory, for free.
Believe it or not, I found four
other companies that offer oil even cheaper than
Anadarko.
As you can see from the table,
individual investors like you and me can buy oil for a
far better price than the hotshot commodity traders.
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Company |
Market Cap |
Crude Reserves |
Barrel Cost |
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BreitBurn |
$483.9M |
103.6M |
$4.67 |
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Venoco |
$441.7M |
58.5M |
$7.55 |
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Berry Petroleum |
$1.0B |
125.5M |
$8.13 |
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Conoco Phillips |
$67.8B |
8.1B |
$8.39 |
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Anadarko |
$26.7B |
2.3B |
$11.71 |
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Chevron |
$142.4B |
8.6B |
$16.58 |
|
Plains Exploration |
$3.2B |
177.6M |
$18.02 |
|
Total S.A. |
$129.5B |
5.7B |
$22.72 |
|
ExxonMobil |
$340.5B |
11.2B |
$30.46 |
|
St. Mary Land |
$1.7B |
51.4M |
$33.07 |
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Marathon |
$22.4B |
636.0M |
$35.17 |
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Shell |
$173.9B |
2.6B |
$66.92 |
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Cimarex Energy |
$3.3B |
45.2M |
$73.67 |
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EOG Resources |
$18.4B |
225.0M |
$81.69 |
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Murphy |
$11.2B |
124.5M |
$89.96 |
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Devon Energy |
$27.6B |
291.6M |
$94.55 |
The winner in the cheap-oil
derby, then, is BreitBurn Energy Partners (Nasdaq: BBEP),
a limited partnership based in Los Angeles with 103.6
million barrels of reserves. You can purchase one share
of this company on the Nasdaq for less than $10 a share.
But in per-share crude reserves alone, that share is
worth about $140!
In aggregate, BreitBurn can be
bought for $483 million. Its oil is worth $7.4 billion.
You can buy BreitBurn's crude for less than the $7.92 it
typically costs Big Oil to produce a barrel.
That's a steal. It won't last
long, either. Most of these oil companies are trading in
the bottom half of their 52-week ranges, even though oil
has already rebounded +75% off its lows. As the price of
this commodity inches ever closer to $100 a barrel,
these oil producers' shares prices could be poised to
take off.
Interested in oil? It's a great
investment as the economy rebounds. You can buy oil at
the New York Mercantile Exchange or you can buy it at
the NYSE. It's entirely up to you. The only question is
whether you want a good deal or whether you want the
deal of a lifetime.
The Discovery That Changes Everything
That was my initial investigation.
I had suggested it might be profitable, for instance, to
buy Anadarko (NYSE: APC), which industry insiders know
to be one of the leading outfits in the oil business.
The whole company, I noted, could be bought for $26
billion. But the buyer would get $165 billion worth of
oil.
It was a good deal then.
It's a better deal now.
That's because Anadarko just hit a new well that totally
changes the math.
The company recently said it had made a major find off
the coast of Africa. The discovery in the deep water
near the coast of Sierra Leone could well contain
billions of barrels of crude. The company's 'Venus'
well, of which it owns 40%, has proven the existence of
an "active petroleum system" off the West African
coastline.
The shares rose. Now it would take $31 billion to buy
the company.
Which is curious. It seems to be undershooting a little
for Wall Street to add $5 billion in market cap to
account for what may be $150 billion worth of crude. The
company may well have just announced a find that
ultimately will double its crude reserves, and yet its
stock has only risen about +8%.
Now, admittedly, Anadarko will have to spend some money
to get this oil to the surface. Twenty-five years ago,
it wouldn't have even been possible. Back then, it took
all the engineering prowess the industry had to operate
wells deeper than 600 feet.
But the 'Venus' well off Sierra Leone is more than a
mile below the water's surface. The techniques that will
be used to exploit this find are the industry's cutting
edge.
More than the math behind Anadarko might be changing.
Between this latest multibillion-barrel find and a
similarly sized discovery by BP in the Gulf of Mexico
earlier this month, a long-held theory about oil
production may have been disproved.
 The
idea, known as Hubert's Peak, suggests that the world is
on the downhill slope of oil production. These
deep-water finds seem to suggest that that's not true.
And as the oil giants are having a harder and harder
time accessing new finds in Russia and the Middle East,
the technology that Anadarko and others will develop
becomes even more valuable. Advanced drilling and
production techniques that will be perfected off the
Sierra Leonean coast may allow dozens of more sites in
West Africa or the Arctic to be developed.
Not only does buying Anadarko give investors cheap oil,
it also gives them ownership of the technology that
could bring billions of more barrels of oil to the
surface.
As I noted, Anadarko has 40% of the Venus well. Its
other owners are also publicly traded. They are
Britain's Tullow Oil (London: TLW, GBP 1245), which owns
10%, Spain's Repsol-YPF (Madrid: REP) which controls
25%; as does Australia's Woodside Ltd. (ASX: WPL,
AUS$55).
Investors with international brokerage accounts should
consider these companies; investors not equipped to
trade in Madrid, London or Sydney should seek
domestically listed exchange-traded funds that hold the
shares. Failing that, I'd stick to Anadarko and wait for
the market to realize its value -- and to see what
it's going to announce next.
To learn more about what else I'm recommending,
just follow this link.
Many happy returns . .
.
Andy Obermueller
Chief Investment Strategist,
Government-Driven Investing |
The Best Way To Profit From Oil
Fellow Investor,
In the report below, you'll discover an
in-depth profile of my favorite oil investment.
It's an investment that is clobbering stocks, offering reliable payments
every 90 days, increasing distributions while others are slashing them, and
helping investors profit from its unique "oil toll".
The name of this investment is
Transmontaigne LP (NYSE: TLP) -- and if you act quickly, you can own
shares of this company for less than $30.
Here's more
on this unique oil investment...
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Key
Statistics:
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| Security
Type: |
Master Limited Partnership (MLP) |
| Annual
Dividend: |
$2.36 |
| Dividend
Yield: |
8.9% |
| Frequency: |
Quarterly |
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YTD Return: |
+110.1% |
Looking for an oil play that profits from our insatiable demand for oil but isn't
tied to oil's nerve-wracking price swings?
After all, plenty of oil is being sold. But selling oil is an up
and down business. That's why our favorite oil investment is a
company that's found a way to profit from our appetite for oil
with little exposure to oil price swings.
How? It's a toll collector.
It collects predictable fees under long-term contracts for
storing and pipelining oil products like the gasoline you use to
run your car and the asphalt used to build the roadways in front
of your house. The company grows as it adds more storage depots
which collect more fees.
But here's where the story gets interesting. A company like
this exists solely to pass along its profits from these
fees to investors like you and me.
And, boy, has it ever passed along those profits. Investors have
raked in total returns of +104.3% this year, and there's more to
come. To see why, read on...
Snapshot: Established in 2005, Denver-based
TransMontaigne Partners LP is a
master
limited partnership (MLP) that stores and transports all
sorts of refined petroleum products from gasoline and jet fuel
to asphalt and fertilizers. It owns some 42 terminals that store
products from the major oil refineries along the U.S. Southeast
and tie into pipeline systems that run from the Gulf Coast to
eastern U.S.
As a toll collector, TLP charges a fee for its services that
isn't tied to the price swings of the commodities it ships and
stores. Just as long as people are using its facilities, TLP
will earn cash. TransMontaigne is controlled by its general
partner, TransMontaigne Inc., now a subsidiary of global asset
manager Morgan Stanley (NYSE: MS).
Income: As a master limited partnership, TLP is
designed to pass along most of its cash flow to partners,
including both its general partner and investors. It passes along at least 90% of its taxable earnings to
partners, which allows it to avoid paying income taxes.
Over the past year, TLP dished out quarterly distributions
of $0.59 per unit, for an annualized distribution of $2.36.
At recent prices, that equates to a current yield of 8.9%
($2.36/$26.50).
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Transmontaigne LP
(NYSE: TLP) |
Annual Payment: $2.36
Yield: 8.9%
Payment Frequency: Quarterly
Discount: -1.8%
Returns (YTD): +110.1%
52-week Range: $ 11.27-$27.10 |
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In
one of the worst periods for dividends on record, TLP is raising
its distributions. Since January 2008, the partnership has
increased the
distribution +13%, from $0.52 per share to $0.59. And since
paying $0.40 per share in January 2006, the distribution has
risen +48%.
The current distribution level is well within the company's
means. Distributable cash flow for the most recent quarter was
$13 million, compared to dividends paid of $8 million.
Performance: The partnership has proven to be a
remarkably resilient business in a tough economy. That's because
TLP has been relatively insulated from the falling prices for
oil and other chemicals.
A key part of TransMontaigne's business is that it does not
purchase or sell the products it handles and therefore has
limited exposure to commodity prices. As of the end of 2008, 80%
of TLP's revenue was derived from "firm commitment" contracts
that stipulate minimum fixed fees, the bulk of which had more
than five years remaining.
For the second quarter ended in June, revenue increased from
$35.1 million in the year-ago quarter to $35.8 million. Net
income increased +6.6%, and the company earned $0.59 per unit,
beating analysts' consensus of $0.42.
Six Oil Scams to Watch
Out For
Be sure to do your homework before dropping even a
dollar on an oil investment that seems too good to be true.
According to the SEC, there are six "red flags" that every
oil investor needs to be aware of before making an
investment.
Check them out here. |
Outlook: Besides a desirable fee structure,
TransMontaigne has a solid business plan going forward. The
company plans to bring on more tanks, truck transportation
capacity, and ethanol blending facilities over the next two
years.
Specifically, the company has significant growth potential in
Florida, where TLP is a dominant operator. Florida lacks refineries and refined product pipelines.
Instead, nearly all of the state's refined products depend on
marine terminals like those operated by TransMontaigne. As the
economic recovery increases demand for petroleum products, so
will the need for more storage terminals.
The partnership also stands to benefit from increased government
regulation, since that will increase the need for products that
require special storage and terminaling.
Valuation: Until the downturn in the broader
markets, TLP had traded in a steady range between $25-$35. But
like so many securities, the partnership plummeted (dropping as
low as $11.27) as investors fled all but the safest assets.
Since fear has subsided, TLP has strongly rebounded +135% off of
last year's lows. Still, with a PE of just 11.6 times next
year's earnings, the units are trading at a discount to peers
like Teppco (NYSE: TPP), Nustar (NYSE: NS), or Buckeye (NYSE:
BPL).
Action to Take --> TLP
operates a solid business with a promising future and should
continue to generate a high consistent yield. Given the +96%
price run-up year to date, more conservative investors may want
to wait for a pullback. However, as the overall market continues
to strengthen amid signs of an economic recovery that pull-back
may not come for a while. As such, I hopped on board and
added the partnership to the "10%-Plus" Portfolio of
my
High-Yield Investing advisory.
To learn more about what else I'm recommending,
just follow this link.
Good investing!
Carla
Pasternak
Chief Investment Strategist,
High-Yield Investing
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