Traditionally, size has determined the impact and profitability of an oil company. But today the stage is set for smaller, well-positioned companies. Energy investors should keep an eye on these "non majors." Here's why.
Investors are well aware of the shale oil revolution in the United States. But the "revolution" does not end here; it is spreading globally to countries as diverse as China and Poland.
There is one country in particular though that may experience circumstances similar to the United States, if not greater.
I'm talking about Australia, which has often been called "The Lucky Country." That description was first penned in 1964 by Donald Horne and he actually meant it negatively at the time.
But in recent decades, the term has been given a positive spin thanks to Australia's abundance of natural resources and its geographical location near the world's biggest consumer of commodities - China.
And Australia may have struck luck again thanks to the recent announcement of a massive shale oil discovery.
Today I've got new information on what could be the largest shale oil find ever recorded - an estimated 233 billion barrels of recoverable shale oil.
This has got the entire energy world abuzz.
That's more that all of the oil in Iran, Iraq, Canada, or Venezuela. And it’s just 30 billion barrels shy of all the reserves in oil-rich Saudi Arabia (or at least what they claim to have).
It's a very exciting find for the (surprising) country where it was found. It means decades of energy independence. Not only that, but the nation will probably begin to export oil in the next few years, too.
But it's perhaps even more exciting for investors. You see, one small company controls what is shaping up to be the biggest worldwide oil project to hit in 40 or 50 years. And they won't be the only ones who get rich from this. Far from it.
Take a look
As Money Morning Global Energy Strategist Dr. Kent Moors pointed out not long ago, the sky is not falling on oil prices despite what the doomsayers believe.
There are two crucial countries that are behind the recent rise in oil prices: China and Saudi Arabia.
And if these two nations keep on their current path, it will mean one thing...
Even higher oil prices in 2013. Here's why.
The purchase of Calgary-based energy company Nexen Inc. (NYSE: NXY) for $15.1 billion by China's CNOOC Ltd. (NYSE ADR: CEO) is the largest overseas purchase ever by the world's second-biggest economic power.
But it will likely be the last time China, or any other country, takes a big chunk out of Canada's oil sands - the world's third-largest proven reserves of crude oil.
That's because after Canadian Prime Minister Stephen Harper approved the Nexen deal in December, he banned further foreign firms' investment in Canada's oil sands and will allow them only under "exceptional" circumstances.
"The government's concern and discomfort for some time has been that very quickly, a series of large-scale controlling transactions by foreign state-owned companies could rapidly transform this [oil sands] industry from one that is essentially a free market to one that is effectively under control of a foreign government," Harper said in December.
"Foreign state control of oil sands development has reached the point at which further such foreign state control would not be of net benefit to Canada," he added.
But foreign government control isn't the real problem facing Canadian oil sands companies.
The upward pressure on prices is building, reflecting higher revisions in forecasted demand. And this week we got two "outside" signals that mean more volatility ahead.
Oil prices have continued their upward move that began at the end of 2012, gaining over 8% in the past month.
Now, an oil analyst with Goldman Sachs Group Inc. (NYSE: GS) predicts Brent crude could soar much higher in the next few months.
Jeff Currie, GS's head of commodity research, said he wouldn't be surprised "if we woke up in summer and oil cost $150" per barrel.
That would be a 35% gain from Brent's recent price of $111.
Using the narrowing spread between the Brent price and that of West Texas Intermediate (WTI), at $95, Currie's forecast implies a 40% increase in WTI prices.
And there are many reasons oil could hit those highs by summer, or even sooner.
These days everybody wants to extol the virtues of rising U.S. domestic crude oil production.
From decades of increasing reliance on foreign providers, some hardly sympathetic to American interests, the new prospect of having significant unconventional oil reserves here at home has been a major development.
The assumption advanced says that domestic sources will be cheaper. As a result, this should comprise a positive boon to consumers of oil products but a problem for producers and refiners. In short, the mantra among some commentators is to proclaim the end of the oil market as an attractive option for investors.
As with most such simplistic observations, however, it turns out not to be true.
A number of these "analysts" are actually talking down the prospects of oil prices because they have already shorted the commodity and will benefit their own investments if they can continue the downward push.
Well, oil prices are now going up, with both West Texas Intermediate (WTI) in New York and Brent in London at more than three-month highs.
In addition, the spread between WTI and Brent is narrowing.
The narrowing of that spread is occurring while both benchmarks are rising in price. The mantra of the pricing doomsayers would expect it to be going in the other direction.
There are two broad categories of reasons why matters are not happening as the doomsayers had expected (aside from the obvious - they misunderstood the dynamics from the beginning).
And once you understand both, you'll be in position to profit as prices continue to rise.
Many investors have heard of the Bakken oil field in North Dakota and Montana, but most are unaware of how important this formation is becoming to the U.S. economy.
More germane to investors is the fact that there is still a lot of money to be made from Bakken oil in the months and years ahead.
Just ask Warren Buffett.
He spotted the potential of Bakken oil well ahead of most and bought a non-energy company that would benefit greatly from the boom. Three years ago he bought Burlington Northern Santa Fe (BNSF) Railway Co. for $26 billion.
That railroad is now one of the main beneficiaries of the Bakken oil boom. (And people thought he just had always wanted to own a train set!)
"We're the 1,000-pound gorilla in the oil markets," BNSF CEO Matt Rose told Bloomberg News. "Crude by rail is going to be really strong for us. It's been a real benefit to us to replace some of that lost coal business."
The Bakken oil formation isn't just an investing opportunity; it's transforming the U.S. energy landscape.
All 63 OFS stocks on Kent's tracking list are up for the week (by an average of 4.5%), and 60 are up for the month. This marks the beginning of a recovery. And there's just one strategy you should use to profit.
Behind the scenes of the Fiscal Cliff debate, there was plenty of f-bombing, poison pilling, and grandstanding leading up to the deal - and that was before the members of Congress and the Senate actually got serious with their usual ultimatums, followed by earnest- looking sound bites and posturing. But what gets me really riled up is the amount of "pork" contained in the bill...
As I write this, it appears that will happen--at least on paper.
Of course, it will take some time for the tax increases to kick in, while the automatic spending cuts may take a month or longer.
That may make it easier for some Members of Congress to act. Since the taxes will have technically increased, it will be easier for them to vote for an artificial tax cut.
I consider this the pinnacle of absurdity.
Subjecting most Americans to this charade-making them vulnerable to cuts in paychecks, dividends, and social security benefits merely to make some political brownie points-is the height of travesty.
But here we are.
Even if there is a this weekend or Monday, nobody will know what that means for several weeks. This will drag the drama on for a while longer as the precocious children inside the Beltway refuse to play on the same ball field.
Now we all know how this will end. There will be a stopgap measure rather quickly (probably around the time most receive that first paycheck of the New Year) to prolong the process into the first quarter - right into yet another showdown on increasing the debt ceiling.
Isn't there anybody else out there as sick of this as I am?
But in the end, we are interested in what the shenanigans mean for the energy sector.
Oddly enough, gas and oil prices have acted as if the cliff were an ant hill.
The hope is that Abe's promises of fresh stimulus, unlimited spending and placing a priority on domestic infrastructure will be the elixir that restores Japan's global muscle.
As a veteran global trader who actually lives in Japan part time each year, and who has for the last 20+ years, let me make a counterpoint with particular force - don't fall for it.
I've heard this mantra eight times since Japan's market collapsed in 1990 - each time a new stimulus plan was launched - and six times since 2006 as each of the six former "newly elected" Prime Ministers came to power.
The bottom line: The Nikkei is still down 73.89% from its December 29, 1989 peak. That means it's going to have to rebound a staggering 283% just to break even.
Now here's the thing. What's happening in Japan is not "someone else's" problem. Nor is it something you should gloss over.
In fact, the pain Japan continues to suffer should scare the hell out of you.
And here's why ...
The so-called "Lost Decade" that's now more than 20 years long in Japan is a portrait of precisely what's to come for us here in the United States.
Perhaps not for a few years yet, but it will happen just as we have already followed in Japan's footsteps with a "lost decade" of our own.
The parallels are staggering.
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These 2013 oil price forecasts were all over the place, owing to the high level of uncertainty on a number of basic elements.
According to the Russian Ministry of Energy, or Minenergo, the "official" government estimate has oil prices low - at about $80 a barrel in 2013.
However, there were other estimates floating about. The Ministry of Finance (MinFin) set up what can only be described as a recession approach. That figure puts oil prices at $62-$65 a barrel.
Then there was the Ministry of Economic Development (MED). MED considered both domestic and external trade considerations. The estimate coming from this ministry was lower than that of Minenergo, but at $75 a barrel was higher than that of MinFin.
Against this backdrop of competing forecasts made by battling Russian ministries, estimates from the outside including my own are much, much different-as in decidedly to the upside.
Granted, all of the non-Russian suggestions cite the three unknowns limiting the cost of crude elsewhere: the fiscal cliff, the Eurozone debt crisis, and the expected levels of productivity and demand coming from China.
Nonetheless, a strong consensus did emerge from North American and European experts during our sidebar conversations in Moscow.
The overwhelming view was that oil prices will be moving higher next year, although the continuing volatility will guarantee that this is hardly going to be a straight line advance.
Even still, there will be a number of factors that will push Brent and WTI prices as much as 20% higher next year-particularly in the first quarter.
Here's why oil will still remain a "must-have" investment next year.
In fact, the International Energy Agency (IEA) now believes that, thanks to astonishing growth in oil and natural gas output, the U.S. could even become a net exporter of natural gas by 2020, and even net-energy self-sufficient by 2035.
According to IEA estimates, the U.S. is already the world's No. 2 natural gas producer.
The IEA has also indicated that increasing production from Canadian oil sands means North America could become a net oil exporter. And by 2035, it's forecast that nearly 90% of Middle Eastern oil exports will find a home in Asia.
These tectonic energy shifts have not gone unnoticed by OPEC and large state-owned energy companies. Major Asian and Middle Eastern interests have already made major acquisitions in Canada and the U.S., with an eye towards many more.
Every day it seems the energy scene is changing at a lightning pace, creating a new world order in energy.
So to gain further insight into this rapidly changing climate, I recently sat down with energy consultant Peter Barker-Homek, a true energy insider.
Peter is the founder of Eta Draco, an advisory firm focused on building operations and capital structures to provide for enduring growth and to anticipate cyclical downturns for small- to medium-sized enterprises.
Mr. Barker-Homek knows more than a thing or two about the global energy sector.
As the previous CEO at TAQA, the Abu Dhabi national energy company, and a seasoned energy executive in a Fortune 20 company, Peter has completed $40 billion in energy-related transactions.
He has more than 20 years' experience in major markets worldwide, and even served in the U.S. Department of State and the U.S. Marine Corps as an Officer/Pilot. He has appeared on CNN, BNN, CNBC, Sky News, Bloomberg TV, BBC Radio, Al Jazeera, and CrossFire, and is regularly cited in industry journals and periodicals.
I think you'll enjoy what Peter had to say during our recent Q&A.
If I did my job right, some of it may even shock you.