Get Rich From America s Energy Renaissance

Transcription

1 The Oxford Club Premier Investor Report Q From: Chris Matthai Oxford Club Research Team For: Oxford Club Members Get Rich From America s Energy Renaissance America Is About to Become One of the World s Biggest Energy Providers Here Are Two Ways to Play the Boom for Big Profits An incredible shift in the global energy markets is going on right now If you re aware that enormous quantities of natural gas are being discovered in the United States, then you re already way ahead of most people. Amazingly, the average American is still oblivious of the energy boom taking place on his own soil. But do you realize that natural gas is going to turn the United States into one of the world s biggest energy providers? If you can grasp this concept, then you understand there are huge profit opportunities for early investors. The Shale Boom First, you need to understand the incredible transformation IMMEDIATE ATTENTION REQUIRED For the most recent and up-to-date information please visit

2 The Oxford Club Premiere Investor Report that s underway. The shale boom s roots go back to the 1980s and to Texas, where a wildcatter named George Mitchell, facing dwindling reserves, began probing the Barnett Shale near Dallas. To make a long story short, shale rock formations never yielded much gas because the shale was too dense and impermeable to allow gas to flow. But thanks to Mitchell Energy s efforts over 20 years, hydraulic fracturing or fracking was born. And it has revolutionized the industry... For the past few years, much has been made of the new, improved way to extract natural gas from the ground. Fracking allows energy companies to dig deep down through and into solid shale rock formations to access oil and natural gas they never could have tapped before. Here s the process: Drill a hole into the shale rock that s usually 10,000 feet down and then 10,000 feet sideways. Specific formations have become extremely prolific over the last few years like the Bakken in North Dakota and Marcellus in Pennsylvania. After the initial hole is drilled, a pipe that consists of a series of small holes is lowered into the drill hole. With that pipe, several small explosions are made to create fissures in the rock. This is done in stages throughout the length of the drilled hole. A combination of water, sand and chemicals is pushed into the drill hole with tremendous force. The force of the water pushes the sand and ceramics deep into the thousands of fissures as the mixture props open the small cracks. The natural gas or oil flows out of the cracks and into the drill 2

3 Premiere Investor Report The Oxford Club hole, and then up to the surface. Gasses for the Masses The United States has always produced the bulk of its own gas, but until recently the consensus was that U.S. production peaked in In fact, by 2005 the country seemed to be running short, and the industry was building expensive new tanker terminals to import liquefied natural gas. The fracking boom changed that Since 2005 gas production from deep shales has increased more than 10-fold; it now accounts for more than a third of total production, which last year surpassed the 1973 record. Estimates of how much gas is locked up in shales and how long the boom can last have varied widely. However, now there is no doubt that the United States will be able to provide for its own gas needs for many decades to come. In 2012 The Department of Energy released a revised-downward estimate of the amount of unproved resources of shale gas at approximately 482 trillion cubic feet. However, given this estimate regarding shale gas and including gas from other sources, the DOE evaluation implies that the United States has a 100-year-plus supply of natural gas. The gas from fracked wells is already benefiting U.S. consumers. Fifty-five percent of the homes in the United States have gas heat, and prices last winter reached a 10-year low. The overriding reason that natural gas prices have dropped is simple: oversupply. New fracking methods have made it possible to inexpensively access large pools of underground natural gas. In the short term this has created a natural gas glut. Obviously this oversupply isn t going to disappear overnight, and the negative outlook 3

4 The Oxford Club Premiere Investor Report for natural gas will continue for months to come. But you can be sure that natural gas usage will continue to replace coal as the preferred source for electrical power generation. In addition, its use as a transportation fuel will continue to slowly gain traction over the next several years. This will continue to raise the floor price of natural gas and make it more attractive to drillers once again. We re beginning to see this already as natural gas approaches $4 per million Btus (still far below the price of competing resources). Fact is, thanks to cheap and plentiful natural gas, this country is likely to achieve near total energy independence in less than 15 years. The bigger question is: How much of the world s energy will we provide? A major dilemma facing Saudi Arabia and OPEC and the rest of the major oil producers is one relating to accessibility. For years, the world has looked to the oil cartel for its energy needs. But that s all about to change The easy oil has already been found, pumped to the surface and used. What s left is the not-so-easy-to-get oil. And all the major oil producers realize it Oil is expensive to find. It s more cost effective to buy cheap natural gas reserves than to drill for oil. That s why all five of the biggest oil companies in the world ExxonMobil, Royal Dutch Shell, BP, Chevron and ConocoPhillips as well as some of the world s largest state-owned oil companies PetroChina and Petrobras, among others are spending billions of dollars on natural gas assets in some of the most prominent shale areas across the United States. In just eight short years, Saudi Arabia will be No. 2 in the world. According to the IEA s (International Energy Agency) latest World Energy Outlook, by 2027, the United States thanks to shale oil and gas will produce more oil and potentially provide for more of the globe s 4

5 Premiere Investor Report The Oxford Club energy needs than Saudi Arabia. Within a decade, according to a Department of Energy (DOE) forecast, the United States will become a net exporter of gas. Neither scenario is one that could have possibly been imagined 10 years ago. Even the Environmentalists Love Natural Gas No matter where you turn, the topic of global warming (or alleged global warming, depending on which side of the debate you re on), is probably the most hotly contested environmental question of our time. Hence the reason an internet search for rising greenhouse gas emissions (such as carbon dioxide or CO 2 ) brings up nearly 15 million hits. But here s one news flash you won t see nearly as often, partially because it doesn t suit the current political climate and matching agendas: U.S. carbon emissions have dropped to their lowest levels since Dwight D. Eisenhower left 1600 Pennsylvania Avenue in Hard to believe? Maybe. But it s true all the same. The information comes directly from the U.S. Energy Information Agency (EIA) in a technical report issued in August. That s even with the American economy adding 57 million more energy users over the past two decades. So really, U.S. CO 2 emissions per capita have dropped about 20%. How s big, bad, wasteful America doing it? You guessed it increased natural gas use. It s doubtlessly very tempting to conclude that America s frantic embrace of renewable energy, such as wind and solar, is responsible for most of the reductions in CO 2 emissions. After all, according to the Natural Resources Defense Council, the United States has increased its reliance on alternative sources such as wind and solar power by 300% in the last decade. That s a significant 5

6 The Oxford Club Premiere Investor Report leap by most standards, easily fueling the idea that those improvements account for our cleaner air. Yet the annual EIA numbers below clearly tell a different story: America s 30,000 wind turbines only reduce carbon emissions by 50 million tons. Biofuels lower emissions by a mere 10 million tons. Solar panels cut them down by a paltry three million tons. But natural gas? According to David Victor, an energy expert at the University of California San Diego, this greenest energy source of all reduces U.S. carbon emissions by 400 to 500 million tons per year. Just to put that number into proper perspective, it s twice the reduction the Kyoto Protocol placed on the rest of the world. Not that long ago, America generated more than half of its electricity from coal. Only one-fifth came from natural gas. Coal reigned supreme in the U.S. energy field, just as it had for the past century. But from about 2007 to 2012, there was a dramatic shift in those numbers. According to EIA figures, natural gas generation jumped to 32%, while coal generation declined by half! Basically, this country now produces as much electricity with natural gas as it does with coal. Unlike coal, natural gas burns without spewing sulfur dioxide, mercury or particulates into the air, or leaving ash behind. And it emits only half as much carbon dioxide. The greenhouse gas inventory compiled by the U.S. Environmental Protection Agency (EPA) shows that the nation s CO 2 emissions in 2011 were lower than (Preliminary data for 2012 indicates a further decrease.) Reduced emissions from power plants, mostly because many have 6

7 Premiere Investor Report The Oxford Club switched from coal to gas, accounted for a bit over a third of that. And the balance of power is still shifting heavily into natural gas. One factor is President Obama s war on the coal industry. Tighter regulations on coal-fired power plant emissions will impose additional costs on the industry. Second is the rising cost of mining coal. In its annual energy review this year, the EIA forecast an upward trend of coal prices [that] primarily reflects an expectation that cost savings from technological improvements in coal mining will be outweighed by increases in production costs associated with moving into reserves that are more costly to mine. Third is simply that the coal industry s woes are largely due to low natural gas prices created by an abundance of supply. As mentioned earlier, that natural gas supply is going to be around for quite some time. These changing market conditions have forced coal-fired plant owners to take a second look at their oldest, dirtiest, least-efficient facilities. As of June 2012, utilities have announced plans to retire 288 of the nation s 1,457 coal-fired electricity generators. The likely replacement natural gas-powered plants. Not only is a dramatic energy shift taking place in the United States, but over the next several years, an enormous shift is going to take place in the world market for natural gas. In short, as the United States begins to export its massive supplies, natural gas will become a global fuel in heavy demand from an energy-needy global economy just like oil is now. The growing move to natural gas has huge investing implications and offers tremendous profit potential for early investors. Here s two companies that will be major beneficiaries of the increasing use of natural gas. 7

8 The Oxford Club Premiere Investor Report The Best of Breed in Natural Gas Companies Based in Fort Worth, Texas, Range Resources (NYSE: RRC) is a leading independent oil and gas company with a particular emphasis on gas. The company drills and produces shale tight gas, coal bed methane, conventional natural gas and natural gas liquids, primarily in Pennsylvania, Virginia and West Virginia. It owns more than 5,000 producing wells, over 3,000 miles of transportation lines and has 1.8 million gross acres under lease. Range controls 1 million acres in the Marcellus Shale, a particularly attractive target for energy development in the Appalachian Basin, as well as hundreds of thousands of acres in low-cost, low-risk areas in West Texas, New Mexico, Oklahoma, Mississippi and Kansas. Over the last decade, the company has worked tirelessly to lower its cost structure, strengthen its balance sheet and upgrade its inventory. As a result, the company now finds itself in the best position in its history. Even with falling natural gas prices, Range achieved record operating results in Proven reserves increased 14%. Production grew by 12%. Back in February, the company reported full-year 2012 results with plenty of stellar highlights. These included: A 26% increase year-over-year in production A 29% increase in total proved reserves Continuing significant declines in unit costs GAAP revenues increasing 18% to $1.5 billion And the best is still ahead. Range has reached an inflection point. So results over the next several years should substantially exceed those of prior years. 8

9 Premiere Investor Report The Oxford Club As for the future In its year-end 2012 review, published at the end of February, management had this to say: Looking ahead, 2013 should be even better than We expect to grow production in the 20% to 25% range utilizing our existing lowcost, high rate of return investory We are looking for 2013 to be a year of increasing production, reserves, cash flow and earnings, which should translate into higher per share value for all Range shareholders. Bear in mind, the price of natural gas like any commodity is unpredictable in the short term. Quite frankly, it wouldn t be surprising to see the sector remain under pressure for a while. But Range has broad exposure to the sweet spots, or rich fields, that produce gas at an exceptionally low cost. That will enable it to survive even a prolonged period of weak prices for gas. But short-term or long-term, this company is well set to see its operations and its profits strengthen from here. In sum, natural gas is going to play an enormous role in our energy future. And Range Resources may be the single best way to play it. Action to Take: Buy Range Resources (NYSE: RRC) at market. And use our customary 25% trailing stop to protect your principal and your profits. A Natural Gas All Star Another promising natural gas pick and noteworthy energy provider is Plains All American Pipeline, L.P. (NYSE: PAA). Plains is involved in the transportation, terminal storage and marketing of crude oil. It sells liquefied petroleum gas (LPG) and other natural gas-related products. With over 18,000 miles of pipelines, 20 million barrels of storage capacity as well as a huge fleet of trucks, trailers, barges and transport tugs Plains covers all aspects of the natural gas industry. 9

10 The Oxford Club Premiere Investor Report The company is structured as a master limited partnership, and as such is subject to different tax codes. It allows the partnership to generally avoid federal and state income taxes. As a result, distributions to investors are either partially or completely tax-deferred. One of the reasons Plains looks so good is that it sports a healthy yield of 4.1% and a P/E under 25. Another is that it s actively engaged in the acquisition, development and operation of oil and natural gas storage facilities. Late in September, 2011, Plains announced it was expanding its St. James, Louisiana terminal facility for the third time in three years. Why? The storage business is booming, and the St. James expansion will add 1.5 million barrels of storage capacity. And last year alone, the company invested another $3.5 billion in further growing its business internally and through buying up outside bargains. Chairman and CEO Greg L. Armstrong further stated that he expects to incrementally invest over $1 billion in organic growth projects through the end of These investments provide meaningful visibility for increased baseline cash flow and distributions to unitholders. But there s still more to like about the company, judging by its 2012 full-year results For one thing, Plains produced $1.55 billion of distributable cash flow, well above even the higher estimates made to its guidance range. Better yet, it duly rewarded its investors, increasing distributions to its limited partners by a strong 9%. And earnings (before interest, taxes, depreciation and amortization, also known as EBITDA) for all four quarters was around $2.11 billion, a 28% difference than what it expected in the first half of That was in part due to an extremely favorable demand for the products it transports, and also because both management and non-management personnel rose to the occasion, handling the increases like the pros that they are. 10

11 Premiere Investor Report The Oxford Club Going forward, the company has high expectations, as expressed in its 2012 Chairman & President s Letter: We have essentially pre-funded the equity capital needs associated with our 2013 expansion capital program and are well positioned to pursue incremental growth opportunities throughout 2013 and beyond. In other words, it s set to take on this year with the same firm foundation and far-reaching but realistic goals it s known for. And Plains is confident enough to have already announced its intention to hike up this year s annualized distribution level by another 9-10%. In short, Plains is a great way to play the energy field, and receive a nice quarterly paycheck, to boot. Action to take: Buy Plains All American Pipeline, L.P. (NYSE: PAA) at market. And use a 25% trailing stop to protect your position and your profits. OC 11

12 From time to time, Oxford Club will recommend stock investments that will not be included in the VIP Trading Circle or in the Communiqué s Portfolios. There are certain situations where we feel a company may be an extraordinary value but may not necessarily fit within the selection guidelines of these existing portfolios. In these cases, the recommendations are to be considered as speculative and should not be considered as part of the Club s more conservative Communiqué portfolio. Also, by the time you receive this report, there is a chance that we may have exited a recommendation previously included in a VIP or Communiqué portfolio. Occasionally, this happens because we use a disciplined trailing stop philosophy with our investments, meaning that any time a company s share price falls 25% from its high, we sell the stock. NOTE: The Oxford Club is not a broker, dealer or licensed investment advisor. No person listed here should be considered as permitted to engage in rendering personalized investment, legal or other professional advice as an agent of The Oxford Club. The Oxford Club does not receive any compensation for these services. Additionally, any individual services rendered to Oxford Club members by those mentioned are considered completely separate from and outside the scope of services offered by The Oxford Club. Therefore if you choose to contact anyone listed here, such contact, as well as, any resulting relationship, is strictly between you and the Pillar One service. If you have any questions about your Oxford Club subscription, or, would like to change your settings, please contact us at Monday Friday between 9:00 AM and 5:00 PM Eastern Time. Or if calling internationally please call Copyright 2013-present The Oxford Club, LLC All Rights Reserved The Oxford Club 105 West Monument Street Baltimore, MD North America: ; Fax: International: ; Fax: customerservice@oxfordclubinfo.com The Oxford Club is a financial publisher that does not act as a personal investment advisor for any specific individual. Nor do we advocate the purchase or sale of any security or investment for any specific individual. Club Members should be aware that although our track record is highly rated by an independent analysis, and has been legally reviewed, investment markets have inherent risks and there can be no guarantee of future profits. Likewise, our past performance does not assure the same future results. All of the recommendations communicated to members during the life of this service may not be reflected here. The stated returns may also include option trades. We will send all our members regular communications with specific, timely strategies and updated recommendations; however, you should not consider any of the communications by our company and employees to you as personalized investment advice. Note that the proprietary recommendations and analysis we present to members is for the exclusive use of our membership. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printedonly publication prior to following an initial recommendation. Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. Protected by copyright laws of the United States and international treaties. This Newsletter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the worldwide web), in whole or in part, is strictly prohibited without the express written permission of The Oxford Club, LLC. 105 W. Monument Street, Baltimore MD K The Oxford Club 105 W. Monument Street Baltimore, MD R0830C2web0313