Exploring the Arctic

According to experts and contractors, in 2012 could have started the drilling under the arctic ice. Our company is going to add to the many good initiatives that seek wealth submarine a diligent respect to the nature. Participating as sponsors in a project that will unveil many mysteries, among others, as how to survive in such clima conditions. Our future workers will appreciate that we have checked scientifically the best way for sleeping, feeding, health, etc.., before enrolling at our inventions. And our geologists, engineers and specialists will appreciate the confirmation of topographic and geodynamic details. 

Is clear that to explore the bottom, would be faster if we send ROV's mini-submarines to take samples and filming what their metal eyes can see. We will do it later, when we found that the hydraulic arms behave well at that temperature, depth and salinity. But you will agree with me that an oceanographic vessel meets all the glamour of the human adventure that never could be obtained with those marvelous yellow toys under the sea.

Working with prices

"The strongest principle of growth lies in human choice". (G. Elliot)

We usually find in the News many extravagants theories about the oil price formation. But the essential premise is the offer/demand game. The extracting and storage oil is expensive. If you don't have orders you don't extract more. Being true the main premise you can add later political and economical analysis to cook the value.  But most part of the time we have more o less a similar scenery between changes. 

In my opinion there are also confusion between targets in no producers countries. The renewable and nuclear energy has to reduce gas or coal imports or consumptions. And the oil has to maintain basically the necessities of transport. 

As soon as the countries reduce their dependence of gas or coal to produce electricity and heat by mean of renewables and nuclear, as soon we could stabilize the gas prices. As soon as the car industry replace the actual engines for hydrogen or electric hybrid systems, as soon we can stabilize the oil prices. Oil and gas are not a long term ressource for being investing this nightmare of money on it. In 20-30 years we have to live for the rest of our existence with small productions for chemical industry (10-20 m/b/d), if vessels and planes would found other alternatives. For me, as part of this industry, money is welcome. But we have to be ready to cut gradually this critical dependence. And higher prices are showing that we are not doing the right thing or more specifically at the right timing.

Instead of starting big plans for alternatives they invest enormous amounts in future oil and gas explorations. Thanks at least for being so constant. But the key for changing the price tendency is on their hands. The Opec, Russia and other producers should not have to pay for your lack of investing consistence. They only know that future extraction is by far more expensive than before and you have to pay the price of your choice. The oil and gas producers are not denying you from developing nuclear energy or developing at higher speed your renewable plan or reducing diesel dependence.  They have to save from this prices an important part for when you don't need more, to convert again their economies in other specialization to survive.

And of course whenever the investments of this sovereign funds become serious. Looking at the Norwegian Fundinvestment, among others titles, they invest in beer, football teams and porno stocks, a kind of joke difficult and hard to understand. The yield to obtain don't justify this stupid mix with the industrial effort, the local landscape impact and the blood of many workers. The Fund administrators claim that they don't invest in companies under suspicion of children labor abuse. According to those talented gentlemen, investing in Playboy TV channels is the alternative. Heroes!

Oil hunger and drilling capacity

"In the business world, the rearview mirror is always clearer than the windshield". (Warren Buffett)

We will not need too much time to recognize that if the main oilfields in the world are producing less oil,every year we have to improve and increase the process of drilling to maintain at least the same production.

The seismologists can offer quicker surveys everyday but finally the drilling projects has to bring the right answer to the market expectations. Improving the actual systems would be a significant help specially taking again old wells. But the more consistent way would be having more drilling projects and reducing the targeted time to success.

The oil equipment industry is receiving mountains of money from the financial markets and they are responding positively with great progress. But at the same time, with big delivery terms because of the complexity of new technologies and the incredible sizes of the projects. Take a look to Sevan Marine in Norway to see how big an order could become.

The second limit is the recruiting process. There are not too much people trained and now we are facing the first important retirement generation of the genial engineer who starts making this modern industry. I love them for its big sacrifice and passion and I hope many of them could remain as external advisors. But anyway we need a new generations able to sacrifice the actual comfort life to live in tropical or iced territories without ideal conditions to keep a family project with them. The generational shift is being hard for the industry despite the better conditions in platforms and their 'zero accidents' programs. Alpha Pipper is already a bad memory ad we learned a lot about that tragedy.

In brief, no problem with this speedy equipment industry but like in the army, we will need more officials and soldiers in a short period of time if we want to gain the war. Before another 'iluminati' want to save us again changing food for fuel. The timing for renewable is going ok according to the main government experts, surely they know why such things are only said arriving elections. But it would be better if we accelerate a little the technical and human resources availability to let the world keep satisfying its irrational oil hunger.

 

There will be blood

'"People don't start wars, governments do". (Ronald Reagan)

Markets use to be the answer. And if Obama would result the next USA President, what would happen with the oil market?  It would be really different with Hillary Clinton in the Oval Office?

I'm sure we are facing two very different positions. The way to obtain their 20 m/b/d will change again the geopolitical equation of power.

No matter the colour of the skin, the relevant fact will be the size of compromises with voters and supporters. And finally how they would transfer this political assumptions to the market and the interests around.

Nothing easy to calculate and for many reasons I would prefer Clinton. But americans seems to vote more an image than concepts. "There will be blood".

To drill or not to drill. That's the question.

"The secret of my wealth? - Some people find oil, some don't". (Paul Getty)

We live under many oil market parameters but only a bunch of investors knows the secret. To maintain the actual level of production we have to increase the level of drilling on and off-shore. The wiser players in the market and the sovereign funds know it. They are betting strongly for Equipment companies till P/E ratio above 28 against 11 for Producers.

In the practice, in Europe, being Russia the main producer, the drilling has 2 significant problems to solve. One, difficulties to lease rigs in their territories. Other, but not minor, the future technical challenge of drilling in deep waters. Both cases requires an extraordinary amount of capital on private equity regarding others wells easier to explore.

I don't want to hide to my readers, that my alter-passion for renewables is the drilling activity. The first time I saw a rig reaching oil, I was 10 years old. I felt fascinated by the Schlumberger and Caterpillar equipment. I kept in my memory this technical adventure to extract from the earth the powerful liquid. Unfortunately the oil quality was'nt good, because of  arsenic contamination, but I understood that the essential on this oil industry is to drill.

Many human necessities and consumer expectations are in fact based upon this drilling activity. We have the immediate future of the human kind in every turn of our bit. Later we will have residual but not less important extraction, before to be reconverted to the promised green life.

 

In 10-15 years, we will have time to reduce equipment investment and accepting a longer depreciation for the machinery. But in the meantime, funds must be sent primarily to the equipment and service industry. The oil producers are nothing without rigs.  The OPEC knights and the rest of suppliers, don't have any other surviving possibility than drilling more and more to maximize their unexplored wealth in a short period of time.

To drill or not to drill. Maybe not the only important question, but is the only way to serve faithfully the world expectations of growth meanwhile our governments decides to aply or not the full oil taxes to change this critical dependence. Of course, there are a big risk in how politicians handle the timing  of our pick oil and sustitution of energy. But having a strong and   responsible drilling industry is a world priority today.

Oil price forecast

"Man is what he believes". (Anton Chekhov)

Which elements are capital in the oil price forecast? How will they affected it in the next 3 months?

First of all, the OPEC is depending of the level of the level of demand and production to set a price.  In the short time no big changes are conceivable in production, and the natural increase due to Asiatic growth will be absorbed by the world sensation of crisis. The 87 mbd peak would be enough for the market and the new magaprojects, of course, are not ready to contribute yet. 

The oil price due to the last bad financial news has been suffered daily small reductions (comparing financial markets) towards a 84 $ former support.

To cross the psicological 100 $, a strong demand and bullish financial market would be necessary. That will, for sure, not be the real scenery for this quarter. Most part of the estimations around 120 $, were predicted before the last crash. 

Positions to one year sight, personally are truly irrelevants. Too much variables in a not necessarily  world in peace. Nobody doubts that after the expected peak oil we will see prices of 200-300$, something to focus on, but not to invest money on today

Golden Peaks forecast: this first quarter we will be around 84 $ (+/-  5% range). 

  

The winner mix

"In a crisis be aware of the danger - but recognize the opportunities". (J.F. Kennedy).

In an extraordinary month for markets, global equity prices suffered wild swings as growing worries about a US recession, everything changed deeply but the oil prices and its equities. Oil producers and equipment resisted in a very comfortable position against generalized losses.

Why they did not follow the same pattern of others titles? My intuition is that the sovereign funds are supporting this area, because is closer to their sources and permitting them an easy understanding. It is normal that expecting a recession period they sell all sectors in which they don't feel anything and protect where they are currently living. Selling before the summer house than the family home.

Considering that this moment could be one of the lower value for stocks, start buying in that areas should be a good advise. At least a 50% of the purchase budget giving a chance to rebound again (only to thank the chart analysts its graphic of 'dead cat...'). We already composed our new basket and we will see what happen. Good luck!

GOLDEN PEAKS winner mix (Equities + Funds): 20% Oil Equipment and Drilling+15% Oil Producers+15% Renewable Energies+10%Oil Transport+10% Nuclear+10% Matthews China Fund+10% Fidelity Select-Energy+10% Jennison Natural Resources.