Offshore is the last great frontier in the oil business, the only undiscovered country out there, unless you think there’s oil on the moon. The trouble with going offshore is that it’s incredibly expensive and ridiculously hard to do. There are a handful of firms in the world with the engineering know-how to find and produce oil from the depths of the sea. You reckon business will be good for them in the coming years?
While we’re on the subject of oil services and production, it’s a good time mention a stock that’s rarely discussed in polite company anymore, Halliburton (NYSE:HAL). It’s a stock everyone loves to hate, or, if you are a practical investor, a stock you might hate to love.
Halliburton is hated because it’s Dick Cheney’s old company. It’s also perceived as being a war-time profiteer, which may or may not be true. Advocates of so-called “ethical investing” are morally outraged that anyone would buy, much less profit, from a company like Halliburton.
Whatever else it is, Halliburton is indisputably one of the top oil service companies in the world. Yesterday, HAL reported third-quarter profit of US$727 million on US$3.93 billion in sales. Hate it all you want. But don’t let your hate cloud your investment judgment: oil services is a great market to be in at this particular phase of human history. Why?
“Only oil that has been found before can be produced.” Elegant. Simple. Indisputable. Thus begins the summary of a paper on the future of oil from the German Energy Watch Group.
It continues, “Therefore, the peak of discoveries which took place a long time ago in the 1960s, will some day have to be followed by a peak of production. After peak oil, the global availability of oil will decline year after year. There are strong indications that world oil production is near peak.”
Here is the argument in chart form:
With all this ominous news about higher oil prices, Warren Buffett has sold his position in China’s largest oil firm PetroChina (NYSE:PTR). “We made about US$3.5 billion on (an approximately) US$500 million investment,” Buffett told Dow Jones. “I still sold too soon as it turned out.”
Should we be buying when Buffett is selling? Buffett says the sell on PetroChina was not a result on pressure from shareholders to divest from a Chinese company linked to the refugee crisis in Darfur. It looks like Buffett was just taking a healthy profit and, perhaps, anticipating that a nice little bubble has developed in Chinese shares.
Markets and Money