OBAMA! gets tough on BP
Editor's note: A quick correction to the June 14, 2010 Digest. Energy guru Matt Simmons is no longer associated with investment banking firm Simmons & Company. From a Simmons & Co. press release:
[W]e wish to remind industry participants, as well as our clients and friends, that the views of Simmons & Company International are separate and distinct from many of those being currently expressed by our good friend, founder and former Chairman, Matthew R. Simmons.
Last night, in his first address to the nation from the Oval Office regarding the BP oil spill (eight weeks after the fact), OBAMA! said he will "make BP pay." But following his bold statement, OBAMA! failed to offer any practical solutions. He did a hell of a job of delegating. Following George W's lambasting for mishandling the Katrina situation, it appears OBAMA! is attempting to keep his hands clean. The president will make BP deposit money in a Gulf recovery fund, controlled by a third party. He also asked former Mississippi Governor Ray Mabus to develop a long-term Gulf Coast Restoration Plan (funded by BP) "as soon as possible." And in his most definitive action, OBAMA! announced former Justice Department Inspector General Michael Bromwich as his choice to lead the Minerals Management Service, the federal bureau that manages offshore mineral and energy resources.
Keep in mind, the Deepwater Horizon oilrig exploded April 20, so it has taken the president almost two months to spring into action. And his plan is to draft a plan. OBAMA! did manage to squeeze a plug for his environmental agenda into the address:
The tragedy unfolding on our coast is the most painful and powerful reminder yet that the time to embrace a clean energy future is now. I say we can't afford not to change how we produce and use energy – because the long-term costs to our economy, our national security, and our environment are far greater.
While we can't be certain how OBAMA! will handle the oil spill, we can be certain he will demonize Big Oil and push for clean energy reform. And that's good news for natural gas. We've already seen Big Oil diversifying into gas (note ExxonMobil's $41 billion takeover of XTO Energy late last year). Stansberry analysts including Matt Badiali, Tom Dyson, Porter Stansberry, and Steve Sjuggerud have recently added natural gas exposure to their portfolios.
In his April 2010 issue, Porter told readers about the biggest oil and gas discovery in Texas history, Eagle Ford. He learned about the development from our friend Cactus Schroeder, a Texas wildcatter with an interest in the project. What makes Eagle Ford special (besides its massive reserves) is its high concentration of "condensate." Condensate refers to liquid hydrocarbons (think butane) trapped in the gas... As Porter described it, condensate is the "holy grail of the natural gas business."
Shale plays are big, rich resources... but they normally hold only a little condensate. Eagle Ford is proving to be a notable exception – it is rich in condensate. More information about the size of the field and the volumes of condensate and gas is coming out almost every day now, and the numbers get better and better. A year ago, only a dozen drilling rigs were working across the entire play, which stretches across more than 30 counties. Today, more than 50 rigs are drilling well after well.
I expect Eagle Ford to yield more than $2 billion in oil and gas by 2013 and to increase steadily for at least 20 years. These numbers mean Eagle Ford will probably produce hundreds of billions worth of oil and gas over the next 30-40 years. – Porter Stansberry, April 2010, Stansberry's Investment Advisory
About a dozen companies currently operate in Eagle Ford (including industry giants like ConocoPhillips, BP, and Chesapeake Energy). And private-equity powerhouse Kohlberg Kravis Roberts (KKR) is investing $400 million in the private exploration firm Hilcorp Energy to develop Eagle Ford. Just two weeks ago, KKR pocketed more than $1 billion profit selling its last natural gas investment – a $325 million investment in East Resources made one year ago.
The Eagle Ford project is gaining popularity by the day. And it promises to deliver hundreds of billions of dollars in profit to early investors. But you can't buy the big-name producers. The extra Eagle Ford production won't mean much to their enormous income statements. Instead, like KKR, you've got to buy the lesser-known operators. These companies could return hundreds of percent once Eagle Ford starts gushing. Porter recommended two in the April issue of Stansberry's Investment Advisory. He chose the best operator in the field, and the company with the most acreage on a per share basis. The first stock ensures readers won't miss out entirely on the upside. The second gives the possibility for huge returns.
Also, in the latest issue, Porter and co-editor Braden Copeland tell readers their favorite way to play the euro disaster.
To access Stansberry's Investment Advisory and learn these latest recommendations, click here.
Longtime readers surely remember Porter's bold June 2008 prediction:
Fannie Mae and Freddie Mac are going to zero. At some point in the future, they will be unable to raise additional equity at any price. And the next day, their shares will no longer trade.
We're fast approaching the day when Fannie and Freddie won't be able to raise equity... Today, the Federal Housing Finance Agency (FHFA), which regulates both government-sponsored entities (GSEs), ordered both to delist from the New York Stock Exchange. Freddie and Fannie's shares will now trade over the counter. In a statement by its director, the FHFA said its decision to delist the shares "does not constitute any reflection on either enterprise's current performance or future direction, nor does delisting imply any other findings or determination on the part of FHFA as regulator or conservator."
The market certainly doesn't buy it... Fannie and Freddie shares tumbled 46% to $0.49 and $0.65 per share, respectively. After $150 billion of government money, Fannie and Freddie are in worse shape than before. They will need up to $1 trillion of taxpayer funds to survive (not profit, mind you). Fannie and Freddie are government shills. They exist solely to help the government clean up Wall Street's balance sheets.
The FHFA says it had to delist the shares because they are trading for less than $1 (below the NYSE minimum). But that's garbage. Both Fannie and Freddie have enough shares outstanding to easily do a 100-to-1 reverse split, which would push shares above the $1 minimum. We think the government is delisting these shares to get around other requirements, like the minimum shareholder's equity requirement. With both stocks trading over the counter, the government can load these companies with even more debt. The over-the-counter listing will also discourage anyone crazy enough to speculate in these stocks.
If you haven't watched Tom Dyson's new video yet, do yourself a favor and check it out today. Tom explains how you can increase the dividends you receive from U.S. corporations with a single phone call. Some readers have increased their returns by hundreds of percent. This is a simple step you can take to improve your annual income for the rest of your life. To watch the video, click here...
New highs: Akamai (AKAM), Keyera Facilities (KEY-UN.TO), W.R. Berkley (WRB), San Juan Basin (SJT), SM Energy (SM).
Porter weighs in – yet again – on the inflation/deflation debate. And someone doesn't like our religious comments in the Digest. What's irking you? feedback@stansberryresearch.com.
"I've been reading every article that I can find on the inflation vs. deflation argument because without having some idea of what is coming, it's extremely difficult (if not impossible) to make wise investment decisions. At this point I would sum up my understanding as follows: If governments did nothing to intercede at this point – there would likely be deflation as debt levels decrease due to bad loans, defaults, reduced appraisals, etc. What the inflation camp seems to be betting on – with good reason – is that governments won't sit idly by as things deflate. Because no one can know for sure when the central banks will feel enough heat to start papering over deficits and debt & asset deflation – it's hard to say when the short term deflation will be converted into long term inflation." – Paid-up subscriber Mike Kuzy
Porter comment: Consult history. Find one paper-money standard that ever collapsed because the money was too valuable. Or find a paper-money standard that lasted for more than 50 years... in all of recorded human history.
"Perhaps you could publish a separate newsletter for those readers who wish to profit by your religious commentary, but don't count me in as a subscriber of it." – Paid-up subscriber Bruce
Goldsmith comment: The Digest is that separate newsletter. And best of all, it's free. You can stop reading any time you'd like.
Regards,
Sean Goldsmith
Baltimore, Maryland
June 16, 2010