Keith Kohl - Angel Publishing

Natural Gas Investments

Is the Pickens Plan still a bridge to the future?

Yesterday marked the one year anniversary for oilman T. Boone Pickens' energy plan aimed at quelling our addiction to foreign oil. And if you've been reading the headlines lately, then you have undoubtedly heard about the recent roadblock thrown in front of his vision.

If you need to refresh your memory on the Pickens' ploy to cast off our oil-coated shackles, here's a good run down of The Plan.

In a nutshell, the plan has two main pillars of action: The first being to boost our country's electrical generation by wind to 22%. The second (and most important, in my humble opinion) highlight was focused on boosting America's prominent natural gas resources to replace crude oil as a transportation fuel. While there are further features to his plan, these two felt like the key factors to his platform.

That roadblock I just mentioned happened exactly one year after the Pickens Plan. T. Boone announced yesterday that he is abandoning plans to build the world's largest wind farm in Pampa, Texas.

Now, before you prematurely jump on the skeptic bandwagon, remember that many of Pickens' points still hold weight. With only 4% of the world's population, we're still guzzling 25% of the world's crude supply. What's worse is that we're still importing 12 million barrels of oil every day from foreign countries (as I've pointed out many times before, nearly half of that comes from OPEC).

Boone's pullback on wind makes one thing very clear to the rest of us, and I believe Pickens put it best, saying that natural gas is, "The only option at this point. It's the one and only resource in America that today can replace foreign oil. It is a cleaner, abundant fuel."

I couldn't have put it better myself.

And there isn't more opportunistic chance to capitalizing on this shift towards natural gas than right now. In fact, my colleague, Brian Hicks, also sees a huge buying opportunity developing for investors. You can check out his latest natural gas play here.

Until next time,

Keith Kohl

When To Invest in Oil

We're at a critical junction for oil prices.

If oil prices continue falling, we're going to be right back where we started. More projects will be shelved and future supply will be put on hold. We'll simply end up with another supply crunch from the lack of new investment.

And right now, we're staring at a huge buying opportunity for investors, but I'll get to that in a bit.

I simply can't see oil prices falling below $60 per barrel for very long (assuming the latest sell off drives prices that low). The reason? For starters, hindering new supply much longer will only lead to another crunch.

Let's be honest, the cheap, easy-to-get oil is nearly gone. Even the mighty Ghawar field looks more like a gigantic wishing well, considering the amount of seawater they're pumping into it.

Unfortunately,the U.S. can't afford to wait around much longer. If you haven't noticed, our domestic production has been spiraling down the drain lately. And last year turned out to be quite a year for U.S. oil production.

In fact, last year our domestic production fell below 5 million barrels per day (4.95 million barrels per day, according to the EIA). The last time our production fell below that mark was in 1946. If you don't want to take my word for it, check it out for yourself. Meanwhile, our consumption levels grew to more than 20 million barrels per day.

Understandably, much of that production loss can be attributed to oil prices' collapsing to $30 per barrel in 2008. However, that price collapse took its toll. Companies across the board were forced to slash drilling budgets.

According to oil-field services company Baker Hughes, there are approximately 908 rigs drilling for oil and gas across the U.S. To put that into perspective, there were over 1600 rigs operating last September.

But the problem isn't just our declining production. Remember, the U.S. is importing approximately three-quarters of our demand. Nearly half of our imported oil comes from various OPEC countries (Canada remains the leading source, but our addiction is still mostly dependent on OPEC as a whole).

And trust me, OPEC knows exactly how valuable their crude is to the market. . .

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OPEC Oil Production

If you need any more convincing, look no further than Iraq.

The latest round of bidding to develop several of Iraq's oil fields ended up in disappointment. Due to tough pricing (set at $2 per-barrel payout for new production), only one bid was awarded. Trust me, Iraq's oil ministry knows how important their oil will be to future supply.

Although the first round of auctions only resulted in one successful bid, another round is slated for later this year. This time, oil execs will have some time to think the terms over, and I have a feeling we'll see more than one bid. We know Iraq's fields will eventually be developed. They're simply too good to pass up.

The last time I talked about OPEC, prices were pushing higher, and the Saudis were calling for $75 a barrel. That was last March. Oil prices nearly hit that mark, reaching as high as $73.90 per barrel nearly a month ago.

Don't hold your breath waiting for OPEC to boost their production. Even with the latest sell-off, I wouldn't expect OPEC to open the taps suddenly.

As if on cue, Kuwait reiterated that fact on Sunday, stating oil prices won't go below $60 per barrel. So, if $60 is the bottom, how much is too much?

According to the same Kuwaiti oil minister, $100 per barrel would hurt the world's economy. However, he was quick to point out that even $100 per barrel would not lead to an increase in OPEC production.

If we don't see oil prices rebound within the next week, expect OPEC to continue warning us on the danger of future production.

Assuming the world's economy eventually gets its act together, we'll begin to see demand rise. In their latest Medium-Term Oil Market Report, the IEA projected global demand will reach 89 million barrels per day within the next five years.

The times, dear reader, they are a-changing.

Is This the Next Buying Opportunity?

So, where does that leave us?

Like I mentioned before, we're staring at another buying opportunity. Even if oil prices were to fall below $60 per barrel (currently trading higher at $64.56 a barrel this morning), it won't be for very long.

And the next rebound in prices will certainly boost those undervalued stocks that have been unfairly beaten down. For example, if you had told me a few months ago that I could buy my favorite offshore drillers at this much of a discount, I wouldn't hesitate for a second. A lot of those companies have been extremely oversold lately, and most of my readers are on the verge of picking up more.

As we move towards the backside of Hubbert's peak, things are going to be a lot different.

And one simple fact remains: in order to keep new supply flowing, oil prices cannot fall much lower. Every day oil trades under $60 a barrel (some argue $70-$80 a barrel) will only cause problems bringing new supply online.

I believe we're going to see oil prices move higher, making today the next buying opportunity.

Anyone care to take me up on that bet?

Until next time,

Keith Kohl

Editor's Note: Recently, my colleague, Brian Hicks, uncovered an economic catch-22 in the oil markets that will make investors a tidy profit off the next oil price rally. In fact, many of my readers have already made a small fortune from oil's first run to $75 per barrel. And I would be remiss if I didn't offer all my Energy & Capital readers the same chance to make those gains. Click here to read the full report on this quick money-making opportunity.

The Oil Sands of Alberta Canada

Things were much different when I made my 40-hour trek to Alberta's oil sands.

At the time, oil prices were passing $70/bbl and on their way to $100 a barrel. I absolutely had to see the massive oil sands operations in Fort McMurray.

Can you blame me?

Production from the oil sands is one of the reasons why Canada remains the largest source of oil for the U.S. The sky was the limit for Alberta as oil made its run to $147 per barrel. And it wasn't just the U.S. that had its sights set on oil sands production. I distinctly remember how all the signs in our hotel were written in both English and Chinese.

What a difference a year can make. As I'm sure you know, Alberta was hit extremely hard when oil prices collapsed to $30 per barrel in late 2008. Once oil prices fell below $40 per barrel, I was told time and again it was the end for Canada's oil sands.

I didn't buy it.

The fact is they've been producing oil there for decades. I knew if these companies were able to keep running when oil was much cheaper during the early 1980s, they would survive 2008's price shock.

Sure enough, oil prices managed to rebound in 2009. Now we're back at $70/bbl oil, and I think we're about to see another revival in oil sands production. However, this revival won't be focused on the massive mining operations that give the oil sands their dirty reputation. Furthermore, the next generation of the oil sands could make investors a small fortune.

I'll get to that in just a moment.

Canada's Alberta Oil Sands

It's no secret Alberta has had its fair share of trouble. When Alberta announced its 20% royalty hike a few years ago, companies started to look for better opportunities elsewhere. With the huge potential of the Bakken play in southeastern Saskatchewan, companies soon flocked to Alberta's neighboring province.

Recently, Alberta fought back, revising its royalty program (for the fifth time since 2007) in order to boost drilling activity. The Alberta government recently extended two drilling incentive programs to March 2011.

That's a start. But let's get back to the oil sands. . .

A few weeks ago, I found myself in a heated debate over the future of the oil sands. And one thing soon became clear to me: this gentleman knew absolutely nothing about where oil sands production was headed. All he could focus on was how the dirty tar sands were plaguing the environment. Hence, the oil sands were an abomination that must be stopped.

To a certain extent, he was right. The massive surface mining operations involve an energy-intensive process that leaves a huge environmental footprint. Granted, he wasn't aware of the reclamation projects underway.

The problem, however, was that he knew practically nothing about oil sands extraction. If he were a little better informed, then he might have been able to see the oil sands in a different light.

20% Wind Energy by 2030

The U.S. Department of Energy has released a report stating that the U.S. could get 20% of its electricity from wind power by 2030.

For that to happen, $20 billion needs to be invested every year for the next 20 years, bringing the two-decade U.S. wind investment total to well over $400 billion.

In Europe, over one third of all new electrical generating capacity will come from wind for the next 10 years. After that, wind's share will grow to 46% of all new generation capacity.

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For starters, only about 20% of the entire oil sands resource is too deep to be mined. And that, dear reader, is the key to realizing its potential.

You see, the next generation in oil sands extraction is not with those surface mining pits, but rather using in-situ methods like SAGD (Steam Assisted Gravity Drainage). In SAGD, steam is injected into a deposit in order to heat up the thick bitumen. Lowering the bitumen's viscosity will allow it to flow towards producing wells.

I wouldn't be so quick to lump these in-situ methods in with those devastating surface mining operations. In fact, in-situ operations leave approximately the same environmental footprint as conventional operations (not to mention they use 20% less water than the mining projects).

Now, that's not to say there aren't still obstacles to overcome. The SAGD method, for example, emits more greenhouse gases per barrel than mining and is still an energy-intensive project.

Naturally, there are more in-situ methods being developed for commercial production. Petrobank's THAI process immediately comes to mind, which involves a fire flood underground and upgrading the bitumen underground. The THAI process is projected to recover between 70-80% of the oil-in-place, compared to the 20-50% recovery from current in-situ methods. Furthermore, the THAI process uses a negligible amount of natural gas and water.

Considering 97% of Canada's oil reserves come from the oil sands, I think it's safe to assume development will continue. Unless, of course, you'd like to see our dependence on OPEC oil rise.

Need more proof of an oil sands revival?

Look no further than Section 526. . .

Section 526

Section 526 of the Energy Independence and Security Act of 2007 had some strong implications for the Canadian oil sands. Section 526 targeted unconventional petroleum sources with greenhouse gas emissions greater than conventional sources. In other words, Section 526 prohibits the government from purchasing fuels with a higher carbon intensity than gasoline.

On June 17, the U.S. Senate Energy and Natural Resources Committee voted for a bill that could put the oil sands back in our good graces. One amendment passed by a voice vote stated U.S. refiners would not be in violation of Section 526 by buying crude oil produced from Canadian oil sands.

With oil prices on their way to $80 per barrel, any weakening of Section 526 will undoubtedly boost oil sands activity. And I expect those smaller companies developing new in-situ recovery methods will come out on top in the next round of oil sands' profits.

Until next time,

Keith Kohl

Energy and Capital

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The Facts on Methane Gas Hydrates

"Are gas hydrates the answer to our energy problems?"

You'd be surprised how many times I was asked this question over the weekend. It started with a few emails that began trickling into my inbox. By the time I was able to respond, the floodgates had opened. Considering that gas hydrates have been making headlines recently, I should have seen it coming.

It's not often you find me this skeptical over a new source of energy. I would even bet a few of you thought I was headed on another tirade against LNG. I've always been clear to my readers about my concerns over liquefied natural gas.

Not much has changed. I still think it is nothing more than a sinkhole for your hard-earned money, but we'll save that argument for another time.

To be honest, the first thing that comes to mind about gas hydrates has nothing to do with natural gas. Instead, it was the Green River oil shales.

Think about it for a second. . .

Here we have two massive deposits of oil and natural gas that may never be commercially developed.

The problem in both cases is the lack of technology necessary to develop these resources. A best-case scenario would still mean we're decades away from commercial production. That date is pushed further back when you consider how far oil and natural gas prices plunged since last July.

For the sake of anyone still scratching their heads in confusion, here's a brief rundown of the situation.

Gas Hydrates

It's been nearly three years since I last mentioned the possibility of developing methane gas hydrates.

At the time, I had said "The current state of methane hydrate technology appears very disheartening, and production from these hydrates is more suitable in science fiction."

So what exactly are gas hydrates?

According to the USGS, gas hydrates are a crystalline solid consisting of a gas molecule surrounded by a cage of water molecules. These hydrates are found in ocean-floor sediments at depths of more than 500 meters. The gas hydrates are able to form under the cold temperatures and high pressures found on the ocean floor.

In other words, we're talking about chunks of methane-filled ice that scientists are able to collect.

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And even though the amount of methane gas hydrates can't be pinpointed, the higher estimates suggest there are more than ten times the amount of gas hydrates than currently known reserves for conventional natural gas.

Not too shabby.

And as I mentioned earlier, methane gas hydrates have been making the headlines lately. . .

The Ice that Burns

Last November, a U.S. research team reported that approximately 85.4 trillion cubic feet of natural gas could be potentially recovered from gas hydrates located in Alaska's Northern Slope. Remember, that's how much can be developed and produced.

Don't confuse this number with the 1995 USGS assessment, which came out with a staggering 590 trillion cubic feet of natural gas. The 1995 estimate was an assessment of "all volumes of gas" rather than what could be technically recoverable gas.

To put that in perspective, the world uses approximately 100 trillion cubic feet of natural gas per year, and the U.S. consumes nearly a fifth of that amount—a little over 20 trillion cubic feet of natural gas per year.

Another recent development came from the Gulf of Mexico. Several drillers announced that they had found large deposit of methane gas hydrates on the floor of the Gulf of Mexico.

Of course, there's a catch when it comes to gas hydrates, and a very specific reason why I can't too excited over its potential.

Gas Hydrates: Wishful Thinking or Future Production

Right now, developing the world's deposits of gas hydrates seem like nothing more than a bit of wishful thinking.

For starters, the technology is to commercially produce gas hydrates may be decades away. Personally, I can think of much more profitable plays for natural gas investments.

The emergence of prospective shale basins over the last several years is too difficult to ignore. Now factor in the new advances made in horizontal drilling and hydraulic fracturing techniques. I know these shale plays aren't new to my readers. More importantly, we're able to bring that production to market, unlike the methane ice lying at the bottom of the ocean.

It makes sense the U.S. would develop those unconventional onshore fields before extracting gas hydrates off the ocean floor. Also imagine how many more advancements those shale drillers will make by the time we're technologically proficient enough to commercially recover gas hydrates.

While the development of gas hydrates may be only a matter of time (a long time, in this case), there are simply better opportunities out there available for investors.

Until next time,

Keith Kohl

Energy and Capital

Editor's Note: Let's be honest with ourselves, do we really want to wait around for decades while scientists try and develop the technology needed to commercially produce gas hydrates? I didn't think so. But my colleague, Ian Cooper, has been taking advantage of a perfect storm developing in the energy market. I suggest you take a look at these profits for yourself.

2009 Crude Oil Forecast

It's only a matter of time. . .

Even as oil dips below $70 per barrel, I wonder how long it will be until crude is trading back in triple digits.

Yes, you read that correctly.

And quite frankly, I have a feeling many of you agree oil will move that high in the long run. Understandably, there are a few dissenters. I can remember a particularly vicious email from a gentleman who was certain oil would remain below $50 per barrel for at least another five years.

I couldn't help but laugh at the idea.

For the sake of decency, I'll spare you the expletives he used to justify his prediction. And as you know, things turned out a little differently than my disgruntled friend believed. I'll bet those of you (like myself) who felt oil was sorely undervalued at $40 per barrel have done quite well since early March.

Lately, there have been a number of predictions tossed back and forth. Take the latest forecast by Goldman Sachs — they're calling for oil prices to rise to $85 per barrel by the end of 2009, with tighter fundamentals and an economic recovery as the driving forces. They're betting OPEC will cut output and lower supply.

Toss in some good news on an economic recovery, and oil's climbing to $85 a barrel is certainly a possibility.

If that's the case, where will that put us? Well, I'll put it this way — every day that oil trades lower is another opportunity for investors take advantage and post some solid gains.

But before I get into that, let's quickly go over why oil's price may be headed back to triple digits. . .

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Crude Oil Forecast

Although the U.S. is the undisputed king of oil consumption, don't take your eyes off of China. In fact, if things continue the way they have been, China will take our oil guzzling crown as early as 2014.

Last week, China reported its industrial production grew 8.9% last month compared to a year ago. The news had two immediate effects. . .

For starters, the news was enough to help push crude oil as high as $73.23 a barrel during trading last week. Furthermore, the industrial growth also led the IEA to revise its global demand forecast.

For the record, that's the IEA's first demand projection increase since last August. Their monthly oil report expects global demand to fall by 2.47 million barrels per day (their previous estimate was a 2.56 million barrel decline).

If the IEA report isn't enough to make you believe demand is back on the rise, also take the Energy Information Administration's (EIA) weekly oil report under consideration.

A week ago, the EIA reported a 4.4 million barrel draw on U.S. crude oil stocks. Last Tuesday, the administration released its Short-Term Energy Outlook, which stated that U.S. motor gasoline demand will increase by 30,000 barrels per day due to lower prices. Also, the EIA reported that an economic recovery in 2010 will lead to a 300,000 bbl/day increase in total liquid fuel consumption.

And then we get to OPEC. . .

The Next Oil Price Spike

Recently, Saudi Arabia reiterated that problems still persist in the oil markets and pointed out that a barrel of oil is still less than half the price from last July's record of $147 per barrel.

Even though oil is still trying to find support at $70 a barrel, the Saudis still insist future investments are in danger. Their state-run oil company, Saudi Aramco, said 2008's oil price collapse was merely "a temporary phenomenon."

They went even further, saying, "If others do not begin to invest similarly in new capacity expansion projects, we could see within two to three years another price spike similar to, or worse than, what we witnessed in 2008."

For once, I'm inclined to agree with the Saudis.

Depending on demand growth over the next 12 months, I think $100 per barrel is within reason. As for further OPEC production cutbacks, I'd like to hear their next 'comfort level' price for oil. If crude prices rise over $80 per barrel, I wouldn't be surprised if OPEC suddenly felt that $90 per barrel was acceptable.

But let's get back to another matter at hand. . .

What will another oil price spike mean for us? Well, as you might expect, another run for oil will open the door wide for investors.

Going Long on Oil

It's no secret many of my readers have been raking in huge gains since early March. I'd say it has been a pleasant ride for some of us.

Last Friday, investors began taking some of their profits off the table. And for the most part, I can understand their reasons. Oil finally broke $70 per barrel and is looking for support. The latest round of selling was due.

Trust me, dear reader, taking a gain is never a wrong move, especially in today's market. And if you've waited on the sidelines, I can only hope you're on board for the next run. Like I said earlier, the door is wide open right now. Next week, I'll show you my five favorite oil companies worth picking up before oil makes a climb over $80 a barrel.

Until next time,

Keith Kohl

Energy and Capital

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The Horn River Basin

Let's face it, there hasn't been much pushing natural gas lately.

While oil prices are trying to find support at $70 per barrel, natural gas has stubbornly remained under $4/Mcf. At least, that's been the theme for natural gas in 2009 so far.

The problem stems from the current surplus of natural gas. Also, shale production had a record-setting year in 2008— U.S. onshore production jumped approximately 9%. Things were looking great for natural gas producers, and investors couldn't have been happier. . .

That is, until the economy hit the proverbial fan. The ensuing disaster destroyed demand, and prices deteriorated quickly. Demand has dropped by an estimated three billion cubic feet per day since last October.

When you take into account the production growth from those shale plays, it's no wonder prices plummeted. There was no way to alleviate the glut of natural gas. Companies were forced to scale their drilling efforts back drastically.

As much as I'd like to predict that natural gas will head back over $15/Mcf this summer, I think we can all agree it won't happen. In fact, there will be quite some time before we see that price again.

Several other analysts have preached to their readers about prices dropping below $2/Mcf, but I simply don't believe it.

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And even after watching prices slide more than 75% since last July, I can't think of a better time to get back into natural gas.

For starters, drilling activity has been crushed. In the U.S., there are currently 700 active rigs drilling for natural gas. That's compared to over 1,600 rigs running a year ago. The downturn in drilling will undoubtedly have an effect on production this year.

Once we move into the heating season, we may finally begin to see demand pick up again. Furthermore, any good news for an economic recovery will help push demand higher.

I know what some of my readers are thinking: "What about LNG?"

Many of my veteran readers know that I'm not a huge fan of liquefied natural gas. Even though the U.S. is expected to receive more LNG this summer, I'm still not convinced. According to the EIA, LNG imports in 2009 thus far aren't enough to get excited over.

The reason for my lack of faith in LNG shouldn't come as a surprise. When demand finally begins to pick up again (and it will, dear reader— all it takes is time), those shale plays are going to make a comeback.

One in particular has managed to stay below the radar. . . until now.

The Best-Kept Secret in Natural Gas Discoveries

Ask yourself, "What's the first thing that comes to mind when someone asks me about shale gas?"

I'd bet the answer is one of the prospective shale plays in the U.S., whether it's the Haynesville shale in Shreveport, Louisiana or even the Marcellus shale stretching across several states, including Pennsylvania, New York, Ohio, and West Virginia.

You might even think of the play that started the shale bonanza: the Barnett shale in Texas. Companies were able to extract the natural gas from the Barnett shale as early as 1980. People really started taking notice after advancements were made in fracturing techniques and horizontal drilling.

After the success of shale production in 2008, the cat was out of the bag.

Companies quickly rushed to grab as much land as possible, and the major players established their positions. However, one shale play in British Columbia was lost in the frenzy.

The Horn River Basin Discovery

The Horn River Shale Basin is located in the northeast corner of British Columbia. Don't feel bad if the name doesn't ring a bell. Truthfully, not many people have heard of it. Nevertheless, this shale gas field is being hailed as the largest in Canada.

And much like the U.S. shale plays, the Horn River shale is huge.

There's an estimated 250 trillion cubic feet of natural gas in the formation, and up to 20% of it is considered recoverable. Considering the fact that Canada's natural gas production has been in jeopardy, this can only come as good news to future production.

Since the Horn River Shale Basin is relatively new to the scene, investors have several options open to them.

Investing in the Horn River Discovery

Of course, the usual suspects are present in the Horn River basin. Apache Corp. (NYSE: APA) and EnCana Corp. (NYSE: ECA) each operate on half of their 400,000 acre position. Both have also performed admirably since early March.

However, that's not the only road available for investors.

Last year, I told my readers the Horn River basin wasn't going to be an overnight success. In order to bring this production to market, the Horn River shale will need to develop a better infrastructure.

If you're looking for a strong infrastructure play, take a closer look at Spectra Energy Corp. (NYSE: SE). The company is planning to raise capital expenditures to approximately $1 billion next year.

Like every other energy company, Spectra has had to cut spending this year due to lower natural gas prices. The company has announced it is looking to expand its gathering and processing capacity in the Horn River shale.

Then again, if you're waiting for natural gas prices to reach $15/Mcf before making a move, you've already lost the game.

Until next time,

Keith Kohl

Energy and Capital

Investor's Note: Developing shale plays like the Horn River basin are going to play a strong role in future production. That much has been evident over the last few years as shale production has taken off. And profiting from these new shale basins is nothing new to members of the $20 Trillion Report. Don't wait for energy prices to peak again before you decide to find those profits.

Uranium Price Outlook

Whenever I mention the name M. King Hubbert, the first thing that comes to my readers' minds is probably peak oil.

That's understandable, right?

Even the few of you (very few, I hope) who are stubbornly optimistic about the world's future oil productoin have at least heard of peak oil. Okay, you're probably wondering how uranium comes into play here.

As many of you are aware, the concept of Peak Oil was first presented in Hubbert's famous speech to the American Petroleum Institute conference in 1956. What you may not realize is that Hubbert actually titled his speech, "Nuclear Energy and the Fossil Fuels."

Don't believe me?

Well, I'll let you read the original paper for yourself. For those of you interested in viewing that piece of history, I've provided a link in a note below. Please feel free to leave a comment and let me know what you thought of it.

As the age of fossil fuels comes to an end, Hubbert argued in his 1956 paper, nuclear energy has the potential to take over oil's throne. And to be honest, part of me can't help but agree.

However, as much as I'd like to get behind renewable energy, the fact remains we're decades away from renewables' being able to produce energy on a such a massive scale.

The scale of energy is simply amazing. Here's a breakdown you might remember from before:

1 kg of firewood equals about 1kWh of electricity.
1 kg of coal or oil comes out to about 3 or 4 kWh of electricity.
And 1 kg of natural uranium equals nearly 50,000 kWh of electricity!

Don't get me wrong, dear reader, we need to develop every source of energy we can get our hands on. Nobody should be arguing otherwise, especially considering global oil production is in for a serious wake-up call. And there really isn't a better time to get a piece of the action than right now.

Uranium Price Outlook

Now, uranium has always been one of the best ways to play nuclear energy. Many of you may even recall when uranium prices had a huge run between 2002 and 2007. Uranium rose as high as $136 per pound in 2007 (from a low of $8 per pound in 2002). That means the price of uranium jumped about 1600% between 2002 and 2007.

However, prices soon came crashing down:

As you can see, things haven't been pretty for uranium lately. The spot price for U₃O₈ recently fell another $2 per pound and now stands at $49 a pound.

So, in which direction is uranium headed?

It's going to boil down to two things. The first is how tight the world's uranium supply gets during the next few years. And, of course, how much growth we see in the development of nuclear energy.

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According to the World Nuclear Association (WNA), the 436 reactors operating across the world will need approximately 65,405 tonnes of uranium in 2009. In 2007 when prices peaked at $136 per pound, the world only mined 41,279 tonnes of uranium. In other words, mining makes up about 64% of the demand.

While demand looks to get tighter over the next few years, growth in the nuclear sector is a point of debate. Last Friday, the IEA warned that the fate of new projects may be in trouble. As the IEA puts it, "The global economic downturn could lead to delays or cancellations of new nuclear power plant projects."

Meanwhile, G8 ministers expressed their support for nuclear power. During a meeting last week in Rome, the group stated that nuclear energy could help diversify the energy picture.

China is certainly taking advantage of nuclear power. The country believes nuclear power could make up 5% of its generating capacity within the next decade. That would require building another 60 reactors over the next eleven years. According to the WNA, China already has 12 new reactors under construction, with another 33 planned and 80 being proposed.

Here in the U.S., nuclear power still makes up nearly 20% of our electricity demand. We have over 100 reactors currently operating across the country. Like I said before, if we're on the verge of sliding down the other side of Hubbert's peak, we're going to have to develop all our energy sources.

So, are uranium prices headed back into record territory?

I wouldn't expect another price shock for uranium. However, I do believe spot prices could easily reach between $60-70 per pound as early as next year. And obviously, any economic recovery could potentially tip the scales.

But here's a little secret. . .

It doesn't matter if uranium prices fail to reach $136 per pound over the next few years. You see, many investors are already cashing in their profits. These nuclear stocks are precisely the kinds of energy plays that members of The $20 Trillion Report are taking advantage of right now. You can learn more about it here if you're interested in making these gains for yourself.

3 Top Uranium Plays

The first uranium play that is Cameco (NYSE: CCJ). The company reported a 38% decrease in their quarterly profit due to higher production costs. Yet since March, the company has still managed to gain an impressive 114% for investors.

Naturally, investors looking for more than a straight mining play have several options. Playing a nuclear ETF gives you the opportunity to play more to your comfort level. Two options open to investors are the Market Vectors Nuclear Energy ETF (NYSE: NLR) and the Powershares Global Nuclear Energy ETF (NYSE: PKN). These nuclear ETFs will offer you a chance to invest in a basket of stocks, rather than focus on an individual company. If energy continues to trend higher on news of a global economic recovery, we'll continue to see a growing interest in nuclear energy.

Until next time,

Keith Kohl

Energy and Capital

Editor's Note: I've managed to track down the original 1956 Hubbert report. If any of you are interested in looking at history firsthand, this is for you. And even if you're not, it's still a fascinating read. The paper gives you insights on a nuclear future from M. King Hubbert himself. So without further ado, you can read it for yourself in a PDF format by simply clicking here.

Venezuela Oil Fields

When in doubt, just take it all.

If someone complains, take it anyway.

At least, that's been Hugo Chavez's mantra towards foreign oil companies. And if you think he's done, guess again. This time, however, the consequences of his sweeping nationalizations could very well be a blessing to your oil investments. (I'll get to that in a minute.)

You see, an interesting question came from one of my readers late last week. Right away, a strange feeling hit me.

The question was, "Where would you rather have your oil investments operating, Nigeria or Venezuela?"

"The answer", I told him, "is neither." That was a no-brainer. Quite frankly, the mere thought of operating in either of those countries is enough to make me cringe.

Naturally, he sent back a quick reply saying he couldn't agree more. He went on to answer the question I was ruminating on for the better part of a day — I knew I'd been asked that question before.

At the end of his message, he mentioned that this wasn't the first time he asked me that. Being an email pack rat (I have an odd habit of never throwing away old emails), I soon found out he was true to his word. It turns out this gentleman sent me the exact same question nearly two years ago. On an interesting side-note, my response back in 2007 was nearly identical.

Some of you might remember the May Day takeover. In May 2007, Chavez seized operations in the Orinoco River Basin oil field from six major companies. The move effectively gave Chavez control over the remaining private oil fields in Venezuela.

At the time, Chavez said the May Day takeover was the "last step" in taking national control over its domestic resources.

I guess he changed his mind.

Chavez Seizes Oil Service Companies

Chavez further tightened his grip on Venezuela's oil industry after wresting control and seizing the assets of oil service contractors. The law was passed on May 7, and assets were stripped the next day. A total of 30 barges, 13 drilling rigs, 399 boats, and 39 terminals belonging to approximately 60 companies were taken.

I'd bet a lot of you saw this coming from a mile away.

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Once crude prices began to tumble from a high of $147 per barrel, PdVSA (Venezuela's state-run oil company) stopped paying oil service companies. By the end of 2008, nearly $14 billion was due. And Venezuelan oil production hasn't been pretty.

Despite the fact that the country claims it produces over three million barrels per day, that amount has fallen to under 2.3 million barrels per day. Also remember we're talking about heavy and very sour oil.

And even though these companies will be compensated for their loss, can we really expect them to get a good deal? On the matter of being adequately paid for their assets, I'd like to note that two major oil companies are still negotiating the proper compensation for the May Day takeover in 2007.

In other words, those companies might as well take what they're given. It's simply not worth their trouble.

And don't think that Chavez is finished.

He's already set his sights on his next target. Chavez was quick to report, "All companies performing gas-injection services for oil wells will be seized formally."

It's futile to think Chavez won't continue to strong-arm the oil industry, especially when an overwhelming amount of his social programs are paid for with oil revenues. Oil accounts for approximately 90% of Venezuela's export revenue.

Chavez's greed, however, doesn't have to be all bad news.

The Reason Chavez Could Make You a Fortune

Okay, so Chavez's latest decision was inevitable, especially once you take into account that these oil service companies weren't even getting paid in the first place.

But if we look at this move in the long term, it's nothing but a win-win situation for us.

Taking complete control over their oil industry is going to put Venezuela in a very tight spot within the next few years. The country is already forced to spend billions of dollars each year just to maintain current production. And like the Canadian oil sands industry, the latest oil price shock is going to take a deep toll on developing those heavy oil assets.

This latest move on Chavez's part certainly won't encourage foreign investments.

Unless some miracle happens, Venezuela's production will continue falling (their production is already at 1997 levels).

Now, take into account the fact that over a million barrels of oil are shipped to the U.S. on a daily basis. According to the EIA, Venezuela is sending us about the same amount as Saudi Arabia (the Saudis edge out Venezuela by a small margin).

With Mexico soon to be out of the oil exporting business and Venezuela struggling to produce the heavy oil in the Orinoco Belt, the U.S. is going to have to find a few million barrels of oil from somewhere new.

Only a fool believes the world's economy will never recover. When it does, whether it's in 2009 or even another two years from now, demand will inevitably pick up. You'll be able to ride Chavez's greed all the way to the bank as more prospective oil regions become more vital to global production.

It's only a matter of time, so why wouldn't you position yourself while you still can?

Until next time,

Keith Kohl

Energy and Capital

Investor's Note: Chavez's greed knows no bounds. And it certainly doesn't bode well for oil production growth in Venezuela. That fact is even more pronounced since his second May Day takeover, which will severely hinder future production. That threat means your oil investments will be even more important to the years to come. But rather than waiting for companies to trade at record prices again, perhaps it's time you took the next energy bull by the horns. Simply click here if you're interested in taking advantage of these new oil investments today.

Investing in Oil Stocks

The opportunity is out there for investors, yet people are still too afraid to trade.

At least, that's what I told my readers three months ago. At the time, there was little to get excited about with crude oil, which was barely holding steady over $40 per barrel. Inventory levels were still building. Of course, not much has changed on that front, considering U.S. inventories of crude oil have been rising ever since.

Like many of you, I saw some of my favorite oil and gas stocks trading at near 52-week lows. I knew there were a lot of stocks unfairly beaten down, which opened a huge door for investors.

In response, one reader in particular was thoughtful enough to warn me to be wary of calling for higher energy prices during a down economy. I couldn't help but agree to an extent. There was certainly a chance that oil prices might head lower, especially with all the bad news we were reading at the time. Lower consumption levels, higher inventory, you name it.

Then there was another gentlemen who was bit less tactful, and lambasted me for suggesting oil may be headed higher. Needless to say, his caps lock button may have been stuck as he vented his frustrations. His email left me shaking my head sadly. He simply refused to recognize the opportunity in front of him.

It was a mistake I hope many of you don't make, especially in today's market.

How Far Can Oil Run?

It's interesting to watch oil trade closer to the $60/bbl mark each day. Last Thursday, prices rose as high as $58 per barrel before settling back down below $57 per barrel.

It seems like only a matter of time.

However, I'm curious as to whether your sentiment has changed. Granted, the story hasn't changed much on inventory. Lately, it hasn't been a question of whether our inventory level of crude oil dropped, but rather of how much did it increase. That might change now that we're heading into 2009's summer driving season.

Although OPEC isn't meeting until the end of May, Iran has already come out saying more production cuts are on the way. Personally, I think it feels like the same old song and dance.

Then we have Venezuela. And believe me, Chavez has come out swinging again. A law was recently passed that is letting the state take complete control of anything related to the oil industry.

According to Venezuela's Energy Minister, "Companies that are selected for nationalization will not be able to mount lawsuits in foreign countries, because the measure stipulates that disputes will be resolved exclusively by the courts."

For some reason, I'm not too surprised by the bold move.

So, what can we expect for crude in the long run?

Barring some particularly nasty economic news, I don't believe we'll see oil prices below $50 per barrel. If we do, we'll undoubtedly see OPEC take action. Of course, if things keep going the way they have been, we'll probably see $100/bbl oil much sooner than expected.

But here's the interesting part. . .

It doesn't matter.

Investing in Oil Stocks

Investors don't need triple-digit oil prices. The truth is they've never needed $147/bbl crude in order to see their investments make gains.

Let's take those oil and gas companies I mentioned earlier. At the tail end of 2008, I gave my Energy and Capital readers three stocks that (to me, at least) felt beaten down. They were Marathon Oil (NYSE: MRO), Whiting Petroleum (NYSE: WLL), and EOG Resources (NYSE: EOG). A few weeks later, all three had made admirable gains.

Fast forward to early March when I pointed out all three, despite the short term gains, were trading at 52-week lows. The panic selling was just too much. I'm sure my friend with the broken caps lock button would be singing a different tune if he had looked into those energy stocks.

All three bottomed out on that day. Since then, Marathon Oil has managed to climb 46% higher. EOG has been a little more successful, up 68%. Whiting Petroleum, however, took the cake after jumping 109%.

If those aren't attractive gains, I'm in the wrong business.

Like I said before, it doesn't matter if energy prices don't triple in the near future. The point is that there are plenty of opportunities for us.

There's no question where energy is headed in the future. Granted, it's not as easy as blindly throwing a dart against a wall. And even though things are getting better, we're certainly not out of the dark yet. But like everyone else in today's market, you need to start somewhere.

Until next time,

Keith Kohl

Energy and Capital

P.S. Brian Hicks' most recent Wealth Daily essay shares the easiest way to take advantage of the second wave of the energy boom. You can read all about it right here.

The Eagle Ford Shale Play

If you're still waiting for oil and natural gas prices to reach July 2008 price levels before jumping back into your investing, you may want to rethink your strategy.

I'll confess that oil has garnered most of my attention lately. It was easy to get caught up after watching crude nearly break $54 per barrel this morning. Prices haven't been this high for more than five weeks. It also gives us more confidence that oil will be able to remain over $50 per barrel in the future.

But it's not crude oil that's on my mind.

Natural gas has also been on the rise after falling as low as $3.25 per Mcf last week. Prices are finally beginning to recover, trading over $3.60 per Mcf today. The gain today came after the Commerce Department announced that U.S. construction spending grew for the first time in six months.

Although I do believe we'll eventually return to those July price levels, we still won't see it for a few years.

What's the problem?

For starters, we need to see good news for demand. According to the EIA's latest Short Term Energy Outlook, U.S. natural gas consumption is expected to decline by 1.8% this year, and remain flat throughout 2010. Specifically, demand in the industrial sector has to improve. The EIA is projecting industrial demand to fall by 7.4% in 2009. Natural gas makes up almost one-third of the consumption in that sector.

As a direct result of decreased demand, storage levels have remained well above the 5-year average. The EIA reported a working gas storage level of 1.823 Bcf as of April 24, 2009. That was an 82 Bcf increase over the previous week and approximately 464 Bcf higher than the same period last year.

Another problem in the short term is LNG. The EIA projects imports of LNG will grow to 480 Bcf in 2009, compared to the 353 Bcf imported last year. Many of you know I'm not holding much faith in liquefied natural gas. I believe the only way LNG will play a significant role in U.S. natural gas consumption is if domestic production goes down the drain.

That's simply not going to happen in the long run, and there's a good reason. . .

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The Eagle Ford Shale

I have no doubt you've heard about some of North America's shale plays over the last year. In fact, those shale stories have dominated the natural gas markets in 2008. Whether it was the massive reserve estimate in the Haynesville or in the Marcellus formation that initially caught your eye, those shale plays are the reason I'm staying in natural gas.

Take last year, for example. While production in the Federal waters of the Gulf of Mexico fell sharply (roughly 14.8% in 2008) due to the hurricane season, production in unconventional fields grew nearly 10%. Unlike U.S. oil production, which peaked almost four decades ago, developing some of those shale plays has just begun.

One of the up-and-coming shale plays you're bound to hear more about in the future is the Eagle Ford Shale. Located in south Texas, the Eagle Ford Shale formation is found directly beneath the Austin Chalk Shale at depths between 4,000 and 10,000 feet.

The immediate response I get whenever I bring up a new play is, "It's impossible to make money in energy. . . especially right now."

As many of my readers are aware, that's certainly not the case.

Investing in the Eagle Ford Shale Play

Out of the few companies operating in the Eagle Ford Shale, one worth paying closer attention to is Petrohawk Energy (NYSE: HK).

Here's a look at how this company has been doing lately:

As you can see, shares of Petrohawk have jumped more than 66% since early March.

Although Petrohawk's Haynesville operations are enough to get me interested, today I'll focus on the 160,000 net acres in the Eagle Ford Shale.

During the first quarter, Petrohawk drilled and completed two wells. And based off their results so far, they've suggested the Eagle Ford Shale is one of the highest quality shale reservoirs in the U.S. Furthermore, Petrohawk has managed to reduce drilling and completion costs by approximately 60% since the first well. The company is putting approximately $50 million in capital expenditures into developing the Eagle Ford Shale in 2009.

Until next time,

Keith Kohl

Energy and Capital

P.S. I mentioned earlier how some investors are taking the 'wait and see' approach to the energy markets. The truth, however, is you don't have to wait around for years to turn a profit on these oil and gas stocks. As you saw above, you can easily make solid gains from these prospective shale plays. But don't take my word for it, I suggest you check those plays out for yourself. You can learn more by simply clicking here.

Developing the Tupi Oil Field

Judging from the amount of responses I read last week, it's fair to say my readers can be very opinionated.

As you remember, the federal court of appeals yanked the DOI's five-year oil and natural gas leasing plan right from underneath its feet. And truth be told, the last time I saw that kind of animosity was when I sat next next to a group of Yankee fans at Fenway Park.

But just two days after the replies came flooding in, I came across another news release. Right on the heels of the court decision, Florida lawmakers gave the green light to lift the state's ban on drilling off their coast. Furthermore, the house gave the governor and his cabinet power to approve drilling proposals between 3 and 10 miles offshore.

The sudden interest in developing Florida's offshore oil and gas comes with the hope of millions in revenue for the state budget. Naturally, the bill is being lobbied and funded by an unidentified group.

I'm curious as to how many of you are supporting this kind of move. The image of oil platforms dotting the horizon comes to mind. You can leave your thoughts by clicking on the comments section below. Although I never want my readers to pull any punches, just try to keep the commentary publishable (also make sure your caps lock button isn't stuck).

Oil Afloat at $50

If you've been following oil prices closely today, you've probably noticed the $50/bbl mark has been teasing us all morning. After dropping as low as $48.01 per barrel during trading earlier, prices finally found their footing.

According to the media, the latest swine-flu outbreak is the reason for falling crude prices. Their train of thought is that the swine-flu is causing a panic and limiting air travel, thus curbing jet fuel demand and the world economy.

One gentleman in particular told me this single event will flush oil prices back down into the $30 price range.

Personally, I'm not buying it.

For starters, crude oil has nearly erased the losses from this morning's trading. The next test is whether prices can break $60 per barrel this time around. Over the last three weeks, oil bounced as high as $56.10 per barrel.

So if it's not the pig-flu frenzy in the media, what's keeping crude down?

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Let's take a look at U.S. demand. After all, we are the undisputed leader in global oil consumption. And for the last seven consecutive weeks, the EIA has reported a build in inventory levels. Last week, U.S. crude oil stocks reached 370.6 million barrels. That comes out to an increase of 3.9 million barrels over the prior week. Furthermore, that's 54.5 million barrels higher than a year ago.

Needless to say, we're well above the five-year average. In fact, the last time our crude inventory was this high was on September 14, 1990 — nineteen years ago.

Meanwhile, OPEC has been unusually quiet lately. Members insist that $70 per barrel is where they'd like to see prices, but $50 per barrel is "reasonable." Does anyone else recognize this oil dance from before? When oil was at $35 per barrel, OPEC felt $50 was the correct price. I have a feeling that if oil prices were $70 a barrel right now, they would be pushing for $90 per barrel.

Remember, OPEC still hasn't reached the production cuts announced in 2008. And depending on whom you talk to, OPEC members have cut between 80-90% of the proposed cuts so far.

But not all the news I come across is bad. . .

Brazil's Tupi Success

The Tupi offshore field isn't new to us. I'm certain you've heard about this huge offshore discovery at least once over the last year. In fact, it's one of few areas with a bright production outlook. The field is expected to start pumping oil this Friday.

It's also opening up a door for investors.

Before I go any further, I think it's imperative you don't get roped-in from the wild numbers. I've seen some ridiculous production numbers associated with the Tupi field. The one that comes to mind immediately was in an email boasting that the Tupi field will satisfy the entire U.S. demand for the next decade.

First of all, I think my readers are intelligent enough to know the Tupi field won't be producing upwards of 20 million barrels per day this year. Or ever, for that matter. It simply won't happen.

However, we can expect some big action in Brazil. Last week, Petrobras announced the company will be looking for approximately 240 offshore vessels to help develop their offshore resources. We're talking about everything: drill ships, supply ships, storage vessels, etc.

Increasing their oil production will come at a cost. In this case, Petrobras is investing nearly $200 billion with the target of increasing production by 700,000 barrels per day over the next four years.

Since contracts could begin as early as May, there's still a chance for investors to get a piece of the action. Petrobras expects to almost double their number of offshore rigs in the next two years. Next week, I'll tell you which one of those offshore drillers I'm picking up before those contracts come out.

Until next time,

Keith Kohl

Energy and Capital

Offshore Oil Drilling

There's one thing that gives me pause on my way to work. . .

Sitting across the street is a building that has captured my attention each and every morning for the last three years. And no matter what kind of hurry I'm in, I absolutely have to take a moment to stop and admire it.

Built back in the 1940s, it's a landmark for anyone in the area. You can instantly tell it was made with care. From a distance it looks like a massive castle, turrets and all.

But as you get closer, you can see how well every nook and cranny was delicately carved out with purpose. The detail is simply amazing. And although I find some new aspect to admire whenever I walk by, I've never had the opportunity to go inside it. . . until today.

I found myself in a similar situation when I stopped to look at it early this morning. The dark clouds weren't enough of a warning, and a torrential downpour came down in a heartbeat. I quickly took refuge from the rain at the entrance and came face-to-face with the building's doorman.

Not wanting to waste an opportunity to ask, finally, whether the interior was just as stunning, I struck up a conversation with him.

Looking back, I wish I hadn't asked.

According to him, the building has deteriorated quite a bit. The plumbing was a disaster, and there was always something wrong with the pipes. For him, it felt like the walls were crumbling. During the last few years, the price to repair everything has been extremely costly.

No matter what they replace, something else falls apart.

I think some of you will be able to see a striking similarity my building has with our oil industry. . .

It's not just the oil fields that are aging; let's not discount the growing number of rigs and miles of pipelines that need to be maintained. Of course, the fact that oil prices have drastically fallen over the last 10 months doesn't give me much comfort that those expensive ventures can even be afforded.

The times, dear reader, they are a-changing.

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Ten Billion Barrels Busted

When the IEA released their 2008 energy report, there were some disturbing facts that came out. One problem, specifically, is how vital a handful of fields are to our global production.

Over a quarter of the world's oil production came from just 20 giant oilfields. Don't forget that most of these fields are more than 50 years old and in decline. Overall, a little more than one hundred fields make up half of the world's total production (the remaining production is made up of approximately 70,000 oilfields).

As production at those super giant fields wanes, we're going to have to rely more on smaller fields to make up the difference. One would conclude that it's important to continue developing new areas for exploration.

Apparently that's not the case.

Last week, a federal court of appeals tossed out the Department of the Interior's 2007-2012 five-year oil and natural gas leasing plan, citing concern for the environmental impact.

My longtime readers might remember when I talked about the Department of Interior's lease plan back in 2007. As I recall, they expected their plan to generate $170 billion dollars from developing oil targets off the coasts of Alaska and the Gulf of Mexico.

Well, so much for that plan.

As you probably expected, the decision is being both hailed and condemned.

So let me ask you, "Do you think the move was justified?" Please feel free to let us know how you feel about the situation by leaving a comment below. I don't expect my readers to pull any punches on the court's decision.

The Future of Offshore Drilling

What this does mean, however, is that preventing development in these offshore waters will have a detrimental affect on our future production.

Although the effect on longterm prices is still to be determined, I wouldn't expect it to sway current oil prices. Actual production from these lease areas wouldn't have been pumped for several years.

There's another reason I'm not too worried. As I just mentioned, offshore production is playing an increasingly important part in global production. While the giant onshore fields age and decline, we're going to have to drill further and deeper than ever before—simply to make up lost production.

Like the rest of the oil industry, lower oil prices have had an effect on the offshore drillers. They certainly weren't spared the volatility. At the height of $147/bbl oil, day-rates for new contracts could reach up to half a million dollars. We can also add fewer available contracts on top of the declining day-rates.

Here's the thing. . .

Even with the court's decision to put the kibosh on the DOI's offshore lease plan, I'm still banking on the offshore drillers to pull through, especially over the next few years.

I'm not suggesting you blindly throw your hard earned money at any company, praying you hit the big one. I could just as easily torch my cash. As I've said to my readers before, hopes and dreams don't pay the bills.

Instead, I would focus my attention on which of those offshore companies have a strong fleet under contract. How much of their drilling fleet is sitting idle? Which ones have a backlog of work?

Don't think for a second that there's no money to be made in today's markets. For example, I know that most of my readers recently banked a solid 30% gain from just one of these beaten down offshore drillers.

More importantly, however, is that they're a few days away from making another move. It's not fair to my newer readers if I didn't offer you the same chance. Maybe it's time you joined their success.

Until next time,

Keith Kohl

Energy and Capital

Green River Oil Shale

It's easy to get lost in the numbers.

At least, that's what appeared to have happened to several of my readers lately. In fact, the moment they mentioned the Green River oil shales, I knew exactly what distracted them. . .

Although it's been quite some time since I last talked about the Colorado and Utah oil shale, my feelings certainly haven't changed for the better. In fact, it's even worse. And to be honest, the thought of my readers dumping their hard earned money into the area makes me cringe.

You see, I had received the exact same email that was sent to them.

I can only hope that most of you saw waving red flags after reading the first sentence. The opening line announced that this oil deposit would get rid of our dependence on foreign oil. Not lower them, mind you, but rather completely eliminate. That means we'd have to more than double our current production levels. That seems rather unlikely considering U.S. production has been on a downhill slide for the last thirty years.

I knew what was coming before I even read it. The email went on to tout that the trillions of barrels of oil shale underneath Utah and Colorado is our salvation.

I beg to differ.

The Green River Oil Shales

For my newer readers that have never heard of this oil shale deposit, hopefully I can shed some light on the subject. There are actually a few misconceptions about the Utah and Colorado oil shales.

To begin with, they aren't exactly oil shales at all. Rather, they are finely grained sedimentary rock that contain a fair amount of kerogen. As you may know (especially if you received the same email), the largest deposit can be found in the Green River formation, which stretches across three basins in Utah, Colorado and Wyoming.

Companies have tried to develop this resource time and again. Techniques have ranged from surface mining the the rock and then heating the rock in a process called retorting. Basically, the mined shale is broken up in smaller pieces in order to extract the kerogen, which then has to be upgraded.

The process simply requires too much time, money and water. That's also not to mention it doesn't contain as much energy that crude oil offers.

Other projects have tried (and failed) at using in-situ methods. Those of you well versed in the extraction Canadian oil sands will know that this involves heating up the oil shale in ground, then pumping it out using conventional means.

Shell's process, for example, involved drilling holes in a close proximity and heating up the rock. Meanwhile, another set of holes are drilled around the perimeter of the heating section and used to create an ice wall in order to trap the liquid. A final set of wells are then drilled to pump out the oil.

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Caught up in the Numbers

The Green River oil shales started to get more attention as the price of oil jumped over the last few years. It's understandable for the U.S. government to get excited at the possibility of developing the deposit.

After all, we're importing more and more as our domestic production continues to fall. 70% of the oil shale deposit is federally owned, can you really blame them for trying?

Like I mentioned earlier, it's easy to get lost in the numbers. In this case, it's up to nearly three trillion barrels. If we look at some of the lower estimates, there's still supposedly 800 billion barrels of oil that can be recovered.

Of course, many people are quick to make assumptions. As one gentlemen put it, "That's enough oil to last us for hundreds of years."

Sadly, that's not exactly how it works.

I don't think anyone is fooling themselves into thinking we'll be producing enough oil every day to meet demand. He made the mistake of assuming we'll be able to produce anything worthwhile in the first place.

Remember, the total amount of oil produced to date is still only a few thousand barrels.

The idea that we'll be producing 5 million barrels per day in the foreseeable future is laughable. Personally, I put more faith into the development of renewables, especially when we're talking about such a long time frame.

I'm not holding my breath waiting for this to be developed. The development alone is too costly—and that's how I felt when oil was over $100 per barrel!

Perhaps the Green River deposit is just a case of too little, too late. But worse still, however, is the thought of sinking my money into this investment.

Besides, there are much better options right now for investors than waiting 40 years for these oil shales. . .

Until next time,

Keith Kohl

Energy and Capital

P.S. When I said that investors have better places to invest their hard earned money, I meant it. In fact, the Pure Energy Trader has been making double-digit gains, even with this financial turmoil plaguing the oil markets. Members recently locked in a 65% gain in just four weeks! Perhaps it's time you joined them. You can learn more about the Pure Energy Trader by clicking here.

Drilling the Williston Oil Basin

It was late afternoon when my beaten-down Chevy crossed the Canadian border at Portal, North Dakota. I had just come off the tail end of a nine-hour driving shift when my cohort took the wheel. Only a few minutes passed before I drifted off to sleep.

And I have regretted it ever since.

If we were cruising through southern Saskatchewan today, our arrival in Fort McMurray would have been delayed by several weeks, at the very least. At the time, however, we put thirty straight hours and more than 1700 miles of road behind us. Our eyes were fixed on the Alberta oil sands.

By the time I awoke, we were well past Saskatoon.

Fortunately, the way back proved better. It was stunning to watch the rigs that dotted the Saskatchewan landscape.

Last week, I mentioned there was another way to play the Bakken. Many of you already knew where I was headed. That's why I was pretty surprised when several readers wrote-in, asking questions about the 'other side of the Bakken'. They were still in the dark when I mentioned that the formation stretched into Saskatchewan.

Well, it's only fair we open that door for them, right?

The Other Side of the Bakken

Although we've been talking about the potential of the Bakken oil formation for a while now at Energy and Capital, I'd wager most of you started focusing your attention on the area when the USGS reported last year that the Bakken held up to 4.3 billion barrels of recoverable oil.

That was a significant increase over 151 million barrels in 1995.

At the time, oil prices were well under their record highs, and companies were scrambling to grab land. And although the Bakken was good news for U.S. domestic production (which peaked three decades ago, as you know), it wasn't the only option open to investors.

Approximately one-quarter of the Bakken formation is in southern Saskatchewan and holds up to 1.3 billion barrels. I know it's easy to get lost in the huge numbers. Sure, it would be great if Bakken production reached 20 million barrels per day, but that simply won't happen. If Saudi Arabia, OPEC's leading producer, were pumping as much as it could, it would barely be over half that amount.

Throughout this economic downturn, Canada has remained our largest source of oil. While the Saudis shipped us a little over one million barrels every day in January, Canada sent over 2.5 million bbls/day.

Think about that for a moment.

If you remember from last week, we're going to be forced to make up the oil lost from Mexican imports over the next several years.

Can you tell me the last time you heard about public outrage from Canadian oil? Now compare that to how many times you've read about ending our addiction to Middle Eastern oil.

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Drilling the Canadian Bakken

It's no surprise that drilling in the U.S. has taken a hit. And although last week's U.S. rotary rig count was up by a whopping 4 rigs, that's 43% lower than a year ago. Furthermore, you also need to remember that only 224 of those rigs (approximately 21%) are drilling for oil. The rest are going after natural gas.

Rig counts are understandably lower. After all, oil prices aren't exactly in triple digits nowadays.

Drilling activity in Saskatchewan, however, is a bit more optimistic. Saskatchewan is only expecting a 25% drop in the number of wells drilled in 2009.

If oil prices can remain above $50 per barrel, I think we're going to see even better results in Saskatchewan's side of the Bakken. The reason is simple enough, many of the producers see $50 per barrel as economical for their Bakken wells.

The Canadian Bakken Vs. the Alberta Oil Sands

This is how one of my readers phrased a recent comment sent to me:

"When it comes down to it, I can't help but lean toward Saskatchewan. Until oil prices push higher (past $80 per barrel in some cases), the oil sands are going to keep getting hit hard."

But don't think Alberta won't pull through this. If the oil sands producers can survive oil prices under $20 per barrel, they will certainly weather this storm. You see, only 20% of the bitumen in Alberta can be mined at the surface. That's means a large amount of the oils sands production will involve in-situ recovery techniques, which can get expensive for producers.

Investing in the Canadian Bakken

There's no doubt about the growing importance the Bakken will have in future North American production. In fact, it's one of the areas where production will actually increase. This includes both the U.S. and Canadian side.

There are several ways for investors to take advantage of the Bakken. If the latest buyout of Reece Energy taught us anything, it's that many of the smaller players could get swallowed up in a heartbeat. In order to keep production numbers up, those trusts are always looking for ways to keep their attractive distributions steady. Ignoring some of the quality Canadian energy trusts would be a mistake.

Even if the Canadian trusts give you pause, there are still a number of smaller producers with strong production rates and the land to back it up.

Until next time,

Keith Kohl

Energy and Capital

P.S. It's not easy to find the right plays during this recession. I know that many of those Bakken plays have already started coming back, especially now that oil prices are trading steady. In fact, one of those plays has already jumped 30% in the last three weeks alone! If you're interested in playing both the U.S. and Saskatchewan side of the Bakken, I would suggest checking out the $20 Trillion Report.

Drilling the Williston Basin

Don't take your eyes off of OPEC for a second. . .

At least, this was the advice offered to me when oil prices started declining late last week.

Usually, I tend to agree with this sentiment. Certainly OPEC's ability to take oil off the market shouldn't be overlooked. After all, its members are still lowering output by 4.2 million bbls/day, based on two cuts during the latter half of 2008.

This time, however, I'm not too inclined to focus all of my attention on the OPEC. Yes, they do have another opportunity to cut production further when the organization meets on May 28. But the story of oil's recent decline is more likely due to the latest strength of the dollar.

Add to that another weekly build in U.S. crude oil stocks and more bad news for the global economy, and lower oil prices will inevitably fall. If you recall, on Wednesday, the EIA reported a build of 3.3 million barrels to inventory levels. That means levels are 44.8 million barrels higher compared to a year ago.

Sure, it's easy to get nervous when oil loses its rally. Last week, prices were pushed over $54 per barrel. However, oil prices falling as low as $48.11 per barrel today shouldn't cause us to lose sight of what's ahead.

But before I go any further, I think it's important to go over some of the reasons why we might be in trouble.

The Backside of Peak Oil

Late last week, several readers had me worried.

They've unfortunately lost perspective on the future of U.S. oil production. The fact is U.S. oil production peaked more than 39 years ago in 1970.

I'm not just talking about a slight decline.

However, I feel its important for you to see this for yourself. Based on the statistics from the Energy Information Administration, the U.S. pumped out more than 9.6 million barrels of oil per day in 1970. In 2007, production barely averaged over 5 million barrels a day. As you can see, we briefly managed to keep production at a plateau before falling down the backside of the peak.

And if you really want to crunch the numbers, the news is even more grim. In 2008, our production averaged 4.95 million barrels per day. We haven't seen a yearly production average under 5 million barrels since 1946.

Now let's take into account oil's price run to $147 per barrel over the last decade. Even despite all the increased drilling and investments made due to inflated prices, we still failed to increase production.

Take a moment to think about that.

I think we're beyond wishing production would recover. With the loss of investments and decrease in drilling due to low crude prices, how can you not see the storm that's brewing?

The problem is things aren't looking better for anyone else.

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Putting it All Together

Over the last several weeks, there have been several reasons why we should be concerned with our future oil imports. I wish I could sit here and say everything is going to be okay.

And although many of you have shared those same worries, that's not enough. In fact, I think it's just as worrisome that too many people (some of whom are investors) simply don't get it.

Within the next five years, more people will be waking up to the reality of peak oil if they haven't already.

Considering U.S. crude production's spiraling down the drain, the question is how our other sources of oil are faring these days. You've probably noticed many of those import problems on the pages of Energy and Capital recently.

Things aren't so rosy when you look at our top sources for oil:

Canada: As our largest source for oil, Canada was hit hard when oil prices tumbled more than 70% from $147 per barrel. More and more projects are delayed as low prices continue.
Saudi Arabia: Despite their super-giant oil field, Ghawar, being in decline, the undisputed king of OPEC is one of the few members content with oil at $50 per barrel.
Mexico: The loss of the Cantarell field will have serious repercussions for our third-largest source of oil. And as my colleague Chris Nelder pointed out a few weeks ago, Mexico's troubles are our troubles, I couldn't agree more.

Although I only mentioned our three largest sources of oil, the list doesn't get much better. Rounding out the 4th and 5th spots on that list are Venezuela and Nigeria. Again, lower crude prices will make it extremely difficult to develop Venezuela's heavy oil deposits. I am confident my readers understand the volatility associated with Nigeria. The thought of working on a rig over there makes me shiver.

Drilling the Williston Basin

So where does that leave us?

I'll admit it's difficult to get behind our domestic production. Despite the doom and gloom that dominates most U.S. production outlooks, there is one shining star on the horizon.

Stretching across North Dakota, Montana, South Dakota, and southern Saskatchewan is the Williston Basin. And as many of you are aware, the Williston Basin is home to the Bakken formation. Unlike many other areas in the U.S., the Bakken still has quite a bit of potential. In fact, it's one of the few areas where production is actually expected to increase.

Don't get me wrong, dear reader. This deposit isn't going to save the U.S. from peak oil. It's not the panacea for U.S. production.

If oil is able to find support and remain over $50, the solid players in the Williston Basin will prove extremely profitable for investors. Like the rest of the industry, you can still pick up many of the good drillers at an extreme discount. The good part is that it's not just U.S. companies getting in on the action. Stay tuned because next week I'll show you some of my favorite plays operating on the other side of the Bakken.

Until next time,

Keith Kohl

Energy and Capital

P.S. The way I see it, there are two types of investors during a financial crisis. Either you're the kind who loses his shirt through panic selling, or you take advantage of the chaos and profit. I know which category my readers and I fall into, but it wouldn't be fair if I didn't offer you the same chance.

You see, the Pure Energy Trader was designed to make sure your energy investments come through this economic turmoil unscathed. My colleague, Ian Cooper, is on the verge of picking up another round of profits. If you're interested, I suggest checking out the Pure Energy Trader for yourself.

Natural Gas Prices

People haven't paid much attention to natural gas this year.

Can you really blame them? It's true that oil prices have been stealing the spotlight lately. Recently, crude prices broke over $54 per barrel. It's been a quite some time since we've last seen those price levels.

Meanwhile, natural gas has been treading water. After deteriorating more than 70% since July records, prices have fallen below $4/Mcf this week. That's a level many people thought they'd never see. And to make matters worse, I've been hearing more and more people calling for natural gas to plummet below $2/Mcf and stay in that range for several months.

I wouldn't hold your breath on that one.

However, it does beg the question of where natural gas will go from here. At least, that's been a recurring theme among the questions I've received from readers.

Personally, I think it's difficult not to have a strong long term outlook for natural gas prices. But before I get into the reasons why a future supply crunch is inevitable, let's take a glimpse at how prices have fallen so much.

As you know, 2008 was a very strong year for production. Of course, that is mostly due to unconventional sources like shale. Onshore production jumped more than 9%. Things were looking very bright.

That is, until everything hit the fan.

The economic crisis took a drastic toll on demand and helped crush natural gas prices, even despite the fourth most active hurricane season since 1944. Prices continued to fall while nearly all natural gas production was shut-in. Since then, natural gas prices have been steadily declining.

The Supply Road Ahead: Glut or Crunch?

Even though 2008 turned out to be quite a year for supply growth in the North American gas markets, a future supply crunch is inevitable.

Developing those shale sources will be extremely difficult (or even nonexistent) if natural gas prices fall below $2/Mcf for a sustained period. The depreciation of natural gas prices since July has already caused companies across the board to slash exploration and production spending.

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Much like the oil industry, not a week passes that I don't see another project being delayed or canceled. Furthermore, the number of active drilling rigs has been in serious decline. The latest numbers from Baker Hughes Inc. reported that the number of exploration rigs has dropped nearly 45%. And if prices continue to remain this low, you can bet we'll see even more rigs going silent.

That means production is headed one way—much lower.

Don't be surprised when you see a good number of changes in upcoming production forecasts. According to the EIA's latest Short Term Energy Outlook, U.S. production is projected to stay flat this year, followed by an 0.8% decline in 2010.

In other words, the supply glut created by those unconventional plays is going dry up when the economy picks back up. And when that happens, all of those delayed projects and cuts to spending will make supplies even tighter.

Now let's add liquefied natural gas on top of all that.

Most of my readers know that LNG isn't on the top of my list. The primary reason I've stayed away LNG investments was the attractiveness of our unconventional gas deposits. I was right on target, too. LNG imports to the U.S. dropped by 54% last year compared to 2007. And to be honest, my sentiment hasn't changed much.

However, I should note that any increases in LNG imports this summer to the U.S. will certainly push our supply crunch back and deteriorate prices further. I don't expect LNG imports to rise over 400 billion cubic feet this year.

The good news is that things will eventually get better for natural gas prices. Of course, the hard part is figuring out when.

Natural Gas Prices: What's Next?

The answer will likely depend on how long this economic turmoil lasts.

Most of the predictions that come across my desk pinpoint the latter half of 2009 as to when we'll pull ourselves out of this economic slump, with things improving even more in 2010.

That makes sense, especially considering the role natural gas plays in our industrial demand.

Until that economic recovery happens, there's not much pushing prices higher. Once that happens, the question will be focused on how much the market remains oversupplied and how soon that excess will dry up.

Investing in Natural Gas Today

It's hard not to stick with the winners.

Now, my regular readers know which natural gas stocks I've had my eye on throughout this market crash. Particularly, I tend to favor companies that are drilling in those prospective areas.

One of those plays I've discussed before was EOG Resources (NYSE: EOG). Even despite the production problems plaguing the oil and natural gas industry, EOG still expects to raise production by 3% this year.

As I've said before, these guys have dipped their hand in nearly every major area I've covered, including the Barnett, Haynesville and Marcellus shale plays (not to mention the Bakken play). Once our economic troubles pass, I wouldn't be surprised to hear about my readers making a fortune off some these types of plays.

Until next time,

Keith Kohl

Energy and Capital

P.S. For those of you who share our long-term bullish outlook for the energy markets, you're not alone. My colleague Ian Cooper has taken this market by the horns, putting up double-digit gains in the blink of an eye. If you would like to see exactly what I'm talking about, I highly suggest checking out the Pure Energy Trader.

The Bakken Shale

To cut or not to cut?

At first, OPEC's decision not to cut production gave me pause. As you know, I (along with everyone else) expected to see the cartel slash output even further. Yet when the time came to pull the trigger, OPEC hesitated.

The decision seemed admirable, considering another cut would have caused oil to spike again. After my initial pause, I began to picture how the market would take the news. Surely a drop in crude was on its way, right?

Today the markets once again proved confusing. As expected, I watched oil prices fall as low as $43.62 per barrel this morning. By mid-afternoon I looked on as oil rebounded, threatening to move over $48 per barrel.

Lowering output is still likely, however. Don't forget OPEC still has to reduce output levels by nearly a million barrels per day to meet their targeted production.

Let's also remember the reason why OPEC is in the industry in the first place: Money. According to the EIA, OPEC pulled in a hefty $970 billion in net oil export revenues during 2008. Those revenues are expected to drop to $383 billion this year and $510 billion in 2010. That means the cartel's revenue could drop 60% this year. Any way you slice it, you know they're going to feel that pinch.

Now add all of the political rhetoric about liberating ourselves from foreign oil. Whenever we talk about eliminating that foreign oil, we're talking about the Saudis. After all, there's not much we need to do to get rid of our Mexican oil (our third-largest source of oil). The Cantarell field's production outlook is helping us accomplish that feat all by itself. I completely agree that Mexican imports will vanish by 2015.

That leaves us with our other major importers: Canada and Saudi Arabia. It begs the question, "When was the last time you heard an uproar over Canadian imports?"

Naturally, there are only two ways to cut our thirst for foreign oil. Either we develop alternative energy sources to make up for the loss of energy from those imports, or we drastically boost domestic production.

I'm sure Americans are all for developing those alternative sources, but we are nowhere near ready to replace the equivalent of 12.3 million barrels per day, the amount of oil we imported during the first week of March.

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Time to Pay the Piper

"There's always our domestic production," you say? That's what I'm told time and again.

I like to think my readers know better than that.

But things get a bit tricky whenever you bring up the future of U.S. oil production in a positive light. As you know, U.S. production of crude oil has been spiraling down the drain for the last three decades. You would be absolutely amazed at how many people don't realize this.

Sadly, it's the truth.

Take a look for yourself at our crude oil field production, courtesy of the Energy Information Administration. We haven't had a year-over-year increase in production since 1985— twenty-four years ago!

If you really want to see for yourself how dire the situation has gotten, take another look at that production table.

According to those EIA figures, U.S. production averaged approximately 3.96 million barrels per day last September. The last time U.S. crude production dipped below 4 million barrels per day was in May 1943!

Our problems don't end there.

Ever since oil prices began their precipitous drop from July's, there's been one theme I've witnessed repeatedly. Not a week goes by that I don't see some new project get delayed or even canceled. I'm sure you've heard about exploration budgets being slashed across the board.

So here's my question, "If spending all that money while oil prices climbed to $147 per barrel resulted in an overall decline in production, how bad do you think things will get when companies are drastically cutting their budgets?"

The Bakken Shale

Okay, things don't look so good for completely eliminating our addiction to Saudi oil. But no matter how gloomy your outlook is for our overall crude production, there's still a bright spot for investors.

Unless you've been living under a rock for the last decade, there's a very good chance you've heard about the Bakken oil play. In fact, the Bakken shale has helped North Dakota become one of the few areas in the country where production is on the rise despite the financial pit we've dug ourselves into.

While U.S. oil production fell nearly 400,000 barrels per day over the last five years, production in North Dakota has almost doubled. Now, that doesn't mean the state's production is immune to the 70% drop oil prices have experienced since July. The number of rigs drilling in the state has fallen to 51 (compared to the 93 that were operating several months earlier).

As long as you remain confident on long-term oil prices, you won't find a better buying opportunity than right now. Looking back, oil prices appear to have bottomed out around $32 per barrel. And now that oil prices may be breaking the $50 threshold again, I can't help but feel optimistic.

Meanwhile, nearly every energy company I've come across has been beaten to the ground. Of course, you don't need to take my word for it. Some of the prominent Bakken drillers, like EOG Resources (NYSE: EOG), are trading at a significant discount.

The Bakken is only one of the areas in the oil industry with room to grow. Next week, I'll fill you in on the only other place where investors can take advantage of the next energy bull.

Until next time,

Keith Kohl

Energy and Capital

P.S. No matter how skeptical you are about the markets, the truth is the opportunities are out there. You just need to make sure you're looking in the right spot. Members of the Pure Energy Trader have been ringing in winner after winner throughout this financial crisis. I know for a fact they're on the verge of another one of those trades right now. I suggest finding out how profitable these energy plays are for yourself. Simply click here to join them.

OPEC Production Cuts

Every time I read about OPEC's next cut I can't help but think about oil prices falling $30 a barrel.

Can you blame me?

Although crude nearly broke $49 per barrel during trading yesterday morning, the idea of OPEC cutting production has lost some of its weight. Naturally, cutting output levels in the past was a sure sign prices would jump. Even a rumor of production cuts was enough to boost crude prices. That makes sense considering OPEC controls three-quarters of the world's oil reserves and approximately one-third of the world's consumption. One would assume this would give OPEC the leverage needed to influence prices.

Then again, does anyone else remember what happened the day after OPEC announced a drastic cut in production last year? Crude prices fell to fresh multi-year lows of $32 per barrel. The economic crisis was just too much for OPEC to rescue plummeting oil prices.

Can we really expect things to be any different this time around?

The OPEC Effect

3.4 million barrels down, 800,000 barrels left to go.

Since September, OPEC has planned to slash 4.2 million bbls/day off its production. And although the oil cartel still has to reduce output by another 800,000 bbls/day, the general consensus is that OPEC will make another cut at their March 15 meeting.

I think a cut right now is inevitable. Clearly OPEC is feeling the pain of lower oil prices. Earnings have fallen nearly 60% because of weak prices. Believe me, dear reader, $40/bbl oil is taking its toll. You can bet OPEC will try to push prices higher by taking more crude off the market. Reducing the supply glut in the markets will help stabilize prices.

Of course, the size of the cut is a different story. I've personally seen several numbers floating around, ranging from half a million barrels per day to under two million barrels per day. I've even seen several analysts calling for more than two million barrels per day.

It's no secret that OPEC would like to see prices between $60-70 per barrel.

And I simply don't see that happening unless they take more oil out of the market (at the very least). And unless crude prices move back above $60 per barrel, we're going to be in a lot more trouble than we are right now...

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Cheap Oil Threatens Future Investments

OPEC has repeatedly warned that low oil prices threaten the long term outlook in the oil market. This was reiterated late last week when OPEC's Secretary-General insisted that OPEC members investing in the oil industry is not economically viable with lower oil prices.

Think about that for a minute.

For me, not a day goes by without coming across some new figure detailing the impact that lower prices are having on the industry. Whether it's the declining number of rigs actively drilling in the U.S., or even a new set of projects being canceled or delayed.

Then again, there hasn't been much good news regarding demand. World oil consumption is expected to drop by approximately one million barrels per day this year (according to the EIA, global demand is projected to rally in 2010 due to improving economic conditions).

Consumers want prices to stay around $40 per barrel, yet still want to see investment. The bad news is that $40 per barrel simply isn't enough. Low prices might feel great right now at the pump, but failing to invest in the long term is going to be devastating.

Summer Expectations

Despite the long term uncertainty, crude prices have managed to move higher.

The rebound came after after an unexpected drop in inventory was reported. People were expecting a small build of one million barrels. Instead, the report showed a 750,000 barrel draw.

So where are prices headed from here?

Well, that entirely depends on whom you're asking.

While crude moved higher late last week, T. Boone Pickens called for $75/bbl by the end of the year. He went even further, saying, "We'll see $60 before it goes under $40."

I can't help but agree that we'll see $75 per barrel by 2010.

Before I start tossing out wild long term predictions, however, the real test will be with demand. The first thing that directly comes to mind is what the summer driving season will bring. Gasoline demand is actually on the rise, up approximately 2.2% compared to a year ago according to the EIA report last week.

I'm curious as to what your expecting to see this year? Will it be enough to pick up crude prices?

Domestic Bulls

The point is that demand will eventually come back. In fact, I have yet to meet a reader that is bearish in the long run. But knowing that demand will pick up isn't enough. When oil was making its run to $150 per barrel, one of the most important questions was where we were getting our oil. People started realizing that importing 70% of our demand wasn't exactly the best way to go.

Naturally, the best option to reducing our thirst for foreign oil is to develop our domestic sources. U.S. domestic production.

Unfortunately, U.S. production is still falling down the back side of Hubbert's curve and the concept of lowering our dependence on foreign oil isn't new. But although the U.S. has been hit hard by peak oil, you would be surprised to find that there are still a few places in the U.S. with a very bright future. And as we pull our economy out of this financial crisis we'll be scrambling to develop those prospective areas first. Next week, I'll show you which operators are going to take advanatage of that position.

Until next time,

Keith Kohl

Energy and Capital

P.S. The way I see it, there are two types of investors during a financial crisis. Either you're the kind that panics and loses your shirt, or you take advantage of the chaos and profit. I know most my readers have been making gains throughout the latest economic troubles, and it wouldn't be fair if I didn't offer my newer readers the same chance.

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Oil and Gas Stocks

Last week certainly felt like a roller-coaster ride.

Admittedly, it's been a while since we've seen some good news for oil prices. When the EIA released their weekly petroleum report, crude oil prices jumped. It turns out the inventory build of crude oil was much less than expected.

Analysts were expecting an increase of 2.25 million barrels. Instead, the build ended up only being approximately 700,000 barrels. Although U.S. inventory levels are still about 17% (42.8 million barrels) over last year's level, the news was enough to help crude prices break over $45 per barrel.

On top of the lower inventory build, the EIA reported that gasoline demand rose 1.7% compared to a year ago. Of course, this doesn't come as too much of a surprise considering the average price at the pump is $1.89 per gallon. Compare that to the $3.14 per gallon we were dishing out last year.

When the report was released last week, you were probably thinking the same thing I was: Finally some bullish news for oil.

Sadly, the rally didn't last long.

The Long and Short of Oil

Watching oil push past $45 per barrel, the question was whether it would break $50 per barrel. As you know, the end of the week turned out much differently than we expected.

The EIA news was soon forgotten on more news highlighting the economic slowdown. So far, at least as of today, prices have dropped approximately over 10%, yet still manage to stay above the $40/bbl mark.

So, how hard will these economic problems affect demand? It all depends on who you ask. The latest EIA forecast calls for a 1.2 million bbls/day drop in world oil consumption. Furthermore, production is expected to fall to a level we haven't seen in years.

So what's up next for crude?

For starters, OPEC's next move may have several repercussions. On March 15th, OPEC will once again be faced with the question of whether or not to cut output further. Right now, it's merely a topic of speculation, and the answer depends on which OPEC member you're listening to, as usual.

Either way, I wouldn't expect to see crude prices drastically rise or fall based solely on the decision. Remember the last time they announced a massive cut? Oil prices fell to $32 per barrel the day after the announcement.

Even though OPEC has actually reached 80% of the previous round of production cuts, slashing another million barrels per day isn't out of the question. The Saudis certainly look like they're ready to cut more production. OPEC's largest producer is expecting to cut their number of oil rigs by 20%. That means the Saudis plan to have 101 oil rigs operating by the end of 2009, down from 130.

I'm not saying prices are suddenly going to drive higher overnight. Getting back to $100 a barrel oil is going to take some time. I don't believe it's a question of "if," but rather "when" oil will eventually return to triple digits.

Do you?

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Riding This Volatility to Profit

Just because the market is plagued with volatility, that doesn't mean investors are shut out from making decent gains. I believe investors have two options. They are pretty obvious—you can either play the field or sit on the sidelines and watch as others profit.

Let's take an example right from the pages of Energy and Capital.

Towards the end of last year, I gave readers a list of three crude oil stocks I felt were oversold. Although I would be comfortable holding all three of those companies in the long term, all three turned out to be short term winners.

Here's a look at how they played out:

Marathon Oil (NYSE: MRO): Within two weeks, shares of Marathon were on the move, netting many of my readers nearly 20%. During last week's volatility, Marathon has once again dropped under $22.
Whiting Petroleum (NYSE: WLL): Judging from the massive amount of mail I've received from readers, my Energy and Capital readers had even more success with Whiting Petroleum. Those of you savvy enough to get into this Bakken driller managed to post gains over 40% a mere two weeks after reading that column.
EOG Resources (NYSE: EOG): Finally, we have EOG Resources. By riding the volatility wave, many of you were able to pull out of EOG with an admirable 16% gain in early January.

As you can see, the opportunity is out there. The fact is that many of these solid oil and gas stocks are trading at 52-week lows. If that isn't a screaming bargain, I don't know what is.

And to think there are still people too afraid to trade.

Playing the Field

Naturally, there's a catch.

This time, however, the catch works to our favor. I'm fine holding many of those companies for the long run, so even if I miss the first wave, there's always a chance to catch those profits again. And one thing has become abundantly clear: many of those oil and gas stocks have been unfairly beaten down, making them a huge bargain for investors. Let's face it, dear reader, what we really care about is how the future turns out.

Our day will come. Of course, if it were that easy, every trader would be a millionaire. The truth is many people allow the fear to take over. They would rather hide out and watch the action from a distance.

Personally, I don't understand how they can remain inactive like that. If you haven't noticed, we've effectively turned back the clock and are presented with another huge buying opportunity. Truth be told, you really don't need to wait years to find a profit. You can find out more about those opportunities below.

Until next time,

Keith Kohl

Energy and Capital

P.S. As you can tell, I don't get frustrated during a recession. The reason is simple. The fact is... our current economic turmoil presents investors with a perfect buying opportunity. However, finding the right energy investments can be extremely difficult and taxing. Fortunately, many of my readers have been successfully preparing for energy's next bull run by following the new trades in Ian Cooper's Pure Energy Trader advisory. There's simply no other energy advisory like it. To find out what Ian's got up his sleeve right now, just click here.

Trading Energy Stocks

I can vividly remember the day I bought my first stock.

At the time, I was just a young kid starting college. It was mere seconds after the market opened that I decided to strike. I was so sure that this was the play. The nervous anticipation making my fingers shake over the keyboard. It wasn't fear that gripped me at first, it was a feeling of power. I was in full control of my financial destiny.

It turns out that same confidence blindsided me. In fact, I wish I could sit here and tell you this one trade freed me of all my debt and set me down the road to greener pastures. Unfortunately, that wasn't the truth, and there's a good reason why.

Within the first ten minutes of making this trade, however, I was already regretting it. The minutes turned into hours. Then, things got even worse. At one point during the day I had to stop watching the company while the share price dropped. I'd had enough of the market that day as the pit of my stomach grew heavy with regret.

I felt crushed when I decided to cut my losses and run. I was so sure this was my ticket, I was blinded against logic. As you can probably tell, my first foray into the world of trading didn't turn out the way I imagined. Sadly, I had fallen into the same trap that many of you, at one point, may have found yourselves in, too. The problem was I failed to do my own due diligence.

It's a mistake, though, I haven't made since.

Finding the Right Energy Stock

Understandably, everyone will have his or her own personal ways to approach a potential energy trade.

So let me ask you: What do you look at before adding a company to your portfolio?

I've met several Energy and Capital readers who swear by trading strictly on the company's chart. They've often said they prefer to live or die by the Bollinger Bands. Granted, using the BB bands is an effective way to gauge volatility, but using them as the sole indicator is something I'd hesitate to do. I don't see the point in limiting your analysis like that.

On the other hand, I've read numerous success stories you've sent in (naturally, I'm not surprised by my readers' trading success).

Considering it would take hours to go through everything, I'll go over the first things things I look for when identifying a specific energy company. I ask myself a three simple questions.

President Obama just forked over $350 million to the geothermal industry.

But which geothermal company will get the lion's share of this massive subsidy?

Perhaps the only one that just got $84 million from the DOE to build its next power plant!

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1. Where are they operating?

First and foremost, I need to know where my company is operating. Depending on the answer, I'll know whether or not to move on to something else. Personally, I need to know whether or not the area has room to grow. Would you be comfortable putting your hard-earned money into a field like Cantarell?

Okay, that may not be a be a fair question considering Cantarell's dramatic decline over the last several years, but you get the point.

On a domestic scale, take a closer look at North Dakota. The state's production has been growing steadily for the last seven years—one of the few states where oil production is actually increasing. Of course, North Dakota's oil boom isn't new to my readers.

2. What is their growth potential?

Once I'm sure my prospective play is operating in the right area, the next question is where the company is set to go from here. How much production is the company pumping out? More importantly, where is that amount headed? Understandably, that has a bit to do with where the company is operating.

For example, let's take a quick look at natural gas. To take a long position in natural gas, you would lean toward prospective shale areas like the Haynesville or Marcellus shale, where production is expected to jump over the next five years. If you're looking for more stable production, you'd probably focus on companies operating in the Barnett shale.

3. The final question

It's the question I always leave until the end. I simply ask myself, "Would you be comfortable owning this company five years from now?"

There's a good chance that if I'm not comfortable holding onto a company for that long, the risk may be too great for me. On top of watching my gains, it's satisfying to watch one of your energy plays grow over time. Imagine picking up a small oil producer five or six years ago. I bet that company would have made you (and your wallet) smile during oil's run to $147 per barrel.

Looking Forward...

That final question always makes me think back on my first trade. A few years and several trades later, I bought back into that small energy company after evaluating their potential. The difference, however, was that I had come to the decision after a long series of research. This time I not only came out ahead, but also erased the previous loss.

As you've probably realized by now, there is a huge buying opportunity in this market. And the fact is many quality companies out there have had their shares unfairly beaten down. Believe me, dear reader, those opportunities are not only out there, they're right in front of our faces. Don't believe me yet? Next week, I'll show exactly which energy stocks to add before oil rebounds and we move out of this recession.

Until next time,

Keith Kohl

Energy and Capital

P.S. Like many of you, I don't get frustrated during a recession. The reason is simple. Can you honestly think of a better time to pick up a solid company? Finding those gains, however, isn't easy. Many of my readers are taking advantage of the situation by picking up those oil and gas gems right now. Personally, I think it's time you joined their success. Simply click here to find out more about the Pure Energy Trader.