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Guest Post: Who Will Profit From The Oil Spill
Submitted by Charles Brant at Casey's Energy Opportunities
The disaster in the Gulf of Mexico may be the best thing that’s ever
happened to green energy producers in the U.S – but the one that
benefits the most will probably surprise you.
As the damaged Deepwater Horizon well continues to pump out 5,000
barrels of oil per day into the Gulf, all the major stakeholders are
scrambling to find a way to contain the damage. Investors in BP,
Anadarko, Transocean, and Halliburton have had a rough few weeks and
should be nervous about the future. The growing political firestorm
that’s accompanied this ecological disaster is drastically reshaping
the energy landscape in the U.S. There’s huge money to be made from the
biggest structural change to the energy markets in the past 50 years,
if you know where to look.
The political and economic fallout from this accident is starting to
take shape, with the executives from BP, Transocean, and Halliburton
being paraded in front of Congress for a public chastising.
Predictably, politicians are making stern promises of tighter
regulations in the future.
At this point, it’s a guessing game as to what the new permanent
regulations will be. So far, a temporary moratorium has been put in
place on the issuance of new offshore oil and gas drilling permits. In
addition, the Department of the Interior plans to restructure the
federal Minerals Management Service (MMS) to eliminate the conflict of
interest inherent in its role of monitoring safety, managing offshore
leasing, and collecting royalty income.
The Department of the Interior has plans to make offshore drilling
rig inspections much stricter. Interior Secretary Ken Salazar has also
promised tighter environmental restrictions for onshore as well as
offshore exploration and production. Lastly, in a knee-jerk reaction to
the oil spill, the Senate Climate Bill gives states the right to veto
offshore projects within 75 miles of shore.
Although these regulatory changes aren’t set in stone yet, it’s a
foregone conclusion that any company involved in offshore drilling will
feel some pain. Any exploration and production company that continues
to operate offshore will face reduced margins from a higher-cost
structure from increased taxes, regulation, and insurance.
Offshore production supplies a large amount of oil and gas to the
U.S. The U.S. Energy Information Agency estimates that U.S. offshore
reserves account for 17% of total U.S. proved reserves for crude oil,
condensate, and natural gas liquids, as the illustration below shows.
Of the total known U.S. offshore reserves, the Gulf of Mexico accounts
for 90%, with the rest found in California and Alaska. In 2009, BP
produced nearly a quarter of all the Gulf’s oil and gas located in
federal water. Shell and Chevron produced 12% and 11%, respectively.
The sheer size of offshore reserves guarantees exploration and
production will never be completely abandoned in the U.S., but don’t
expect any growth. In fact, the Gulf of Mexico disaster probably
destroyed any hope of any future drilling in environmentally sensitive
areas, like the Arctic National Wildlife Reserve.
The market has reacted strongly to the spill, punishing the stocks
of every company involved in offshore drilling. Now many are suggesting
it might be an overreaction that could benefit your investment
portfolio if you dare buy in now. However, there are better ways to
work this news to your benefit.
The oil spill will be a very expensive setback for all the players
involved in offshore production; we’ve already seen that reflected in
their stock prices. In the near term, offshore exploration and
production companies and the oil services companies will show margin
erosion as they digest higher costs. In the medium term, some companies
will pull up stakes and move completely into non-U.S. offshore
projects, as they’ll realize the cost of doing business in the U.S.
outweighs any potential gains.
The market might be overreacting, but we’re not convinced these depressed stocks represent good value. While it’s possible there
are some good bargains, it’s still too early to consider speculating in
any offshore-related companies. Specifically, the threat of increased
regulation, massive tax increases, and rising insurance costs will
create a hostile environment for these companies going forward.
Instead of risking your capital on so many unknowns, a prudent
alternative is to look at energy producers in the renewable energy
sector. The oil spill has only strengthened the current
administration’s resolve to make greener energies supply a larger chunk
of America’s energy needs in lieu of traditional fossil fuels. Congress
is doing its part by giving huge subsidies to companies in this field.
There are a lot of renewable options that will benefit from the
subsidies and political wrangling, but our current favorite by a long
shot is geothermal power.
Of all the renewables, we think geothermal has the best upside
potential. Based on economics and efficiency alone – unlike wind and
solar energy, geothermal is reliable for round-the-clock generation and
is already price competitive with fossil fuels without any subsidies –
geothermal outperforms competing renewable technologies.
Add the government subsidies on top of the existing good economics
and the pot gets even sweeter in the short term. Once the spill is
finally contained, attention will shift to previously low-key
renewables, like geothermal, and soon after the market will recognize
geothermal as the clear winner.
We’ve researched companies up and down the geothermal supply chain
and we’re seeing value in a number of quality companies that we think
are poised to outperform. With the coming flood of money and attention
that will be focused on green energy, you’ll want to move quickly
before these bargains go away
»
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And those companies are?!? Useless post/article.
Only Uncle Sam is giving it away.
Surprised you looked up from the teat long enough to post your comment.
Yep, the administration, assorted congresscritters, and revolving door regulatory folk in the gubmint are going to play their usual reindeer games with this one, good and hard.
Cui bono, cui bono, cui bono.
U.S. Geothermal (HTM, amex) is one. Made a great trade out of it last year. No position , but I have had an eye on it recently.
Yep. Crap article. Don't know why they bother to pollute ZH with this garbage.
"The disaster in the Gulf of Mexico may be the best thing that’s ever happened to green energy producers in the U.S – but the one that benefits the most will probably surprise you."
Maybe it will be the consumer when big oil drops their price to make alternatives not feasable.
And, I don't know too many cars and trucks that run on geothermal.
"With the coming flood of money and attention that will be focused on green energy, you’ll want to move quickly before these bargains go away"
Where exactly is this flood going to come from? Governments are already over extended in debt or maybe from the people burned on the alt energy rampage in late 07.
Expect the unexpected.
Alternatives are not feasible already - they never were; just look at current BP's logo - where do you think it came from? The 70s' oil crisis that's where - that's when everyone (including big oil) started looking into alternative energy sources*. The fact they didn't came up with anything is simply because there isn't any, yet - they're all too expensive _as_it_is_ - no need for cheap oil.
Ask the Spanish.
What do you think - is if there was a real alternative (specially after investing so much in it), big oil would let it slip through and let others cash on it? I though they were greedy, but apparently they're not,after all?
* News from 91: after 6 years and 10Mil, Southern California Edison and TI presented the Spheral Solar Cell (small interlinked silicon beads on an aluminium sheet) - estimated output cost: 2$/W, against 8-15$/W (!) average - never happened, did it?
Who will profit? Me I guess...via UNG. Bought a shit-house full just 2-weeks ago.
Bingo
Just look at this NYT Gubbumint Motors news release:
http://www.nytimes.com/gwire/2010/06/01/01greenwire-gm-places-bet-on-natural-gas-powered-vehicles-46022.html
Article mentions 'Natural gas is becoming sexy again'
I'll leave that to your imagination.
LPG is kind of big in Europe, after a failed government sponsored boom a few decades ago. You can have it easily installed parallel to gas with a tank shaped to fit in the spare wheel compartment.
Now that's just wrong. But damn funny.
LOL can't believe I missed the joke!
UNG will eat you alive as a long-term play. I agree though that nat gas is cheap and a very attractive alternative to coal and oil. Need better options for multi-year or multi-decade investment vehicles.
"Multi-decade investment?"....muuhaahahahahaaaaaa! No way friend, I'm a trader.
Yeah, one day at a time in this market. Multi-decade, holy shit he is optimistic.
Ram Power would be a good long term play for Geothermal, on top of that, they have Rick Rule.
My guess is that Balfour Beaty, LVI and the other environmental whores will be out in force on this one, if they aren't already on site or at least pre-staged.
LVI is famous for their "man camps" after Katrina. this is where they locked their undocumented migrant workers inside a fenced area with armed guards and put them up in 40' semi trailers equipped with thirty bunk beds and prot-o-lets. These same workers were paid 10 bucks an hour [when they actually got paid] while LVI collected as much as 45 an hour by FEMA.
Nice group LVI.
"As the damaged Deepwater Horizon well continues to pump out 5,000 barrels of oil per day into the Gulf"
If you don't know how much just say it. If you know how much just say it.
That was easy. Or were you talking about dispersant's
Follow up for accuracy sake.
http://www.huffingtonpost.com/2010/06/03/gulf-oil-spill-latest-fed_n_599...
"Media reports continued to use that figure even after a video clip of the spewing pipe exposed it as a farce. Finally on May 27, the Interior Department issued a press release, describing 12,000 to 19,000 barrels as a "preliminary best estimate" of the flow."
"Two members of the team did tell PBS the next day that the 12,000 to 19,000 figure was just the range of the "lower bound." Yet the figure was widely accepted as the entire range of possibilities."
Read it and weep. Putin(Puts on) will be the cash cow.
Another oil disaster...The Front Fell Off. LMFAO!
http://www.youtube.com/watch?v=8-QNAwUdHUQ
Probably the Hatian Czar Bill Clinton, after he finishes pulling a reverse Robin Hood in Haiti.
"The oil spill has only strengthened the current administration’s resolve to make greener energies supply a larger chunk of America’s energy needs in lieu of traditional fossil fuels."
LOL.
Since when did any administration give a f**k about reducing consumption of Coal or Crude.
Let's hear some details about why there is value in Geo-thermal and where there is value.
Good point, I just checked opensecrets.org and the only geothermal companies I found gave a whopping 160k in 2009 lobbying dollars. That compares to about 38m from oil and gas.
I wouldn't expect too much help from the current politicians on this one.
I get a big LOL out of this shit.
We are staring at a potential production CLIFF and these mfers are bleating about "green" fucking energy...hahahahaha.
They are going to drill in ANWR and everywhere else they can once the grinding effects of decline begin to manifest in earnest.
Hell, they'll be drilling into Michael Jackson's coffin for the oil still left in his hair when it gets really bad.
The first problem with new, utility-scale geothermal plants is verifying the resource through exploratory wells. No bank will finance that risk. No PE or VC fund will either. That leaves common equity or the Feds funding it. Which wouldn't be bad except each well costs $6-10 million and is a binary result. This "dry hole risk" scares everyone. The second major problem is pure up-front capital cost- can be as high as 6x an equivalent-sized natural gas-fired power plant.
Exxon has already taken a big position in NG. Already, buses and trash haulers are running on it and the prospective worldwide market is huge. If Amerika weren't so fucking corrupted, the oil companies and car companies could do a side by side upgrading of the NG vehicle technology and the retail distribution network would already be in the bag with the major oil franchisees.
But how can Big Oil make astronomical eye-popping profits from NG-powered vehicles......??
Answer is they can't. Killing the goose is not in their DNA....but incompetence and short cuts and greed certainly is.
So we get stuck with a century old fossil fuel source for transportation that could easily and efficiently be replaced by a number of clean emmission technologies.
Never forget this energy universe of choices is guided within the framework of a fixed game.
The biggest impediment to the conversion of cars and light trucks to use CNG (compressed natural gas) is the lack of CNG filling stations. It's a chicken and egg problem, but one that could be helped by a rational energy policy. CLNE is the ticker for one company working on this. Most of the oil companies also produce natgas and would love to get more than the sub 5 dollar price they are getting now.
Big Oil franchises about 80% of the retail distribution network for gasoline fuels. But they still carry the brand/supply hook and the credit network. A decentralized and distinct setup of pumping stations for liquid and CNG is not going to involve a major investment in established locations.
It's about profit and supply/price manipulation.....bottom line as usual. Rational energy policy won't exist as long as the boyz don't want it to exist.
Recall something or other about earthquakes being associated with geothermal drilling activity.
Yes, that was in Germany a few months back
What are fisheries not in the Gulf of Mexico Alex.
I think it safe to say now that we have determined the cause of our fishy evolution.
http://www.pbs.org/wgbh/evolution/library/03/4/l_034_03.html
Fish shaking fin at oil. Damn you oil.
+1
Awesome link! Thanks for posting it.
Charles Brandt suffers from a common and fundamental ignorance. We don't use oil to generate electricity and we don't use wind or solar or geothermal in the transportation sector.
Now consider the present reality. Today's EIA petroleum report says: "Over the last four weeks, motor gasoline demand has averaged 9.1 million barrels per day, up by 0.5 percent from the same period last year. Distillate fuel demand has averaged 4.0 million barrels per day over the last four weeks, up by 17.1 percent from the same period last year. Jet fuel demand is 8.1 percent higher over the last four weeks compared to the same four-week period last year."
As far as the drilling companies not recovering, they can move those rigs anywhere in the world and stay profitably employed.
I suppose the profiteering and enterprising nature of the human animal must be admitted and given its due in respect of any catastrophe, but the sentiments expressed in this post are not among those that I would recommend as being reflective of the more idealistic and elevating in the human repertoire.
Though it is truly an ill wind which bodes no one any good, what might be considered by many only a realistic and balanced assessment of the great potential for profiting from any situation and even such an unparalleled disaster as this might be in some quarters be construed as embodying a unreflecting level of insensitivity and even callous disregard for the ever widening scope, extent, of this unprecedented and gruesome tragedy especially upon those immediately effected not to speak of the devastating consequences for our country and the natural environment.
Though Mr. Brant is to be commended for his astute and ready assessment of the possibilities for personal and even collective gain in the face of such massive losses to the health well being of both humankind and nature, I think he will be less remembered for any profound or even notable human feeling. Happy trading, Charles.
the gasket supposed to prevent the blowout came up the pipe and everyone else in the room and on the rig knew what it meant. a bp executive stepped in and took control . drill baby drill.
is this enough to make me think that this whole disaster is another profitable diversion ? yes it is.
mainstream news is now devoting a big chunk of it's time to the disaster in the gulf instead of the economic collapse and the greatest theft the world has ever known.
bp will be devoured by the threat of lawsuits and it's assets spun off to the competition at firesale prices. after that the settlements will be reduced to a fraction or tied up in the courts for a generation. let the valdez be your guide.
is the system that corrupt ? absolutely , you can bet your 911 on it.
I know who won't profit ,bastards should be hung .......http://www.boston.com/bigpicture/2010/06/caught_in_the_oil.html
Who will profit? I would say the equity markets in general as the spotlight is turned from Europe's financial crisis to the Gulf of Mexico.
Geothermal can be used on a widespread and decentralized way. A heat pump can use the 55 deg earth 4-5 ft under most of the midwest. Enough area in the average suburban lot.
Then I can use all the saved natural gas to run my Silverado or Camry.
I can't believe Leo hasn't shown up in this thread yet touting the wonders of solar and other alternatives companies.
Let's fire up Mr. Peabody's WAYBAC machine:
April 18, 1977 - President Jimmy Carter's Proposed Energy Policy
http://www.pbs.org/wgbh/amex/carter/filmmore/ps_energy.html
Serious conserving, saving, reducing, sacrificing, protecting, pricing and controlling.
Oh, safer nuclear, monitoring oil and natural gas, and more coal and solar, but no wind or geothermal.
May 1, 1978 - Upcoming May 3rd Sun Day
http://www.time.com/time/magazine/article/0,9171,919567-1,00.html
We're going solar big time.
March 28, 1979 - Three Mile Island Meltdown
http://www.cnn.com/US/9903/28/3mile.anniversary/
No more commercial nuclear power plants built.
June 3, 1979 - Ixtoc 1 Oil Spill
http://www.time.com/time/magazine/article/0,9171,920519,00.html
Pemex continued to drill more wells.
July 15, 1979 - President Jimmy Carter's "Crisis of Confidence" Speech
http://www.pbs.org/wgbh/amex/carter/filmmore/ps_crisis.html
Looks like we're going with:
"alternative sources of fuel -- from coal, from oil shale, from plant products for gasohol, from unconventional gas, from the sun"
but not nuclear, wind or geothermal ...
I'm not coming back from 1980, it was a good year for me.
I have a contrary view. BP will be lucky to survive but RIG will do well. So will DO, NE and NOV. The idea that demand for deep water drilling will dry up is nonsense. Most managers of OPM are now sector rotators, simply selling entire sectors once the sector loses momentum and shows negative strength relative to the SPX. When the oil service sector turns up, I will go long, while I remain short the consumer demographic disaster stocks like WGO, HOG, MGM and perhaps F.
I assure you that this oil spill will do nothing to aid the quest to circumvent the laws of thermodynamics or make water flow uphill.