I hope that Fools with an interest in energy pay at least some attention to Matthew Simmons' ruminations about the sector. The Texan (by way of Utah) author offers a sobering perspective on an oil supply-demand picture that I believe looks bleaker by the day.
Simmons, who's written Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy, operates from Simmons & Co., a Houston-based energy investment banking firm. On Tuesday, he was a guest on CNBC, discussing "peak oil": the notion that global oil demand will soon eclipse supply, if it hasn't already. John Hofmeister, the president of Royal Dutch Shell's (NYSE: RDS-A ) (NYSE: RDS-B ) U.S. operations, had already discussed the issue on CNBC last week.
Unlike Hofmeister, Simmons is convinced that overall declining production is essentially liquidating the big oil companies. One quarter doesn't make a trend, but the three largest U.S.-based oil and gas companies -- ExxonMobil (NYSE: XOM ) , Chevron (NYSE: CVX ) , and ConocoPhillips (NYSE: COP ) -- all saw their December-ended quarter production slide from the year-earlier level, despite record high prices during the period.
Simmons calls oil produced from Canada's ballyhooed tar sands "turning gold into lead," pointing out that Shell has spent $14 billion in exchange for production of about 100,000 barrels a day -- in line with the output of a single good-sized well in Saudi Arabia. He's also reportedly placed bets that the price of crude will reach $200 a barrel by 2010.
While I think he may be somewhat aggressive in his forecast, I won't quarrel with his sense of direction. And I'd also agree with his CNBC-aired observation that Chesapeake Energy (NYSE: CHK ) has amassed an impressive record of production increases. Indeed, I'd toss similar kudos to Apache and Devon (NYSE: DVN ) .
Overall, I hope Fools won't take the comments of peak oil troubadours like Simmons lightly. At the very least, their predictions should rouse you to tend regularly to the all-important energy portions of your portfolios.
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