<THE DRIP PORTFOLIO>
Oil For 40 Years?
Plus, supporting Drip companies!
by Jeff Fischer ([email protected])
ALEXANDRIA, VA (Nov. 16, 1998) -- On Sunday, I supported all of the Drip Portfolio's companies. First, I snagged a new IBM Thinkpad computer, patronizing Intel with a Pentium purchase. I also bought a package of Pepperidge Farm Milano cookies, and one can (yup, one measly can) of chicken noodle soup from Campbell. As for J&J products: I use those every day in the form of soap and other products, but since the Fool soccer season ended, I haven't used many Band-Aids. (Granted, I played only one game, but I was using Band-Aids for weeks afterward.) Finally, I also used a Mellon Bank credit card.
How does all of this relate to the Drip Port's study of oil and gas? Fittingly so. The irony of our oil study is that Brian Graney and I are the two Americans in the country who don't own cars. Neither of us owns an automobile. Yet, we're studying the oil industry as a potential investment.
Of course, people can't get through a day in this age without using oil in some sense, whether in the plastics that they eat day-old macaroni and cheese from, or in the oil that they (Brian especially) slick into their hair. Plus, our hope is that within 19 years -- by the time that the Drip Port assesses its 20-year goal -- one of us will own a car or be blessed with a wife who owns two.
Anyway, no matter how you live now, nobody escapes the influence of the oil giants. The industry touches everyone on some level. And it's still growing. In absolute terms, oil consumption on the planet has grown 12% over the past twenty-five years, though that pales in comparison with the 67% growth natural gas has experienced over the same period.
Over the next three days Brian will write about political and economic issues that are impacting the oil industry now and that might do so in the future. In that context, our initial focus is on the oil giants that rule the majority of the oil industry landscape. John D. Rockefeller's Standard Oil trust was sunk by the 1890 Sherman Antitrust Act, but today the $800 billion integrated petroleum industry is dominated by former Standard subsidiaries: Exxon, Chevron, Mobil, and Amoco. However, Dutch/Shell is the largest oil company in the world.
In the next twenty years, Middle East oil will continue to play an extremely important role in the industry because additional finds of substantial non-OPEC oil fields will likely be very limited. In the past twenty years, non-OPEC oil production came "on stream" in Alaska, the Gulf of Mexico, and other regions, but none of the newer fields compromise the power that the Middle East holds over the industry. Two-thirds of the world's oil reserves are sloshing about in the Middle East.
The expected lifespan of currently known oil reserves is about 40 years. That number isn't absolute, though. The lifespan of known reserves is re-evaluated each year and typically changes as more oil is found in the reserves than was expected, or as production becomes more efficient. Of the total known oil reserves in the world, about 68% resides in the Middle East, 10% in Latin America, 7% in Africa, 6% in Eastern Europe, 5% in China and the Far East, and 3% in the United States (man, we reek in this department).
We're beginning slowly with our study and that's for the best. So many Fools seem to know very little about the industry, and there is much to consider. We've begun with Brian's summary of what to expect [11/10/98], and, after presenting our list of stocks for consideration [11/11/98], we shared an overall introduction to our two industries and began with industry terms [11/12/98]. It's also good to start gradually because most of us, including Brian and me, are on the same page: we're learning from an initially small knowledge base. Having such a modest base of knowledge, piling too much atop of it too quickly might be overwhelming.
Before moving further, today we'll share a few more terms to know.
Primary Recovery: Recovering oil from a well using only the normal pressure from the earth to push it to the surface.
Wellhead: The point of origin in an oil or natural gas supply line. This term relates to the actual controls and valves at the well that contain the oil -- so it's very much to the point. This is where the black gunk (oil) or the lethal explosive gas is coming from, and at the wellhead you find a valve and some controls. It's either on or off. (How's that for making it simple?)
Winning: Other than being the "message" behind every Rocky film, winning refers to locating, excavating, and removing coal from its point of origin -- which would be under the earth.
Sinking: Other than being the theme behind most tragic love stories (a "sinking" feeling of loss), sinking is the process that drives a coal shaft.
For more terms, please visit last Thursday's column.
A Holiday Message in Time Enough: DRPs make a great holiday gift, and Moneypaper (I recently received this in snail mail) is making it easier to give a share of stock, in a DRP, to a friend or family member for the holiday. If you're thinking of doing so, give Moneypaper's holiday ad banner a look at http://www.moneypaper.com. I like the idea of giving stock and plan to do so myself (the holidays are sooner than we think). We'll later take a few days away from oil in order to write about how easy it is to give stock as a gift and open accounts for minors.
For more discussion of anything DRP-related, please visit the Drip message boards. More on oil tomorrow, as we drill a bit deeper.
Fool on!
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11/16/98 Close
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