Intro & Terms
Our entire study is thanks to Edison

by Jeff Fischer (TMFJeff@aol.com)

ALEXANDRIA, VA (Nov. 12, 1998) -- Thomas Edison invented electric light in 1879 working in a single room, alone, in the dark. Like a flip of a switch, 120 years have passed and the world is now aglow in this man's brilliance, from Times Square in New York City, to the City of Lights itself, in France. Today the U.S. energy industry is worth $500 billion.

Over 80% of the energy that we consume is derived from three major sources, the first of which is oil. Oil, in fact, is the number one form of energy that the world consumes. Natural gas and coal are numbers two and three, respectively.

North America is the largest energy hog in the world. Nearly every single home in the country (but for those owned by mail-bomb-sending eccentrics and missionaries in Montana) is wired for electricity. Although the U.S. has only 5% of the world population, the country eats 30% of the world's energy, relying greatly on imports of the juice.

Our initial focus will be oil. There are more than 20 major oil producers and refiners that serve the U.S. and over 40 large worldwide petroleum companies. Supporting many of these is the oil equipment and services sector, which includes oil service providers and drillers (which own really cool and expensive drilling equipment). The exploration, services, drilling and production segment is comprised of hundreds of small companies. Yet, all of these tasks are also done by many of the giant oil conglomerates we're studying.

Our complementary focus will be natural gas, which is primarily used to heat homes and businesses and to fuel the Industrial World and all its factories. Utility and pipeline companies earned about $50 billion in revenue from natural gas last year. With deregulation, the natural gas industry is finally learning how to compete, much like oil has been doing since the 1890 Sherman Antitrust Act. (We'll have much more on that amazing event in the very near future.)

Before we explore the history of oil and gas further, below are several terms that we'll frequently hear. This being such a giant topic, we're going to begin with a history injected with general industry info to provide some background. By explaining history, we'll work to bring everyone to the present oil and gas situation so that we can explain where it's at right now and why -- with oil prices at record lows and earnings at oil companies declining greatly from last year.

Here are some oil-related terms that we'll be using:

Upstream: In the oil industry, this describes the aspect of exploration and production (getting oil from the ground). Companies involved in this alone are "upstream" oil companies.

Midstream: The term "midstream" doesn't really formally exist in industry lingo, but we're adding it to describe the transportation -- or pipeline -- of oil once it has been found.

Downstream: The refining and marketing of oil. This is the final step that follows the two stages we just described. Exxon is doing the final part of this when you step up to its gas pump and click that lever. (Then your car turns the fuel into air pollutants.)

Barrel: The most common unit of measurement in the oil industry is a barrel, and one barrel is equal to 42 U.S. gallons. When we hear oil prices have dropped to $17 a barrel, for example, this the barrel size they're speaking of. (Hey, so why does a quart of oil cost $1.95!)

BTU: Stands for British Thermal Unit. A BTU is the amount of energy required to raise the temperature of a pound of water one degree Fahrenheit. Why you would measure water by the pound is beyond this Fool. (To raise a pound of flesh one degree or more, it only takes a slight fever -- usually gotten from a 4-year-old child.)

Federal Energy Regulatory Commission: This is an independent commission in the U.S. Department of Energy that has jurisdiction over wholesale and interstate electric power rates. It also, importantly, has jurisdiction over interstate natural gas pipeline companies.

Enough terms for one day. We'll have many more soon, as we build a whole directory of them. Until tomorrow, we hope to see you on the message boards to answer questions.

Fool on!

FoolWatch -- It's what's going on at the Fool today.


11/12/98 Close

Stock Close Change CPB 54 15/16 - 1/8 INTC 102 11/16 -1 JNJ 84 7/16 +1 1/4 MEL 60 15/16 + 5/8
Day Month Year History Drip (0.01%) 8.18% 26.11% 7.40% S&P 500 (0.25%) 1.77% 15.22% 17.54% Nasdaq (0.60%) 4.50% 17.88% 16.14% Last Rec'd Total # Security In At Current 09/02/98 8.027 CPB $52.867 $54.938 09/01/98 9.727 INTC $80.238 $102.688 10/07/98 7.850 JNJ $71.405 $84.438 10/07/98 1.000 MEL $48.560 $60.938 Last Rec'd Total # Security In At Value Change 09/02/98 8.027 CPB $424.36 $440.98 $16.62 09/01/98 9.727 INTC $780.50 $998.88 $218.38 10/07/98 7.850 JNJ $560.53 $662.83 $102.31 10/07/98 1.000 MEL $48.56 $60.94 $12.38 Base: $2100.00 Cash: $237.52** Total: $2401.15

The Drip Portfolio has been divided into 89.430 shares with an average purchase price of $23.482 per share.

The portfolio began with $500 on July 28, 1997, adds $100 on the 1st of every month, and the goal is to have $150,000 in stock by August of the year 2017.

**Transactions in progress:
10/24/98: Sent $40 to buy more INTC.
10/26/98: Sending $60 to buy more JNJ.