Archive | February, 2013

Don’t Invest in Oil and Gas until you Read this Report

27 Feb

When investing in oil & gas, it’s important to know certain information before making your decision to invest in any oil & gas project.  Novice investors often get caught up in the excitement of oil & gas, because they have heard about the big returns on an investment from a friend who happened to hit it big on an exploratory venture.  In their excitement, they often invest in the first project that is presented to them, and unfortunately, that project may not be suitable for them.

There is a natural human tendency, for casino gamblers and oil well investors alike, to brag about their winnings and neglect to talk about their losses.  One major difference between these two “games” is that the average casino gambler, if he has played long enough, statistically should be in the “losing category”.  If this were not the case, then, the beautiful city of Las Vegas would not even exist.  On the other hand, the average oil well investor statistically should be in the “winning category”.  This is also true of the petroleum industry.

invest in Oil and Gas

Large companies are in a position to take extraordinary high drilling risks, because the mathematical probabilities are in their favor.  They can afford to drill a wildcat well with a 10% probability of success, because, if the well is successful, the company would make more than 10 times their invested capital.  (If it were exactly 10 times their investment, then that would be a “wash’, meaning that if they continued to play this “game”, they would not make any financial progress.)  Companies like Exxon have become great because they have drilled many high risk projects.  When Exxon plays the game,  the math was always in their favor.

Even though the mathematics of a particular project highly favors the investor, this does not mean that this project is suitable for all investors.  My advice to novice investors is that they should not play the oil exploration game at all, unless they have money that they can afford to lose. They should expect to lose all their money, each time they participate in a “wildcat well”.  To be successful, an investor that plays this strategy must be prepared to “stay in the game” and subject himself to multiple losses until the odds smile upon him. A comparison can be made between the Casino Industry and the Petroleum Industry.  While both industries are based on the mathematics of probability, one should be viewed as “entertainment” and the other should be viewed as “investing”.  In a casino, some games have significantly better odds, particularly if the player understands the game.  This is also true in the petroleum industry.

In this report we outline some of the pitfalls that you should avoid as you play the oil game:

1.    First of all, you should be investing through a company or someone who has years of experience in the oil and gas business.

2.    The oil company, whether large or small, must be credible.  This company, often called the “Operator”, should have well educated and experienced technical advisers (petroleum engineers, geologists, and landsmen.)

3.    While not essential, these technical professionals should have a successful track record, showing that they have a proven ability to select successful projects.

4.    It would be an advantage if you could get an opinion from a technical professional that is not a principle in the project.  The old adage that “Every mother thinks that their baby is beautiful” also applies to the geologist who generates the drilling prospect.  Often, a geologist will generate a drilling prospect that he honestly loves.  This does not mean that it is suitable for a novice investor.

5.    If you have a plumbing problem, you don’t call a carpenter — you call a plumber. Petroleum investors do this by having a geologist or petroleum engineer review the project before they invest.  Just keep in mind that your independent geologist may have his own prospect that he is trying to get funded.  He will always like his project better than anything you may show him.

6.    Look for common sense reasons to invest in the project.  If there aren’t other successful wells in the area, then you should consider the prospect to be risky — and possibly a highly risky “wildcat” well (5 to 25% possibility of success).  Unless you are prepared to lose all of your money, do not participate in these projects.  You may hear statements like  “I know there are no other successful wells in the area, but our geologist believes that this well will be a home run.”  Of course the geologist believes this – he would not be a good geologist if he did not believe in his own work. But the fact remains, that even the very best exploratory geologists are wrong most of the time.

7.    Beware of the fancy glossy packaging.  The old adage, “Color Sells,” applies here.  As in all industries, the lack of merit in a project being sold can often be overcome by dressing the homely gal in fancy clothes.

8.    It may be said that there are basically two types of “Deals”  offered in the petroleum industry.  These are  “Promoted Deals” and  “Industry Deals”.  The fact is that Industry Deals are, almost without exception, also promoted to the extent that the originating company gets compensated for putting the deal together, whether or not the well is successful.  The exception to this rule is usually when one large company desires to reduce their risk in a particular project by offering a huge percentage ownership in a project to one or more other large oil companies.

9.    Speaking of “Promoted Deals”, there are basically two types of these – the “Reasonably Promoted Deal,” and the “Over-promoted Deal”.  The Over-promoted deal is one where the Operator plans to hit a financial home run whether or not the well is successful.  There are many cases where the drilling operator has increased the price of his offering ten times or more.  Occasionally, there is a crooked operator that deliberately oversells the well, meaning that the operator deliberately sells more units of ownership in wells, than he legitimately has units to sell, and plans to plug the well even before it is drilled.  If he were to complete the well, then everyone would find out that he sold over 100% of the working interest.  When found out, this operator will go to jail for fraud.

10.    There is a term frequently heard in the oil patch, usually between two oil companies, that goes something like this: “This deal is being offered on industry terms.”  What that typically means is that the funding company (the one that is putting up all the money to drill the well) gets 75% of the revenues after costs (including landowner royalties), and the operating company gets 25% of the revenues. After investing, this percentage often reverts to where the operator gets a much larger share of the profits.  Another way to express this mark-up is usually said this way:  “This is a third for a quarter deal.”

11.    Industry players like to take advantage of what the big oil companies have already proven in an area.  The small companies can usually snoop around in an already proven area and generate their own drilling projects; whereas, large companies can drill wells in areas where small companies cannot afford to play (i.e., offshore and overseas). Small companies can frequently make a profit in  areas where it is not profitable for large oil companies to play (i.e., old mature oil fields that are mostly depleted).  An analogy is “When the King leaves the dining room, there is still plenty of food left on the table.”  This is the current condition of the American onshore petroleum industry.  The larger companies have publicly announced that they cannot continue to explore onshore in the USA, as they have done in the past – because, in their own words, “… the chance of making a major discovery onshore is unlikely.”  (This exodus of the large oil companies from the USA has been accelerating since the BP oil spill in the Gulf of Mexico – they are concluding that the United States is not a favorable place to drill.)  Although there are thousands of small oil companies in the USA, these small oil companies do not collectively have enough strength to alleviate the upcoming energy shortages in the USA. While this situation is not good for the average person on the street, the fact that the big oil companies are moving offshore and overseas is a bonanza for the small oil companies and the investors who provide the funds to drill the wells that the large oil companies have chosen not to drill.

12.    Small companies can very effectively compete with the major US oil companies.  If a major oil company wants an oil lease, there is always a good geological reason for them to secure that lease, so the smaller operators can gain an advantage just by buying leases drilling close to major company leases, because the bigger company has already paid to research the area.  Normally, smaller companies like to focus in areas where a major company already has successful wells.

Wholesale (Industry) VS. Retail Oil & Gas Projects

Projects offered from one oil company to another oil company may be thought of as being “Wholesale Offering”; whereas, projects offered from an oil company to a non-petroleum industry participant  may be thought of as being a “Retail Offering.”

1.    What is typically in a package on a poor retail package:

A.   Glossy folder where they printed thousands of fancy packages that cost $75 each to print and Fed-X to a huge number of potential investors.  Investors should recognize that they are the ones who are paying for the fancy stuff.  This is just one of the many things that contribute to an over-promoted project.

B.    There is a lot of information in the Fed-X package as to why you should invest in oil & gas.  While the information may be factual, Industry Players already know this information.

C.    Tax information that over emphasizes the fact that, if the well is a dry hole you get a huge tax write-off.  While this may be true, Industry Players are focusing on finding oil & gas.

2.    What is typically NOT in a poor prospect package:

A.  Rarely will the technical data show offsetting well cumulative production information.  It may show the  Initial Production (IP) of each well, and while IP is important, the cumulative production is a better indicator of the profitability of surrounding wells.

B.   RARELY will you find sufficient information on nearby wells.

C.   RARELY will you find information on how the well will be completed, or who will be the driller and their experience in the area.

D.  INDUSTRY PLAYERS MAY NOT SEND ANY PACKAGES AT ALL!  They simply provide all the necessary documents via the power of the internet.

3.    What is typically in a good drilling prospect package :

Industry style projects typically have the complete geology package.  This package would include an oil field cumulative production report,  electric logs and various maps showing leases and surrounding wells.  This is all the information that an industry participant needs.  It will also have well written legal documents outlining all the risks, telling you exactly how they plan to spend your money and what you get in return if the well is successful.

VARIOUS INVESTMENT TYPES:

A.  Real Estate.  You will always get the demographics info, area occupancy rates, area incomes, ethnic make-up and who has been moving in and out of area.

B.   The Stock Market.   You or your stock broker will do the due diligence on the companies you invest in.  (Heck, if you get insider info when investing in stocks, they throw you in jail!)  In oil & gas investing, if you get insider information (legally, of course), they just call you a successful oil investor!

C.  Oil & Gas Industry. Investors typically know the important info before they pull the trigger.  Completing oil wells is somewhat like a doctor who is about to perform surgery.  A surgeon will do a better job if he looks at the x-rays before he begins cutting.  Likewise, industry oil well investors typically have proof of what is below the surface before they lease the acreage.  They often feel like they are betting on the game after the game is over.

Contributed by:

David H. Mangum
Petroleum Engineer, Geologist, MBA

Originally Posted: Texasenergyexchange

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Share Trading Tips For Today

25 Feb

Mcx Tips Share Trading Nifty Tips Trial

The top losers of the BSE Sensex pack were Infosys Ltd. (Rs. 2784.20,-0.36%), Tata Power Company Ltd. (Rs. 1284.60,-0.34%), Hindustan Unilever Ltd. (Rs. 331.40,-0.33%) and Wipro Ltd. (Rs. 414.00,-0.17%), among others.

In the economic front, Finance minister Mr. Pranab Mukherjee today said that the government’s borrowing for the current financial year would not exceed Rs 4,17,000 crore. He further said the borrowings of government will be decided in consultation of RBI.

India has appealed to the US for restoring duty free imports from developing countries, including India, which was suspended in December 2010. The government of India has stressed that such move will help the labour-intensive small and medium enterprises (SME).

On the global markets front, almost all the major indices in Asia closed on positive note. The Shanghai Composite, Hang Seng, Jakarta Composite, Seoul Composite and Nikkei225 advanced by 1.48% at 2,795.48, 1.22% at 21,926.88, 1.09% at 3,980.84, 0.94%…

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The Best Way To Learn To Trade

25 Feb
Learn To Trade

Source: Rockwell Trading

Estimated Reading Time for “Learn To Trade”: 3 minutes

Have you ever tried to learn something, but couldn’t wrap your head around it? Maybe a language? Or a new skill?

Do you remember the times in school, or maybe even in college, when you just stared at your text book and just couldn’t understand what you were reading?

Perhaps you’ve already had this same experience when trying to learn to trade. You’ve read a book; watched videos; attended webinars and seminars; but you just don’t get it. Things aren’t sinking in and nothing makes sense!

If this has happened to you, then THIS blog post might help you. Here I will show you the fastest – and therefore probably best – way to learn to trade.

The fastest way to learn new material – whether it’s a method, a strategy, a skill or a habit – is to relate the new ideas to something you already KNOW.

Socrates said that “Learning is remembering.”

And Richard Saul Wurman says:

“Facts in themselves don’t solve the problem. Facts are only meaningful as they relate to a concept you can grasp … New ideas are not so much discovered as uncovered by moving from what you already understand into the realm of what you would like to understand.”

Source: Information Anxiety, by Richard Saul Wurman, 1989

Let me give you an example:

As you know, I moved from Germany to the U.S. in 2002, and one of my first tasks was to buy a house. It should have been no problem –after all, we do have houses in Germany. It’s basically the same process, right?

Wrong – in Germany, we measure in meters and kilometers. So, you can just imagine my confusion when my realtor started describing lot sizes in half-acre, an acre, two acres etc. What the heck? How big is an acre?

Thanks to Google and Wikipedia I quickly found out that an acre is 43,560 square feet. But that didn’t really help me. Now I knew the exact measurements, but I still couldn’t picture the exact size of “an acre” in my head. I had no frame of reference.

Then a friend of mine told me that an acre is about the size of an American football field without the end zones. And I finally got it! I understood how big an acre was, since I NOW had a frame of reference.

The same is true in trading.

In my last blog post I talked about the three areas of trading: Mind, Method and Management. It’s an abstract concept, but I related it to barbequing a brisket – something that you already know. By giving you a frame of reference it was easier for you to learn the concept of the three areas of trading.

And that’s my unique way of teaching.

If you ever attended any of my webinars or have watched the videos of The Ultimate Day Trading System to learn to trade, then you know that I frequently use references to things you already know when introducing new concepts. Some of these examples might sound goofy (e.g. when I talk about “walking over hot coals”, “how I lost 25 pounds” or “how to talk to beautiful girls”), but I promise that these references will all help you to learn to trade, since I always try to reference something that you already know.

Remember Socrates: “Learning is remembering.”

That’s it for today! In upcoming posts I will start to dig into the three areas of trading: Mind, Method and Management.

Source: Rockwell Trading

Google’s Chromebook Pixel Proves A Point

23 Feb

Disclosure: I am long INTC, MSFT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (Ashraf Eassa)

I don’t expect Google’s (GOOG) Chromebook Pixel to sell particularly well. I’m of the camp that Microsoft’s (MSFT) OS and ecosystem are far too entrenched in the PC space for Google’s Chromebook line to really make a dent at the high end. Sure, the low end Chromebooks are selling like hotcakes; they’re cheap and “good enough” for what most people are probably buying them for (secondary systems), but paying $1,300 for a Chromebook that won’t run the wide variety of applications available on the Windows platform seems a little bit of a stretch. It’ll be a niche product that gets Google some spotlight, but until the Chrome OS is more firmly entrenched in the computing landscape (and the low end Chromebooks are the way to do this), a high end Chromebook is perhaps the right device at the very wrong time.

That being said, Google’s management has historically shown itself to be very capable of doing things the “right” way. In particular, the newly announced Chromebook Pixel does a lot of things just so right that the PC vendors keep getting wrong generation after generation that I’m almost sad that this new Chromebook likely won’t be a particularly big commercial hit. However, putting away my inner geek’s emotional state and putting on my industry observer cap, I want to just show everyone just why Google clearly “gets” it, but the majority of the Windows PC space doesn’t.

The Screen: It’s What Users Look At

The PC industry’s screen selection represents quite a sad state of affairs. Today, I can go buy a $499 Apple (AAPL) iPad 4 with a 2048×1536 display that will have a better display than any notebook PC on the planet. Heck, Google’s Nexus 10 tablet sports a pretty nice 2560×1600 display (although the quality of the Google display isn’t quite there with the Apple). But what about the typical PC? Or, let’s do one better — let’s look at the Intel (INTC) sanctioned Ultrabooks (which are supposed to bring back the excitement to the PC). A quick trip to Newegg.com gave me the following options for displays on Ultrabooks:


Do you see the problem? The majority of these devices sport a crap 1366×768 display with awful contrast, terrible brightness, and questionable colors. A few have solid screens like the Lenovo (LNVGY.PK) Yoga (but are stuck in 1600×900 land), and then fewer still have truly quality 1920×1080 screens. Oh, and nothing above 1920×1080.

So, why is it that I can buy tablets with better screens than what I can get on an Ultrabook? Well, a big part of it is that these notebooks sport much more RAM, storage space, and processing power than their tablet brethren, so less of the BOM costs can be allocated to the display. Further, the displays on notebooks are simply bigger, so the raw materials cost is likely much higher.

But see, that’s not my problem. By all means, offer lower end products at a lower price point; not everyone can afford to drop $2,000 on a top-notch, no-compromises notebook. The problem is that there is precisely zero ultra-high-end display representation in the Windows PC space. This blatant omission further fuels the perception that Windows PCs are “cheap” and for those who “can’t afford a Mac”.

Let’s Fix The PC, Guys

It’s time to fix the PC. Microsoft did a commendable job with its “Surface Pro”, as most reviews point out that it has a gorgeous, well-calibrated display (and for a 10.6″ device, 1920×1080 is plenty of pixels per inch), but there are a few nagging limitations that keep it from being a general purpose laptop replacement at this point. Lenovo’s doing a good job, too, with its “Yoga” and upcoming “Helix” lines, although I’m quite frankly surprised that the company hasn’t put out a super high resolution display laptop just for bragging rights. I would like to specifically praise Acer for releasing its “S7” line of laptops; they’re expensive, but for the limited time that I had to play with one, I couldn’t help but be blown away by the screen quality. The only problem is that it’s $1,600. Dang.

But really, the PC industry will start to grow again if the PC vendors get their acts together and start making compelling devices. Intel’s “Haswell” should enable some nice new form factors and significantly improve battery life (a big tablet advantage), but beyond that there needs to be a focus on build quality (ala Apple and apparently Google), as well as ease of usability (please stop cluttering the PC with useless pre-loaded applications).

I think the PC/hybrid categories can be truly exciting, but the OEMs need to put out devices that people truly want. Google’s got the right idea with the Chromebook Pixel, but the Chrome OS immediately strips the value proposition. Could someone in the Windows camp please get it right? Apple and Google have already illuminated the path, but the PC vendors need to be gutsy enough to walk it.

Originally Posted at : Seekingalpha.com

Google: Analyzing The Downside Risks

22 Feb

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

chart-GOOG

Introduction

Google (GOOG) is the world’s second biggest technology company by value and has a dominant position in some key technology markets such as search, internet advertising and mobile operating system. The company is a colossus of the Internet world and can make or break many enterprises in the world today through its sheer power and reach. In fact most of the Internet revenue models are becoming increasingly dependent on Google’s network. Most Internet companies and websites would give an arm and a leg for a top listing on Google search results for popular keywords. Unlike other big technology companies such as Microsoft (MSFT), Google has not stagnated but has continued to innovate and bring out great new products and services (Gmail, Android, Google Maps etc.). While there has been criticism about Google’s excess dependence on search for revenues and profits, the market is giving a high valuation to Google because the company’s new products have a lot of potential. While Google’s stock is currently trading at a higher valuation compared to other mega cap tech companies such as Apple (AAPL), Intel (INTC), Cisco (CSCO), we remain convinced of Google’s long term growth potential.

1. Competition

Microsoft – Google’s biggest competitor in the technology industry is the Seattle behemoth Microsoft. The company fights with MSFT in a number of areas such as search, operating systems, email, office productivity software etc. Google has a stranglehold in the tablet and mobile operating system market with Android. To counter this, MSFT has made the latest Window 8 operating system more mobile and tablet friendly. Microsoft is also making a strong effort to retrieve its numero uno position in email by introducing features that gmail does not have, such as ability to send large file sizes. MSFT has spent billions of dollars to improve Bing’s technology and acceptability, but the company has not managed to significantly slow down Google’s strong double digit growth.

Apple – The company has become a bitter rival from a partner in the last few years. Google’s Android operating system directly threatens Apple’s iPhone smartphone ecosystem by giving a well supported decent operating system for free to hardware vendors. The erstwhile CEO Steve Jobs spoke of a “thermonuclear war” against Google. Apple recently introduced its own maps application replacing the popular Google Maps. Apple is also trying to reduce Google’s search dominance through the Siri application.

Nokia – Nokia has become another strong competitor to Google after the company joined the MSFT camp ditching its own Symbian operating system. The biggest risk that Nokia faces in regaining its lost market share is from Android mobile phone makers.

Samsung – While Samsung is a partner to Google currently, we think that Samsung will become a strong competitor soon. The reason is Google’s acquisition of mobile hardware vendor Motorola. Google has already become both a partner and a competitor. Samsung being the No.1 mobile phone supplier will have to reduce its Android dependence either by selling more Windows handsets or by making its own O/S (Tizen).

Facebook – Facebook is Google’s biggest threat in the Internet advertising space. Facebook gets a huge amount of Internet traffic and is desperately trying to monetize this traffic through various means. The company recently introduced an internet search product which competes with Google Search.

Yahoo – Yahoo is no longer one of Google’s major competitors given its reduced size and ability. Yahoo search and internet properties are not much of a threat to Google. In fact Yahoo recently signed a display advertising agreement with Google to better monetize its existing display properties.

Blackberry – The iconic Canadian smartphone company has been massacred by Android and Apple in its core smartphone market. The company is trying to make a comeback with a revamped operating system BB 10. We are not sure how much BB 10 and the new smartphones will succeed. We think it will be difficult for BBRY to regain its lost market share without the help of a stronger company. BBRY can pose a big threat to Google if it is bought and leveraged by one of the big technology companies such as Samsung.

Google also has many more competitors such as Baidu (BIDU) etc. In summary, Google faces formidable competitors in almost all areas. However, Google has a history of fighting strong competition against all odds.

2. Regulatory Pressures – As Google becomes a bigger information power, it is colliding with global governments on how information is collected and disseminated. The company was recently forced to succumb to French government pressure on posting of links of French newspaper articles on its Google News. The company was also driven from China, as the government there likes to be in total control over information flow. The company has been subject of an FTC investigation over unduly favoring its own products when displaying Google search results. Microsoft used to be the target of strong government regulation in the past because of the power of its Windows operating system. Google is now facing the same situation due to the dominance of its search product.

3. Don’t be Evil – Google has always advocated that it won’t become a large big “evil” corporation however in recent days the company is not exactly living up to its stated principles. The company has come under attack for revealing information to the government agencies. The company has also attracted heavy fines for breaking into Wi-fi networks during collection of data for Street View. The company has become too strong in the Internet advertising market and its difficult to find decent alternatives to Google’s adsense network. Google recently stopped sharing private search referral data with external websites, though the company’s own Adword network has access to this private search data. The company has the power of death over small businesses and websites. Google’s new algorithm changes (Panda and Penguin) have led to a huge traffic loss for many websites which used to follow SEO techniques. While these initiatives are not wrong as they have helped in reducing SEO spam, this shows the power that Google has over others. Google is also promoting its own social network Google Plus by giving higher rankings to search results which are linked to Google Plus authors. Small players in the Internet world have no redressal mechanism against undue display of Google power.

4. Privacy Issues – Facebook has faced huge attacks from users whenever it has introduced monetization measures based on the private user data. I have found that a number of Google users have also started getting irritated by targeted ads based on personal data. The aggressive promotion of Google Plus and other Google products is also not very customer friendly in my view.

5. Motorola – Google bought Motorola for more than $12 billion in order to protect its Android operating system from patent lawsuits by other telecom companies. Despite restructuring, Motorola is still showing operating losses. Also Motorola will make other Android users such as LG and Samsung doubt Google’s impartiality.

Valuation

Google’s valuation is not expensive if you use traditional metrics with a forward P/E of ~16x. The P/S of 5.1x and P/B of 3.6x is also not exorbitant. However if you compare Google’s valuation with that of mega cap technology plays then it is quite expensive. You can buy most of the other technology companies at a P/E of ~10x. The reason for the higher valuation is that the market is factoring in Google’s higher future growth rate.

Summary

Google has a great portfolio of new products and services which has led to the stock touching all time new highs. The market has started to recognize the strong earnings potential of Youtube, Android etc. Also despite numerous attempts by competitors to break Google’s stranglehold on Internet search, the company has managed to grow earnings and revenue in the high double digits. The competition for Google remains high across all product segments and the company faces increased challenges due to its greater size. However, Google has managed to overcome competition quite effectively in the past and we believe it will do in the future as well. As the stock has run up quite a bit in recent days, we would look to buy on dips.

Originally Posted at : Seekingalpha.com