Musings from the Oil Patch – May 2, 2006

• The Feds Are After the Oil Industry
• Russia Sees Little Additional Oil Supply in 2007
• Gasoline Price Gouging
• Utilities Prepare Rate Cases – Inflationary Pressure Starts
• China is Bigger Than You Think
• Cape Wind Project Update
• Oil Service Stocks Soar to New Highs
• Not Everyone Is Getting $70+ per Barrel
• Straits of Malacca: Another Oil Hot Spot
• Gasoline Cartoons

Note: Musings from the Oil Patch reflects an eclectic collection of stories and analyses dealing with issues and developments within the energy industry that I feel have potentially significant implications for executives operating oilfield service companies.  The newsletter currently anticipates a semi-monthly publishing schedule, but periodically the event and news flow may dictate a more frequent schedule. As always, I welcome your comments and observations. Allen Brooks

The Feds Are After the Oil Industry

 

The Senate Finance Committee, headed by Sen. Charles Grassley (R-Iowa), has promised a comprehensive review of the federal tax position of the 15 largest U.S. oil and gas companies.  Grassley, along with Sen. Max Bacus (D-Montana), the ranking Democratic committee member, wrote to IRS Commissioner Mark Everson requesting the last five years of tax returns for the companies.  This is a highly unusual request, and was last made in conjunction with the committee’s hearings on Enron Corp. in 2002. 

 

Grassley and Bacus say that the tax returns are necessary to understand the tax compliance and position of the oil and gas companies.  In their letter, the two senators cited the oil and gas industry’s profits, but also mentioned an unnamed retired oil industry executive’s lucrative retirement benefits that may have been subsidized by U.S. taxpayers.  That executive is ExxonMobil’s recently retired chairman, Lee Raymond, whose reported retirement benefits, stock options and other post-employment compensation could be worth $400 million over time.  The oil industry is squarely in the sights of the politicians, who are motivated to take some action in order to be able to show their constituents they are trying to address the problem of high gasoline prices.

 

Elsewhere in Congress, the Senate has passed a provision that would change the accounting method for oil and petroleum product inventories for the top five oil companies in order to boost their tax bill.  The proposal is estimated to generate upwards of $4.3 billion in additional tax receipts over the next five years.  Republican members of the House are opposed to the legislation, as is the White House.  We expect that this attack on the oil industry’s profitability will fail.

 

 

However, there is a growing move within Congress to eliminate the oil and gas industry tax breaks that came as a part of last year’s energy bill.  Even President Bush is willing to revamp most of these tax breaks.  Sen. John Kerry (D-Massachusetts) is proposing to eliminate all the tax breaks and subsidies provided to the oil and gas industry including the immediate expensing of all geological and geophysical expense, deepwater royalty relief and requiring the payment of royalties on all production on federal leases. 

 

With all these proposals floating around, the potential for a windfall profits tax remains on the table.  It is being pushed by Senators Richard Durbin (D-Illinois) and Arlen Specter (R-Pennsylvania).  Sen. Specter, when questioned by a reporter whether he thought there was price gouging going on, responded, “Oh definitely.”  So we have the industry convicted before any evidence is uncovered.

 

California’s Attorney General Bill Lockyer is jumping on the bandwagon and plans to subpoena records from the “big oil” companies operating in the state.  According to his press statement, “The companies and their CEOs keep telling us to avert our eyes from the profits and focus on their costs.  But they want us to take their word on faith.  They never provide the numbers, so we can see exactly how much of their skyrocketing margins are costs and how much are profits.  Long-suffering California drivers deserve to know that information.  I intend to get it.”  I guess the attorney general has never looked at an oil company income statement, nor does he understand the term margin.  A sad state of affairs, especially for a lawyer.

 

All of the political maneuvering on oil and gas industry taxes reminds us of the environment of 1974-5.  We watched the industry fall prey to populist measures that needed only a few years to nearly totally derail the industry, which then required almost a generation to return it to health.  At that time, we dealt with numerous oil industry CEO’s who underestimated the tsunami of public sentiment that ultimately drove the repressive taxes and other controls that hit the business.  We worry that the current crop of oil industry managers may fall prey to a similar phenomenon. 

 

We urge people to watch this tax drama closely as it could alter spending decisions.  However, the media melodrama will be played out before the cameras in the Senate Finance Committee room.  With Charles Grassley playing the role of Eliot Ness, we wonder whether it will be Lee Raymond or Rex Tillerson cast as Al Capone.  For those who don’t remember their history, the master of organized crime and mayhem in the 1930s, Capone, was charged, convicted and sent to prison for federal income tax evasion.

 

Russia Sees Little Additional Oil Supply in 2007

 

At the 10th International Energy Forum held in Doha, Qatar, Russia’s Energy Minister Victor Khristenko said there would be little growth in the country’s oil production in 2007.  The planned enactment of oil company tax breaks effective January 1, 2007, should boost oil production growth by about 7% during the next few years.  If the country hits its production target of 520 million metric tons, it will be producing about 10.4 million b/d of crude oil. 

 

Khristenko projected that Russia’s oil production in 2006 should be 9.74 million b/d, a 2.9% increase over last year.  That 290,000 b/d growth in production follows a 2.7%, or 250,000 b/d, increase recorded between 2004 and 2005.  The energy minister was not specific about when this 10.4 million b/d production target would be achieved, other than to say it would be in the medium term.  He later defined the medium term to be somewhere between 2010 and 2015. 

 

If Russia can meet this production target growth in 2010, then the increase in annual production would average somewhere in the low two percent per year range.  On the other hand, if it isn’t achieved until the mid-point of the 2010-2015 period, then the annual growth rate would in closer to one percent per year.  The upper end growth projection is in line with last year’s growth, while the lower rate would match the mid-1990s production growth performance.  Over the 17-year period since 1989, Russian oil production has declined by 12%.  For the first seven years of the period, Russia’s production contracted by an average of 6.5% per year.  That was then followed by a three-year period of annual average growth of only 0.7%.  Between 2000 and 2004, oil production grew by an average of 8.4% per year, only to slow to a 2.7% growth rate in 2005 and a 2.8% projected growth for 2006. 

 

Exhibit 1.  Russian Oil Production Growth Lackluster

Source: IEA, PPHB

 

Russia will enact new energy legislation in May to be effective in January 2007 that will provide tax incentives to companies investing in exploration and development in its eastern provinces, eastern Siberia and the Far North.  Khristenko also said that Russia is trying to boost output in its existing and more traditional production areas, but without giving any details.  Despite industry reforms and increased western petroleum industry involvement, the challenge of growing Russia’s oil production still comes down to lower taxes and costs. 

 

Gasoline Price Gouging

 

The claims are coming from everywhere.  From NY Attorney General Elliot Spitzer to Sen. Arlen Specter (R-Pennsylvania), from Illinois Democratic Sen. Richard Durbin to President Bush, politicians of all stripes and colors are weighing in on the sharp rise in gasoline prices.  We have rational explanations for the price rise, from the escalating price of crude oil and ethanol and the switchover to ethanol-based fuel, to the irrational claim of barges loaded with gasoline hidden in the bayous of Louisiana waiting for higher pump prices. 

 

Call out the investigators!  Fire up the FTC and the DOJ!  Harass the oil companies and their leaders!  Get in front of the TV cameras and tell the American public that you are doing something to bring down the price of gasoline.  Investigate! Investigate! Investigate!  That’s the political script, and it’s being played out once again. 

 

In the past nine weeks, according to the retail gasoline price data from the Energy Information Administration, the average price of a gallon of gasoline (all grades) increased by 67.4¢ from $2.286 to $2.96.  That is a 29.5% increase, which is the largest percentage increase for that nine week span during 1993-2006.  There have been other similar times when gasoline prices have jumped by more than 20%, but interestingly neither of them brought out the politicians.

 

Exhibit 2.  Spring Gasoline Price Fluctuations

Source: EIA, PPHB

 

 

On April 30, 1996, the Justice Department opened an antitrust investigation to search for any evidence of price fixing that might account for the steady rise in gasoline prices across the nation.  During the late February to end of April time period in 1996, gasoline prices climbed by 16.8¢, or up 14.8%.  According to Justice Department officials at the time, the decision to launch the investigation was made independently and in response to recent pricing activity in the industry, but President Clinton had urged an investigation.  As the investigation was being announced, the Republicans in Congress were clamoring for a rollback of the 1993 federal gasoline tax hike, while the Democrats were strongly supporting the Justice Department move. 

 

At the time the investigation was announced, President Bill Clinton was announcing the government’s intention to sell $227 million worth of oil from the Strategic Petroleum Reserve (SPR) that had the impact of undercutting crude oil futures prices that day by $1.23 per barrel to $21.20.  He suggested he would sell more oil if the price of gasoline didn’t retreat.

 

Despite what the politicians wanted everyone to believe – the oil companies were engaging in price gouging, there was never any evidence found.  As analysts explained at the time, there were a series of events that drove gasoline prices up at that time – a long winter with strong demand for heating oil, a decision by oil companies to reduce inventories and refinery problems.  Only one of these explanations is being utilized this year – refinery problems.  But that problem is much greater due to the hurricane damage to Gulf Coast refineries.  In addition, both global and U.S. oil demand have grown since 1996, while supply growth has been limited.

 

Exhibit 3.  World and US Oil Supply/Demand

Source: EIA, PPHB

 

Gasoline prices were investigated again in 2001 following unusually large and sudden increases in the price throughout Michigan and other Midwestern states in the spring of 2000 and again in 2001.  In May 2001, Sen. Carl Levin (D-Michigan) directed the Senate Permanent Subcommittee on Investigations to determine the causes of these gasoline price spikes and what actions could be taken to stabilize gasoline prices.  The April 2002 report Gas Prices: How Are They Really Set? The conclusions of the report were that industry concentration due to oil company mergers and closure of refineries had increased and coupled with a tightened gasoline market (little excess supply) led to increased price volatility and price spikes.  The recommendations of the report were to draw down the SPR, defer deliveries to the SPR and call for a raft of investigations by the FTC, the EIA and the EPA. 

 

So what have we learned from the past?  Very little.  We continue to study the same issues and reach the same conclusions.  However, we live in a world where energy demand continues to rise and supply growth comes only grudgingly.  This tightness underlies the strength of oil prices.  More investigations will do little to improve our knowledge of the market, but it will give politicians plenty of opportunity to pander to the public.  Proposals to rebate $100 of federal gas taxes or granting a 60 day gasoline tax holiday may represent the most blatant political pandering to taxpayers.  For some humor about gasoline prices, we have enclosed a series of cartoons at the end of the newsletter.  Enjoy.

 

Utilities Prepare Rate Cases – Inflationary Pressure Starts

 

A firestorm was brewing in the Maryland legislature recently over the explosion in utility rates about to hit taxpayers in that state.  Artificial rate caps that have restrained utility prices for the past few years, were about to expire.  Maryland’s largest utility, Constellation Energy Group (CEG-NYSE), wanted to begin phasing in a 72% rate hike in July.  When fully enacted, the hike will add about $743 to each customer’s annual bill.  State legislators say this hike is too much, but they couldn’t figure out how to mitigate the problem.  Fortunately, the local utility came up with a potential solution.

 

The underlying market fundamentals that define utility prices are responding to industry trends that reflect scarcity pricing for fuels such as natural gas and coal, but that also reflect the sharp escalation in other costs such as steel, cement and copper that go into building new power plants and electric lines.  Utilities need to be able to earn a reasonable return on the shareholders’ money they must invest in order to expand electric generation capacity, and they must be allowed to recoup the rising costs of fuel inputs for generating power. 

 

Various states have enacted utility reforms since the 1990s designed to improve the economic environment for citizens and initially to reduce utility rates, or minimize the pace at which they were rising.  In states where deregulation was enacted, such as Maryland, Pennsylvania, Connecticut and Texas, utilities were encouraged, or forced, to separate their power transmission, distribution and generation businesses.  These actions were designed to benefit consumers by lowering operating costs by forcing the utilities to streamline their operations and by reducing their market power from controlling the generating facilities.  The fallout is that power companies in those states now pay market prices for their electricity.  Because of current energy and commodity markets, these companies are paying sharply higher market prices for their electricity.  These higher costs must be passed on to consumers at some point, or the utilities will go broke and have to be taken over either by other companies or the local government. 

 

In markets where utilities have not undergone restructuring, the price of electricity is established by cost-based regulation.  While this integration has mitigated the rise in utility rates in recent years, they have still risen by between 15% and 35% since 2000.  This market environment looks more attractive to state politicians facing situations such as Maryland finds itself in.  Price caps are the easiest and quickest way to control escalating utility rates, but they can only last so long before serious financial problems arise jeopardizing the safe operation of the utility.  Another alternative would be to reverse their laws and allow utilities to own generating facilities again as a way to hedge against rising prices. 

 

For Maryland consumers, Constellation proposed raising rates by 13% this July, to be followed by a 15% hike by January 2007 and another 15% by July 2007.  After the last rate hike, all price caps would be removed and consumers would be faced with paying utility rates that would fluctuate with market prices.  To solve the political logjam, the company filed a rate plan with Maryland regulators to let customers defer the rate increase.  Customers can exercise an option for a rate stabilization plan.  This plan would raise rates by 19.4% beginning in July and then by 25% in June 2007 and to market rates in January 2008.  The rest of the deferred increase must be repaid by May 2009.  As Constellation said when it announced the rate stabilization plan, customers can’t avoid higher power prices, but the new plan gives them time to plan for the higher rates.  Constellation will also contribute $600 million over 10 years to help lower income customers deal with the higher rates.

 

How to handle utility prices in an environment where virtually all the input costs are rising sharply and showing few signs of falling anytime soon is a serious challenge for politicians and regulators.  On a broader scale, utility rate inflation has been held back by rate caps, which are about to explode into the economy.  That will cause inflationary pressures for all businesses, along with sapping consumer incomes.  It is hard to see how government accountants will be able to hide this inflation from the various national price indices they generate each month.  So will our benign inflation indices of the past year begin to reflect a more ominous trend?  If so, the health of the U.S. economy will become more suspect and with it, the robust forecasts for U.S. energy demand.

 

China is Bigger Than You Think

 

China is reportedly the sixth largest economy in the world and, despite its rapid growth, will not catch up to the United States until 2041.  These conclusions are based on estimates of the current size of the Chinese economy and its projected growth.  However, the size of the economy is reported on an exchange-rate basis.  In other words, the value of China’s annual output of goods and services is converted to dollars on the basis of the existing exchange rate between the dollar and the Chinese currency (renminbi) that is currently about 8 renminbi per dollar. 

 

Observers suggest that 8 renminbi, the current value of the dollar in Chinese currency, will buy more of most things in China than a dollar will buy in the United States.  Because of these price differences, economists usually use what is called Purchasing Power Parity (PPP) GDP to make international comparisons.  Based on this measure, the Chinese economy is already the second-largest economy in the world and, at its current projected growth rate will pass the United States in less than a decade.

 

By the PPP measure, according to the International Monetary Fund, China’s economy is more than eight trillion dollars, or about two-thirds the size of the U.S. economy.  This is vastly different from the $2 trillion, or 15% of the U.S. GDP that is often reported.

 

Two thoughts come to mind.  One is the social, political and economic impact in this country of the U.S. losing its pre-eminent global position.  This will likely have a profound impact on U.S.-China political relations.  The second thought is what does this mean for global energy demand growth?  If China’s economy is as large as this analysis suggests, then it is hugely more energy efficient than we have been led to believe.  That might mean China will not experience as great an increase in energy needs in the future as most economic models suggest.  That could take enormous pressure off the oil market, especially as China turns to nuclear power to meet more of its electricity needs.  If the current U.S. political attitude toward oil/gasoline translates into positive actions, then our energy growth rate could slow, too.  Are we reaching an inflection point in the energy market?

 

Cape Wind Project Update

 

Sen. Ted Kennedy (D-Massachusetts) has confirmed that he talked to Sen. Ted Stevens (R-Alaska) about the language of an amendment Stevens attached to the Coast Guard spending authorization bill that would allow either the Coast Guard commandant or the governor of Massachusetts to veto the Cape Wind project.  Kennedy said he didn’t lobby Stevens to get that language inserted, but somehow it was.  The official explanation is that the staff of the committee drafted the language. 

 

When asked about the reason he was sponsoring the restrictive measure, Stevens said he believed it was a state’s rights issue.  For Stevens, every state should have veto power over potential energy projects in their waters.  Under existing law, states have the power to influence energy projects within their jurisdiction, but as a part of the regulatory review process.  No governor has absolute veto power over a project.  In this case, the specifics of the amendment’s language argue that Stevens is only targeting the Cape Wind project and no others, which would seem to belie his state’s rights argument.  Additionally, one has to question why, if Stevens believed this is such a crucial issue, the legislation was not a separate bill or was not introduced during the run up to last year’s energy bill.  Timing of the amendment and its specificity makes it hard to accept Stevens’ argument.  So what’s the deal Stevens made with Kennedy?

 

At the present time, the White House has indicated that President Bush will veto the Coast Guard bill if it has this amendment attached.  Threats and actions, however, are two different things.  What has come out of this endeavor is the recognition by many liberal and environmental voices that opposition to the wind farm is based on selfish goals that, if accepted, would penalize everyone but a few wealthy families.  These voices are calling down the hypocrisy of the wealthy protesters.

 

The Providence Journal in an editorial last week quoted a passage about conservation policy from Kennedy’s new book, America Back on Track.  In the passage, Kennedy said:

 

“A sound energy conservation policy should include the following steps…:

–Reduce power plant emissions.

…

–Invest substantially in alternative forms of energy, especially renewable sources such as solar, biomass, and wind energy.”

 

But what may have captured the current controversy over Cape Wind the best was a column written in The Washington Post by editorial board member Anne Applebaum.  She not only captured the hypocrisy of the objectors to this project, but put into perspective the issue surrounding objections to all the proposed projects designed to address our energy situation.  In the column, Applebaum said, “The problem plaguing new energy developments is no longer NIMBYism, the ‘Not-In-My-Back-Yard’ movement.  The problem now, as one wind-power executive puts it, is BANANAism: ‘Build Absolutely Nothing Anywhere Near Anything.’  The anti-wind brigade, fierce though it is, pales beside the opposition to liquefied-natural-gas terminals, and would fade entirely beside the mass movement that will oppose a new nuclear-power plant.”

 

Early last week, Sen. John Kerry (D-Massachusetts) begged off on a scheduled interview with Fox News talk show host Bill O’Reilly, claiming he had to return to Massachusetts on family business.  He promised to appear at a future time.  The same day, however, Kerry was leading an anti-LNG rally in Fall River, Massachusetts, the site of a proposed gas receiving terminal that is bitterly opposed by residents and local and state politicians.  Was this Kerry’s family business?

 

One wonders what types of new energy supply projects New Englanders will tolerate?  The myriad of types of projects spans the spectrum, but virtually all of them face fierce opposition from one group or another.  Some day, the region’s power shortage will become severe, but the time required to rectify it will extend the shortage for years.  Who will bear the blame for that situation?

 

Oil Service Stocks Soar to New Highs

 

The Philadelphia Oil Service Index (OSX) reached a new all-time high of 230.49 on April 26.  The stocks are soaring on the back of outstanding first quarter earnings results reported by industry participants such as Schlumberger (SLB-NYSE), Halliburton (HAL-NYSE), Baker Hughes (BHI-NYSE), Weatherford (WFT-NYSE), Core Labs (CLB-NYSE) and offshore drillers Noble Corp. (NE-NYSE) and Ensco (ESV-NYSE).  The bullish case for this sector and its participants was set forth in a column in last week’s Barron’s newspaper.

 

The column, written by Mike Santoli, compared the last time gasoline prices were a cause celebré in 2004 with today.  In 2004, pump prices were hitting $2 per gallon, and the price of crude oil was at $40 per barrel.  OPEC insisted at that time that geopolitical tensions were inflating global oil prices by $5 per barrel.  At the time of this column, we had $3 per gallon gasoline prices with oil close to $75, and OPEC insisting that the risk premium had increased to $10 to $15 per barrel. 

 

Santoli asked the question, if the risk premium had increased by $5-$10 over the past two years, where did the other $25-$30 come from?  He questioned that if the upward march in oil prices was driven by global hostilities and speculative buying, why has Saudi Arabia boosted its drilling rig count by nearly 50% in the last year?  Also, why has the worldwide rig count jumped by 28% in the past two years through this March?

 

These questions frame the argument for investment in the industry.  The long-term bullish case rests on the fact that a shortfall in marginal oil supplies relative to demand growth is underlying the strength in energy company earnings.  The other big difference from two years ago is that the energy-investment theme is somewhat more popular than it was then.  Energy is now up to 10% of the S&P 500’s market value, from the mid-single digits a few years ago.

 

In the face of the strength of energy stock prices, Santoli quotes a technical analyst who said that they were about as overbought as they were before their sharp post-Katrina correction.  He also quoted another market research firm that noted that the energy sector tends to have a strong seasonal tailwind from February until May, and goes sideways to down on average into summer, before getting a lift around August.  As Santoli points out, in any long-duration bull market, there always will be periods when prices run ahead of reality and pullbacks result.

 

 

Santoli cites the continued disbelief in energy prices as a reason for the continued strength in energy stocks.  As he wrote, “The main reason to expect energy stocks to remain leaders over a longer stretch is that the consensus still refuses to believe – and analysts refuse to forecast – that oil and gas prices will remain anywhere near as high as they are today, let alone go much higher.”

 

The case for oil service stocks was made by Trust Company of West portfolio manager Tom McKissick, who pointed out that Big Oil’s capex is still low relative it its cash flow, and as managements become comfortable that prices won’t implode, they’ll raise spending levels.  This will drive increased oilfield activity and oil service company earnings and presumably their stock prices.  So far, the reported oil service company first quarter earnings and management comments on their earnings outlook are supporting the continued strong stock price performance.

 

Not Everyone Is Getting $70+ per Barrel

 

If you are producing crude oil in the Williston Basin spanning areas of Montana, North Dakota and Wyoming, you are probably not receiving the world price.  Crude oil prices have been averaging anywhere from $10 to $30 per barrel less in this area due to the shortage of pipeline capacity, refinery capacity and increased production from Canada’s oil sands.  In early March, these conditions caused at least one operator working in Montana, North Dakota and South Dakota to shut in 75 wells.  Other operators have been cutting back on their exploration budgets due to the lower prices.

 

The impact of this price discrepancy motivated the governors of Montana, North Dakota and Wyoming, along with the members of the Montana Board of Oil and Gas and various industry officials to meet in Billings, Montana last week to seek solutions to the problem.  The lack of adequate pipeline capacity to move different grades of oil at the same time has caused Enbridge Inc. (ENB-NYSE), the pipeline owner and operator, to blend the oil.  This blending is resulting in operators earning about a $30 per barrel discount from the global oil price. 

 

Reports are that the North Dakota State legislature may introduce a bill in the 2007 session that would encourage investment in additional crude oil pipeline capacity.  The proposal is similar to the legislation that created the North Dakota Transmission Authority, which increased investment in power transmission infrastructure.  The proposed bill would provide “an incremental source for capital to attract companies to invest in infrastructure.”

 

Currently Enbridge is planning to increase the capacity of its North Dakota System pipeline network by 8,000 b/d by this summer and by an additional 30,000 b/d by the end of 2006.  This expansion should enable more oil to be moved from the region.  It will also enable the batching of larger volumes of different grades of crude for shipping.  This will eliminate the need to blend crude oils, thus enabling operators to receive prices closer to world prices for their production.

 

Exhibit 4.  Enbridge’s North Dakota System

Source: Bandersnatch Research

 

Straits of Malacca: Another Oil Hot Spot

 

On April 23, a speedboat carrying seven pirates attacked a bulk carrier sailing through the Gelasa Strait in Indonesia.  Four of the pirates, armed with knives, boarded the ship and robbed the crew.  The International Chamber of Commerce issued a new warning on April 25 for ships traveling in and around the strait to be on the lookout for pirates.  While piracy remains the main threat in the area, more than 11 million b/d of crude oil moves through the corridor.  While this is only the second most active oil shipping lane behind the 15 million b/d that traverse the Straits of Hormuz in the Persian Gulf, the Straits of Malacca is critically important for the energy flow for Japan, Korea and increasingly China.  A militant attack that blocked this corridor, even briefly, would bring serious economic consequences to the region and beyond. 

 

The corridor is jointly patrolled by Singaporean, Malaysian and Indonesian coast guards.  Their efforts were stepped up several years ago in response to the rise in pirate attacks and ship seizures.  The impact of the increased patrols has been to reduce the number of pirate attacks from 45 in 2004 to 22 in 2005.  Despite the reduction in the number of attacks, there have not been any significant arrests of pirates, suggesting that they are still able to stay one step ahead of the military.

 

Exhibit 5.  The Dangerous Waters of Southeast Asia

Source: Stratfor.com

 

The Straits of Malacca is one of seven prominent oil supply choke points globally.  Several of these choke points, the Panama Canal, the Suez Canal and the Bosporus Straits, carry substantially smaller volumes of oil a day.  The fact that al Qaeda has urged its adherents to attack oil production facilities should raise concern about some disruptive action against petroleum shipping activities.  Disrupting our oil logistics would seem to be a better target than attempting to blow up wells that could result in destruction of the very assets the terrorists hope to eventually secure to fund their governments.

 

Gasoline Cartoons

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Parks Paton Hoepfl & Brown is an independent investment banking firm providing financial advisory services, including merger and acquisition and capital raising assistance, exclusively to clients in the energy service industry.