Weekend Edition
The Best of The S&A Digest
October 17, 2009
 Our in-house geologist and resource analyst, Matt Badiali, recently returned from the New Orleans Investment Conference. Here's what he had to say...
Investors love Petrobras, Brazil's national oil company, for its headline-grabbing deep-sea discoveries – like its 8 billion-barrel finds, Tupi and Jupiter. Those fields represent enormous windfalls for the company. The oil they hold will bring in hundreds of billions of dollars for Petrobras.
But consider what Petrobras spent to find that oil. The company is spending $174 billion over five years in its offshore exploration budget. Offshore exploration is a high-stakes game. When those projects don't pan out, the companies and their investors can be devastated.
Meantime, Petrobras just announced a modest $140 million program that will be far more important to its efforts to replenish its reserves. It's a low-risk/high-reward initiative that oil companies around the world will replicate... Next month, Petrobras will begin injecting carbon dioxide into its fading Miranga onshore oilfield. Petrobras will spend that money because it knows successful carbon-dioxide injection will recover another 20% of the oil in place. The oil will begin to flow in December, just a month after the injection begins.
You see, conventional oil drilling can extract up to 40% of the oil in a deposit. That means 60% – the majority – of a deposit's oil remains in the ground after the industry deems the field depleted. In other words, billions of barrels of oil are sitting in the ground around the world in deposits the industry views as dead, tapped out. Carbon-dioxide injection, like Petrobras is doing, is an attempt to recover some of that petroleum.
I'm a huge fan of this technique, called enhanced oil recovery (EOR). Pumping a million cubic feet of carbon dioxide into the ground is a lot cheaper than building oil rigs in the middle of the ocean and plunging drill bits three miles below the surface.
More important, the risks are much lower. Rather than poking around where we think oil is, we're going where we know the oil is. Costs run around $25 to $30 per barrel, which makes this a great business when oil is around $65 to $70 per barrel. It's far cheaper than tar sands, which produce bitumen, a thick tar-like oil that must be refined before it even resembles oil. EOR produces the same easy-to-refine light, sweet crude oil pumped from the field originally.
I recently wrote about how a handful of domestic oil producers are using EOR to revive long-dead oilfields. These companies are buying up 100-year-old fields to recover the remaining oil. In my last issue of the S&A Resource Report, I recommended three companies that will recover millions of barrels of oil. Those barrels are completely ignored in their market values.
We're buying oil for around $7 per barrel because the market doesn't understand EOR yet. I don't expect this window to last long, and the first big field will come online soon. To get more details, click here.
This summer, Porter told his readers to buy Visa, the world's largest electronic payments company, as a way to hedge their portfolios from inflation. Here's his explanation...
The more money people spend on their Visa-branded debit and credit cards, the more money Visa earns. (This is important: Visa doesn't hold any of the debt put on those cards. It merely licenses the brand and receives a fee for processing the transactions.)
Ergo, the more money that exists, the more money Visa will make. It's perfectly correlated to inflation. And Visa has the most to gain from inflation out of all of the credit-card networks because it is the largest, by far.
Since Porter's recommendation, the stock is up 12% and hit a 52-week high. But those gains are nothing compared to what his latest recommendation could return...
We published Porter's latest issue of PSIA on Wednesday. The asset he's recommending is the most attractive it's been in decades... Based on historical price ratios, it should already be nearly 300% higher than it is. And as the dollar loses its standing as the world's reserve currency, it should soar even higher... returning up to 600%. He says it is the "best hedge against a money crisis" you can buy, period.
If you're not already reading PSIA, we strongly recommend you try it out. Porter's made money on 10 of 11 recommendations so far this year... And if his latest trade goes in the right direction, it could be his biggest winner of all time. To learn more about PSIA, click here.
Regards,
S&A Research
Stansberry & Associates produces the daily S&A Digest, which comes free with a subscription to one of our premium products. To learn more about a risk-free trial subscription click here. |
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S&P 500 |
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Harley Davidson |
HOG |
18.94% |
Ryder System |
R |
14.20% |
Sunoco |
SUN |
12.44% |
Countries |
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Brazil |
EWZ |
6.07% |
Russia |
RSX |
5.95% |
Turkey |
TKF |
5.66% |
Sectors |
|
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Big Oil |
IXC |
5.26% |
Homebuilding |
ITB |
4.69% |
Oil Services |
PXJ |
4.55% |
Commodities |
|
|
Gasoline |
- |
+9.30% |
Heating Oil |
- |
+9.20% |
Crude Oil |
- |
+8.23% |
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S&P 500 |
|
|
MetroPCS |
PCS |
-12.17% |
Wynn Resorts |
WYNN |
-7.05% |
Assurant |
AIZ |
-7.05% |
Countries |
|
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Thailand |
TTF |
-5.42% |
Ireland |
IRL |
-0.82% |
Japan |
EWJ |
0.30% |
Sectors |
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Gold Mining |
GDX |
-1.09% |
Gambling |
BJK |
-0.15% |
Media |
PBS |
0.18% |
Commodities |
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Natural Gas |
- |
-5.68% |
Nickel |
- |
-3.56% |
Lead |
- |
-3.38% |
Source: Bloomberg, Yahoo, StockCharts, XLQ 10/8–10/15.
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