Transocean and Peak Oil

Brian Hicks

Updated September 13, 2010

Editor’s Note: My colleague, Wealth Daily editor Ian Cooper has recently written a more in-depth report on peak oil. If you are interested seeing what he thinks of peak oil critics, read his up-to-date article, Peak Oil for Dummies…

Mike Tirone

Anaylst, Wealth Daily

I don’t usually make a habit of arguing with readers. But this was too good to pass up…

Besides, sometimes an argument can lead to better understanding, which I hope this provides.           

“You want us to believe peak oil is real… that we’re really running out of oil left on the planet. That’s alarmist conspiracy garbage you’re using to sell newsletters. It’s not real. Move on.” — John L.

“Peak oil doesn’t exist. We have more oil supply now than at any time in the last 27 years… World oil reserves have increased. Spare capacity has increased. We’re not running out of oil. Stop the BS. Do you even look at the data or do you just ‘know’ oil is running out? This article you wrote is complete garbage. At one point in your peak oil article, you say it’s real. At another point of the article you talk about the largest oil deposits on the planet. Sounds like a contradiction. Which is it, genius?” Mark S.

All I have to say, John and Mark, is this: You have it all wrong.

I understand why people won’t listen to peak oil theories. They’re skeptical of radical schools of thought, opting instead to listen to “experts” who say everything is okay, that oil will keep flowing for decades to come. 

But it simply isn’t so. 

Peak oil does not mean the world is running out of oil; it means we’ve peaked as far as finding cheap oil supply. 

And we don’t believe the world will just “eventually” run out of cheap oil in 10 to 12 years. It’s already happening. 

Peak oil critics don’t fully grasp the concept of peak oil is —which is also a common problem among the public. People are confusing peak oil with oil running out in the world.

That’s not what’s happening here…

Peak oil refers to the peak in flow rates of oil, and the inability to find oil on the cheap. (Why do you think BP was drilling so deep offshore?)

The United States has already reached its peak oil date. In fact most oil producing countries have reached their production peaks — and the good ole days of discovering easily accessible, conventional crude are behind us.

Sure, there’s oil in the tar sands in Canada, and heavy oil and oil shale in the world — but it’s pricey and, more oft than not, difficult to get to.

In the next few years, John and Mark, you’ll see just how real peak oil is when you’re sitting in the gasoline line…

But, hey, I still appreciate the comments. Please send your thoughts if you disagree with our side of the argument.

No amount of pointless, incorrect drivel from the mouths of critics will stop peak oil. We have passed peak oil.

And no amount of technology will change the fact that the United States uses close to 20 million barrels of oil a day — and growing.

The era of cheap oil is gone

According to the IEA’s latest oil report (published in August 2010), global demand will reach 86.6 million barrels per day this year… and is expected to hit 87.9 million barrels per day in 2011. That means demand could pass an all-time high of 86.9 million barrels per day of 2008.

And we haven’t even come close to the demand of countries like China, India, and Latin America…

The era of cheap oil really is over… done… kaput.

Every barrel that will come to market will be much more difficult to produce, and therefore much more expensive. 

Just ask U.S. oil experts, Germany, England — they are all fearful of this fact.

But there is a way to profit from it… 

You buy the companies that can go after the hard-to-get oil

We’ve been in and out of Transocean (NYSE: RIG) for months, and it’s still a screaming buy. 

It’s likely that Transocean’s Gulf liability will be much less than the originally thought $6 to $7 billion. It could only have to owe $1 to $2 billion when all is said and done, thanks to the Oil Pollution Act, which holds BP accountable.

FBR Capital agrees: “… After a series of meetings with legal experts in the Gulf Coast,” they believe RIG’s liability will be “far less than the $6 to $7 billion that may still be reflected in beaten down shares.”

That means the stock could soar even higher than it is today after pricing in that $6 to $7 billion estimate — great news for investors.

And even though there are still legal complexities — as FBR pointed out, “indemnification for gross negligence under maritime law can be disallowed as being against public policy” — it’s highly unlikely this will ever see a courtroom.

That’s because BP isn’t likely to pursue a gross negligence claim against RIG. That could be even more harmful to BP, as it would open the company up to another $16 billion in fines under clean water act rules. 

Better yet, we could see a return of Transocean’s dividend. Transocean is appealing a Swiss decision to block RIG’s dividend because of pending litigation.

If successful, the appeal would overturn the original decision, sending the stock soaring over the next few weeks.

Heck, even Anadarko Petroleum (NYSE: APC) could walk away just paying $2 to $4 billion say analysts, as compared to the $6 to $10 billion reported in an APC SEC quarterly filing. 

These are the two companies you want to own going forward. While they’ve paid off well for options and energy readers, they’re still dirt-cheap. 

Buy them here and hold.

Stay Ahead of the Curve,

Ian L. Cooper
Wealth Daily

Investor’s Note: There’s another way to profit from peak oil realities: Go after domestic oil drillers.

Right now, oil & gas companies from around the world are flooding to what could be the only safe, stable place to drill for oil left: North America.

That’s right. Investors are coming here, too, for oil. Thanks to some very recent advances in drilling techniques, these companies are now secretly unlocking what the World Energy Council just deemed the largest oil deposits on the planet…

Read my latest report on these domestic drillers before the mainstream media catches wind and ruins this rare opportunity to make some easy money. Simply follow this link to your free report.

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