Investing in Oil New York Times by yzy10050

VIEWS: 0 PAGES: 40

More Info
									  Los Angeles, CA | July 19, 2006


 The Importance of Owning
Domestic Oil & Gas Reserves
 Noble Royalties, Inc.
| an energy company that does not drill.

   - Founded in 1997 by Scott Noble

   - 58 Completed Acquisitions

   - $552 Million in Assets Under Management

   - Acquired Royalty Interests in over 64,000 wells
     across 27 states and offshore.

   - Leading Sponsor of 1031-Qualified Energy Properties

   - Active Staff of 75 Energy & Financial Professionals

   - Offices in Dallas, Denver, Houston, & Midland
 Investment Objectives
| What do we look for in a Royalty Property?

   - Engineered Reserves of 30+ Years

   - Hundreds/Thousands of Currently Producing Wells

   - Undeveloped Acreage for Future Development

   - Geographic & Operational Diversification

   The Result: Long Term Double Digit Yields
   with a Stable or Appreciating Property Value
 Investment Thesis
| Why do we Invest in Oil & Gas Royalties?


    We Remain Long-Term Bullish on Energy Prices


      We Believe the Market Will Place A Premium
            on Domestic Oil & Gas Reserves


        We Believe that Royalties Represent the
   Purest Form of Exposure to Domestic Production
Up-Stream Companies
| Exploration and Production
Mid-Stream Companies
| Storage, marketing, and transportation
Down-Stream Companies
| Refineries and distribution companies
 Working Interest
| Drilling Programs: Buyer Beware!

   - Concentration Risk

   - Complex Operating Expenses to Evaluate

   - Ongoing Liabilities

   - Most Wells Drilled by Small Operators Last <10 Years

   - Risk/Reward Balance Often NOT SUITABLE for
     Retail 1031 Investors
 U.S. Royalty Trusts
| A Royalty Alternative
   San Juan Trust (SJT)        Cross Timbers Trust (CRT)




                 Sabine Royalty Trust (SBR)
Sources of Energy in the U.S.
| Where Does Our Energy Comes From?


     U.S. Energy Sources 2003                     U.S. Energy Sources 2020 (projected)


                    Natural                                     Natural
                     Gas                                         Gas
                     24%                                         29%

                          Coal 23%                                  Coal 22.6%
          Oil 39%                                       Oil 36.7%



                                                                                 Nuclear 3.5%
                                     Nuclear 8%

                               Hydropower 3%                                Hydropower 2.5%
               Other 3%                                        Other 5.6%




 Source: New York Times Nov. 2003 and The Color of Oil
                                                                                 |




                    % of GDP
19
  49




       0
           5
               10
                     15
                               20
                                    25
19
  51

19
  53

19
  55

19
  57

19
  59

19
  61

19
  63

19
  65

19
  67

19
  69

19
  71

19
  73

19
  75
                                                                                 We are Getting More Efficient




19
  77

19
  79

19
  81

19
  83
                                         1949 - 2005




19
  85

19
  87
                                                                                                                 Energy & Economic Growth




19
  89

19
  91

19
  93

19
  95
                                                       U.S. Energy Consumption




19
  97

19
  99

20
  01

20
  03
    Owning Domestic Reserves
|   What Makes Up the Cost of a Gallon of Gas?




     - Crude Oil                             $1.36
     - Refining Cost                         $0.47
     - Marketing Cost                        $0.25
     - Transportation                        $0.18
     - Gas Station Overhead                  $0.24
     - Taxes (State and Federal)             $0.47 - $0.66
         Total                               $3.13 US Average 7-3-06 DOE

        * Even if Crude Oil was FREE we would still be paying $1.77 at the pump!
    Owning Domestic Reserves
|   You Think a Gallon of Gas is Expensive?




           Coca-Cola $8.72                         Olive Oil $51.04




                             Evian Water $11.90




            Iced Tea $9.52                        Jack Daniels $101.12
Gasoline Prices (Inflation-Adjusted)

| $3.00 is Within Historical Range




              Historical Mean




  Source: U.S. Energy Information Administration/Bureau of Labor Statistics
    Owning Domestic Reserves
|   How do we Compare with the rest of the World?



                                   USA $3.13 per gallon


       Netherlands $7.24 per gallon                       China $6.54 per gallon




        Belgium $6.71 per gallon                          France $6.32 per gallon



           UK $6.66 per gallon                            Kuwait $0.78 per gallon




       Germany $6.60 per gallon                           Venezuela $0.12 per gallon
    Oil Company Profits
|   Are we REALLY Being Gouged at the Pump?

                                         Gross                         Profit
               Company                  Revenue        Net Income      Margin
                                        ( Billions )    ( Billions )


                Microsoft                $39.79          $12.25        30.79%
               Coca-Cola                 $23.11           $4.87        21.07%
                Citigroup                $120.32         $24.59        20.44%
           General Electric              $149.70         $16.35        10.92%
              Exxon Mobil                $370.68         $36.13        9.75%
                  Disney                 $31.94           $2.53        7.92%
           Conoco Phillips               $183.36         $13.52        7.37%
           Chevron Texaco                $198.20         $14.10        7.11%
      Source: Yahoo Finance (FY 2005)
    Oil Company Profits
|   Are we REALLY Being Gouged at the Pump?

                                               Gross                             Profit
                Company                       Revenue            Net Income      Margin
                                              ( Billions )        ( Billions )
                 OPEC                           $473               $345          72.94%
                 Microsoft                       $39.79            $12.25         30.79%
                Coca-Cola                        $23.11             $4.87         21.07%
                 Citigroup                      $120.32            $24.59         20.44%
            General Electric                    $149.70            $16.35         10.92%
               Exxon Mobil                      $370.68            $36.13         9.75%
                   Disney                        $31.94             $2.53         7.92%
            Conoco Phillips                     $183.36            $13.52         7.37%
            Chevron Texaco                      $198.20            $14.10         7.11%
      Source: U.S. Energy Information Administration Estimates
 Peak Oil
| Are Fossil Fuels Running Out?

- Dr. M. King Hubbert

- World Oil Depleting
  3% per yr.                resource wars will explode.




- We need 5%/yr
  more Production
  Just to Break Even
                          World Consumption
                          (increase 1.6 – 2%
                           per year)
- Inexpensive
 Reserves Harvested

- Tight supply = Price
  Increase
Global Oil Demand
| Is $70/Barrel the Top of the Market?
                                                                                                             YTY
                        (millions of barrels per day)                                                        percent
                                                                                                      84.7   change
                85                                                                             82.7          0.7% -
                                                                                        79.7                 3.8%
                80                                                               78.1                        Avg.
                                                                          77.1
                                                                76.1 76.6
                                                         75.1                                                1.9%
                                                  74.2
                75                         72.4
                                    70.2
                70           69.1
                      67.3


                65

                60




                    E
                   93




                   96


                   98
                   99
                   00
                   01
                   94
                   95


                   97




                   02
                   03

               20 4
                   0
                 05
                19
                19
                19
                19
                19
                19
                19
                20
                20
                20
                20
                20


       Source: Bloomberg & IEA
Tightening Supply
| OPEC Excess Crude Production Capacity
               50




               40




               30
       MMb/d




                                          Excess Capacity


               20




                                           Production
               10




                0
                1975             1980           1985        1990   1995   2000



               Source: Petrie, Parkman & Co.
Supply/Demand Outlook
| Per Capita Annual Oil Consumption

              30

              25

              20
     (Bbls)




              15
                                             ∆ Demand = 48mm bbl/day
              10

                5

                0
                      Ja a



                     R y
                           re

                             n



                             a



                           na

                             a
                             il
                             .




                          an
                 So U.S



                         pa




                          si

                         az




                          di
                        Ko




                        hi
                       us
                        m




                       In
                      Br

                      C
                     er
                     h
                   ut



                   G




              Source: Petrie Parkman & Co.
Geopolitical Concerns
| Asia: Crouching Tiger, Hidden Peril

  - China GDP Growth: 9.5%!!!

  - China/Japan Territorial Conflict – East China Sea Drilling Rights

  - India: Economic Growth = Greater Independence from U.S.

  - Region is a Rapidly Growing Net Importer of Energy

  These Nations are Beginning to Outbid the U.S. for
  Energy in Order to Control Their Economic Destiny
Geopolitical Concerns
| Russia: The Dealer Wins

  - Putin is Re-Nationalizing the Russian Oil Industry

  - Production Nearly Equals Saudi Arabia
     (Not Dependent on Foreign Oil)

  - Untapped Reserves will be Expensive

  - Potential Conflict w/ China over Border Reserves

  - Europe: Hey, Buddy……Can You Spare a BTU

  Conclusion: We Won the Cold War, but the
  Energy War is Just Beginning to Heat Up
Geopolitical Concerns
| S. America: “Thanks for the Cash, Now GET OUT!”

  - Venezuela: 4th Largest Exporter of Crude
      (and a Primary Supplier to U.S.)

  - Hugo Chavez Seizes Control of Energy Projects
      - 51% Controlling Interest
      - Raised Taxes from 34% to 50%
      - Increased Royalties from 16.7% to 33%
      - Exxon Mobil Elected to Abandon the Country

  - Bolivia: After Meeting w/ Chavez & Castro, Evo Morales
   Nationalizes Energy Reserves

  Conclusion: Unless We Want to Topple a Few More
  Governments, U.S. Control of Region’s Oil is Slipping Fast
Geopolitical Concerns
| Africa: “Who Do I Need to Bribe This Week?”

  - Nigeria: Civil War Rages On

  - Equatorial Guinea
      - 3rd Largest Exporter of Oil in Africa
      - 2004: Attempted Coup Against U.S. – Friendly
        Dictator Teodoro Nguema

  - Chad – Cameroon Pipeline
      - 160,000 bpd
      - Held Hostage by Chad President Idriss Deby
        in Attempt to Ward Off World Bank Creditors


  Conclusion: Unstable Political Environment Makes it
  Difficult to Secure Long-Term Production
Geopolitical Concerns
| Middle East: Rich in Oil, Richer in Conflict

   - Iraq: Nowhere Near a Sustainable Democratic Government

   - Iran: Increasingly Anti – U.S.
       - Ayatollah Khameni: “Iran will use its military power to disrupt
       oil shipments from the Gulf region if the United States makes a
       wrong move.”
       - International Standoff Over Nuclear Program
       - Recent $100B Deal w/ China to Supply Oil
       - Ambitions to Take Over Iraqi Reserves?

   - Israel: All-out War With Syria & Iran?

   - Saudi Reserves in Decline?

   Conclusion: We are Running Out of Friends in the World’s
   Major Supply Region
    Importance of Domestic Reserves
|   “Addicted to Foreign Oil”
Natural Gas
| NYMEX 1993 - Present
              12.00
                                     ERA of Excess Capacity                                           No Excess Capacity
              10.00


                8.00

 $ per
MMBtu           6.00


                4.00                        Ave.                                                                                           lity
                                            $2.18                                                                                       Rea
                                                                                                      1st                          w
                                                                                                    Wakeup                       Ne
                2.00                                                                                 Call

                                                                                                    Warm Weather (false
                                                                                                     sense of security)
                0.00
                                                                Jan-97




                                                                                           Jan-00




                                                                                                               Jan-02

                                                                                                                        Jan-03
                                                                         Jan-98

                                                                                  Jan-99




                                                                                                      Jan-01




                                                                                                                                                      Oct-05
                                                                                                                                             Jan-05
                                                       Jan-96
                                   Jan-94

                                              Jan-95
                       Jan-93




                                                                                                                                   Jan-04
                                                                                     Year
   Source: Western Gas Resources
  Natural Gas Productive Capacity
 | From Surplus to “Just in Time”
        55
              Productive Capacity




        50
BCF
per
Day               Gas                                             End of Excess
               Production                                        Capacity & Onset
                                                                 of Higher Prices
        45


                                                                            Productive Capacity
                                                                            Gas Production
                                                                            Spare Capacity

                1995          1996   1997   1998          1999      2000     2001      2002

                                                   Year
Source: NPC/Western Gas Resources
    Supporting Domestic Production
|   Governments are Motivated

        Wyoming State & Local Government Revenues (FY04)

            Property Taxes           $ 407.2 Million

            Severance Taxes          $ 371.1 Million

            Federal Royalties        $ 344.0 Million (50% to State)

            State Royalties          $ 76.5 Million

            Sales and Use Taxes      $ 64.6 Million

            Conservation Mill Levy   $   6.2 Million

            Wyoming Total:           $ 1.269 Billion
    Alternative Energy Sources
|   Why Can’t we Shift Demand Away from Oil?



    Most Energy Alternatives are:

    - Relatively Cost Prohibitive ($150-200/bbl equivalent)

    - Not Scalable to Meet Actual Consumption

    - Create Waste/Pollution Challenges
    Ethanol
|   Choice: Drive or Eat


                           - Fuel for all U.S. Cars =
                             97% of U.S. Acreage
                             Committed to Feedstocks

                           - Corn is an Inefficient Source
                               - More Expensive than
                                 Unleaded Gasoline

                           - Brazil – Sugar Cane

                           - Sacrifice Power & Mileage

                           - Replace 30% of Vehicle Fleet
    Hydrogen
|   You Think GAS is Expensive?


                                                   - Cost Equivalent of $4.00/gal

                                                   - Avg. Automotive Fuel Cell
                                                     Costs $1MM

                                                   - Must be Manufactured from
                                                     another Fuel Source
                                                     (primarily Natural Gas)

                                                   - Pollution Concerns




        Source: CNN/Money.com “Test-driving the hydrogen future” 12/1/05
Liquefied Natural Gas

| LNG won’t be cheap or quick

- < 3% of U.S. supply today

- Global market 17 bcf/d

- $4.50/mcf Floor

- 85% of capital is upstream
  from the terminal

- Spot volumes will seek
  highest-price market

- Terrorism – “Floating Bomb”
Coal-Fired Power Plants

| Al Gore’s NOT Gonna be Happy

- U.S. is the Saudi Arabia of Coal

- Pollution Problems

- Greenhouse Gases

- Cleaner Burning Coal???
    - Theory vs. Real Life
 Nuclear Power
| Economically, but not Politically Viable

- Construction Costs

- Material Shortage
  (Plutonium/Uranium)

- Waste Disposal

- Terrorism Concerns

- “Not in My Back Yard”
Alternative Energy Sources
| The Answer is not ‘Blowing in the Wind’




                           =



           5 Years                     60+ Years
      1 Natural Gas Well              28 Windmills
Wind or Solar Power
| HUGE Footprints
Conclusion
| It Makes Sense to Own Domestic Energy

  - Supply Growth is Failing to Keep up With Demand Growth

  - Geopolitical Concerns Will Place a Premium on Domestic
    Reserves, with Ongoing Potential for Price Spikes

  - Alternative Energy Sources are only Economically Viable at
    Much Higher Oil/Gas Prices, are Not Scalable, or Present
    Practical or Environmental Problems that Make Them
    Politically Unpalatable

  “Can you make money? Well, yeah. One way is to
  just stay long domestic oil.” – Richard Rainwater
  (“The Rainwater Prophecy”, Fortune, 12/26/05)
 Noble Royalties, Inc.
| Talk to Us
      If you’d like more information on Private Royalty
      Ownership, contact us today.

      Corey Smith
      Noble Royalties, Inc.
      15601 Dallas Parkway, Suite 900
      Addison, Texas 75001
      972.720.1888 (p) | 972.720.1899 (f)
      csmith@nobleroyalties.com
      www.nobleroyalties.com

								
To top