The T. Boone Pickens Approach

by: Michael Fitzsimmons July 25, 2008 | about stocks: COP / NBR / OIH / SLB / USO / XLE    

Michael Fitzsimmons

About this author:
Become a Contributor Submit an Article
  • Font Size:
  • Print

I wrote an article for Seeking Alpha the other day in which I applauded Al Gore's recent comments on the economic impact of foreign oil addiction as a positive step for him and his advocates to get what they ultimately desire: reduction in CO2 levels by reducing fossil fuel consumption. In that article I wondered aloud whether or not focusing on the economic impact of our 70% addiction on imported oil wouldn't have been a better strategy all along in order to achieve the results Gore and his followers were after (as opposed to driving the issue with global warming).

The comments I received on that article effectively proved my point: Al Gore and his presentation of climate change and CO2 levels, for whatever reason, is divisive. Many people dismiss Gore and his arguments automatically - despite, what I believe, is a mountain of science that support his assertions.

But let's not have that debate again. Let's focus on what I believe is a better argument to reduce our reliance on oil. It also happens to be a more imminent threat to the US: economics. This is what I will call the T. Boone Pickens approach. However, I have been writing (preaching?) about the same issues for years now. Every American has been affected by rising oil prices, rising inflation, and the very weak stock market. I believe this audience is ripe to hear what Pickens has to say. Hopefully, Pickens' views on the economics of imported oil will be welcomed by people who don't want to hear anything Al Gore has to say.

Pickens is describing our $725 billion dollar a year foreign tax bill as "the biggest transfer of wealth in the history of the world". He points out that this transfer of wealth will have dire consequences for the US economy, currency, and our standard of living should we continue to ignore the issue. Seeking Alpha readers know that I have been saying the same things in my articles...unfortunately, no one listens to me.

However, the commercials Pickens is now running on CNBC are fantastic! It took Pickens to run these...not the President, not Congress, and Lord knows not Paulsen or Bernanke. Sure Pickens will make money on his wind ventures...but no one should doubt that he cares greatly about his country, its security, and the quality of his children's and grandchildren's lives. That said, I believe my energy policy is a bit more comprehensive.

Pickens probably feels he will have a better chance of success if he keeps his message focused and narrow.

I hope Pickens, with his fame and easy access to the media and Congress, has better luck than I have had to date. I still can't get the Wall Street Journal, BusinessWeek, The Economist, or any other major "economic" magazine or paper to publish my energy policy and the reasons why it is so vital for the US to enact it (or at least some version of a real long-term comprehensive energy plan).

Neither have I had any substantial conversations with anyone at the DOE or Congress. What's harder to understand is their refusal to do so in spite that fact that oil has gone from $50 to nearly $150 since I began, nat gas has gone from $6 to over $13, inflation is raging, and of course the US dollar has averaged about a 7% drop per year for the last 8 years.

The result, as everyone can now see, is an S&P500 that has gone no-where in the last 10 years and an economy that could be described as anemic at best. In other words, all the predictions than any common sense economic analysis of our addiction to 70% imported oil has come true. Still, everyone wants to talk about "speculators", "manipulators", big oil (and wind-fall profits taxes), off-shore drilling, etc. etc. Everyone it seems, except Pickens and a few others (me for example), wants to talk about everything but the REAL inconvenient truth: going forward, worldwide oil supply will not be able to keep up with worldwide oil demand. It's that simple! For a country like the US that consumes 25% of the world's oil (yet has only 5% of the world's population) and imports 70% of that oil, you would think this would be the page 1 headline issue in the financial papers every day.

Yet, it isn't. It's being ignored or at least significantly marginalized. Ignored even when the dire economic consequences are staring them in the straight in the face every day. And, it's getting worse every day we continue to ignore it.

All that said, you won't be surprised to know I believe the recent sell-off in energy has been waaaaaay over done in. I suppose it's in response to falling US demand for gasoline, seasonality, the fact that Chinese drivers are now allowed to drive only every other day (even or odd license plate numbers) because of the Olympic clean air issue, and because apparently the stock piling of diesel by the Chinese has been cut back significantly.

Of course, the fact that oil has come down under $125 and natural gas has dropped below $10 hasn't helped. All that said, winter will come, the Chinese drivers will probably be allowed to drive everyday after the Olympics (although many Chinese apparently favor the cleaner air and having every other day off work), and energy demand will continue to be strong in emerging economies. Oil and natural gas stocks are at bargain prices today and great buys! I won't list all the recommendations again, you all know them.

Now, I will take my lumps and fully admit the recommendations I have made on SA in my last few submissions haven't faired too well in the last month or so. Of course, I have always said to buy and *hold* these energy stocks through short term volatility. The energy stocks will come back, stronger (and faster) than ever. Just look at the futures prices for oil and natural gas. Energy stocks will print cash faster than the Fed - and that's really saying something!

Anyone read ConocoPhillips' (COP) earnings report Wednesday? It was yet another stellar quarter that beat analyst estimates. The analysts are now predicting COP will earn over $13/share in 2008. The stock is currently at $82 and change, which is a 6 month forward PE of just over 6 (!?). On the day their earnings came out, COP traded down, and GM traded up most of the day. Crazy market indeed! Another of my favorites, Schlumberger (SLB) also had a great quarter, but Nabors (NBR) dissapointed me. Oh, and don't forget gold. Gold has weakened along with energy...pick up some bullion and bury in your backyard. If you're not able to dig or don't have a shovel, just buy some streetTracks Gold (GLD).

Disclosure: The author owns COP, SLB, and NBR as well being long gold.

Related Articles

This article has 86 comments:

  •  
    Jul 25 08:27 AM
    Michael, you are spot-on! And the country needs to act now.
    Reply | Link to Comment
  •  
    Jul 25 08:37 AM
    I think Al Gore's message is right on target. Even John McCain admits we have global warming. Everyone except FOX, George Bush and Dick Cheney have recognized it. I agree with you, however, that the practicality of making the change will rest with economics, not with idealism. It took $4 gas to ACTUALLY lower demand. Even though I am now looking at home heating oil this winter going from last year's rate of $2.79 to this year's rate of $4.79, I hope oil stays where it is. Because that kind of hurt is the only thing that will get American's off of its oil addiction (I'm also switching to a gas burner as soon as the oil one konks out). T. Boone is right in that we are exporting all of our wealth out of the country. We're just giving it all away. A little debt is good, but America is maxing out its credit card and getting another one. Don't beat yourself up because some of your recommendations haven't followed their logical course and appreciated. This is an illogical market right now. Buy what's on sale and hold for the long term. Keep up the sensible posts.
    Reply | Link to Comment
  •  
    Jul 25 08:49 AM
    There is a 65% savings in changing urban transport from oil-based to Personal Rapid Transit (PRT). Moving a ton to move a person is less than 4% efficient. It is practical to increase efficiency to 70% in about 4 billion of the 8 billion miles Americans drive daily. View jpods.com for an example of PRT.
    Reply | Link to Comment
  •  
    Jul 25 08:50 AM
    And yet, a growing number of real scientists are dismissing the global warming hoax as just that, a hoax. I'm all for conservation. But the Man Is Evil crowd needs to realize that whatever C02 man does emit via the internal combustion engine is nothing compared to the levels produced by volcanic activity. FOX, President Bush, and Vice President Cheney have it right. Al Gore has it wrong. Not only does he have it wrong, he's also a hypocrite. What's with the buzz about conserving and global warming when his own house could light up half of Nashville? He's not even at home to see it lit up because he's buzzing around in his jet creating C02 in the atmosphere, buring millions of gallons of jet fuel. To be consistent, he and the rest of the watermelons (green on the outside, red (socialist) on the inside) should 1) attach solar panels to the roofs of your houses, in your front yards, windmills in the back yard, ride a bicycle to work, and leave the rest of us the hell alone.
    Reply | Link to Comment
  •  
    Jul 25 08:59 AM
    Enter your comment hereSince we could not find a vehicle registered for T. Boone Pickens, the oil man on television, see what vehicle his wife drives

    webofdeception.com/#pi...
    Reply | Link to Comment
  •  
    Jul 25 09:08 AM
    Joseph Culligan, so Pickens wife drives a three year old Range Rover. That is far from excessive. He is a millionaire driving a three year old vehicle that seems perfect for his ranch. Your point? He probably had a large investment in Ford who used to own Range Rover.
    Reply | Link to Comment
  •  
    Jul 25 09:19 AM
    Whether one agrees with global warming is irrelevant in the current energy predicament; everyone should be on board with increasing alternative forms of energy domestically and spending more of our energy dollars in the US, rather than increasing our trade deficit. T Boone has a plan; it doesn't solve everything, but it's better than either plan emanating from the Republicans and the Democrats.
    Reply | Link to Comment
  •  
    Jul 25 09:28 AM
    Fitz: I don't always agree with you but you get people talking and thinking and that's good. I still think the global warming craze will go the way of the global cooling craze of 20 years ago. Do you remember the cover of a national news magazine showing an artist's depiction of a glacier overtaking New York City? That wasn't that long ago and all of the "learned scientists" were predicting that the earth was going through a long term cooling cycle and that we were doomed. Now, some of same scientists using same data gathering say we are heating!! You know what? They are right. We will cool and we will heat.

    My big problem with Al Gore, other than that he is a Democrat, is that he is a money sucking hypocrite. He tells us how bad we are and our carbon footprint is too big and we must do something to change, no matter the cost. But he flies in a private jet, lives in a 12,000 sq ft house and is making millions of dollars on all of the climate change hype! Mr Pot, meet Mr Kettle! What hypocrisy. But shouldn't we expect that from Mr. Gore and his ilk? That's why I refuse to put any creedence in anything he says. I just wish he'd go away. Thank God he wasn't elected back in 2000!

    COP at a 6 P/E?? Man, I'm glad I'm loaded up with their stock and many of their stock options and restricted shares. CHK has 90% of this year's gas sold forward at $9 and 70% of next year's gas sold forward at $9++, yet its stock goes down when gas prices drop. That my friend makes no sense. They have virtually locked in profit regardless of what the price of gas does! Yet wall street crucifies them! These are good long term buys. and COP pays a nice little dividend and will be buying back $10 billion - with-a-B - worth of their own shares!!! And the CEO of CHK buys millions and millions of the shares of his company! Gotta like those odds!
    Reply | Link to Comment
  •  
    Jul 25 09:32 AM
    Gore and Pickens are entirely spot on. Folks can stick their heads in the sand on global warming (even though the utility industry now accepts this) but you can't ignore the energy security angle unless you support middle eastern terrorism. Furthermore, neither Gore nor Pikens are suggesting the return to "village" life as some fantasize about, no, they are suggesting that Americans devote the same innovation to the issues of energy as we did to put a man on the moon....which some also pooh-poohed.
    Reply | Link to Comment
  •  
    Jul 25 09:32 AM
    Joseph Culligan: have you looked at what Mr. Albert "I'm a loser" Gore drives? In addition to his massive mansion and his private jet?? How about Mr. Soros? How about Pretty Boy John Edwards? He lives in a huge overbuilt house for his little family and flies around in jets as well. Guess driving a Prius would be tough for him. Where would he put his millions of dollars he syphoned off of U.S. Industry as an ambulance chasing trial lawyer?
    Reply | Link to Comment
  •  
    Jul 25 09:38 AM
    Joseph - so T Boone's wife drives a Range Rover, what's the big deal? What's your next 'revelation'? Perhaps that billionaires can afford luxury items?
    Reply | Link to Comment
  •  
    Jul 25 09:38 AM
    sounds like there some very envious folks out there (maybe green is really the color of envy)...boo-hoo some democrats are rich... just like republicans (since when was that a crime according to so-called free market types)....boo-hoo, politicians are hypocritical, so what's new? Anyway, please carry on avoiding the message of energy independence, and beating the messengers for being less than perfect, that is just the way to keep the status quo and support middle eastern terrorism.
    Reply | Link to Comment
  •  
    Jul 25 09:46 AM
    Hey Clear: I don't mind people making gazillions of dollars...actually I really like it! But don't have those people tell me that we have to sacrifice and give up things while they are not doing so themselves and lining their pockets as well. And most importantly, don't have them stick their greedy little tax hands in my pocket, take my money and give it away to people who won't do a thing to better their own situation.

    Energy independence is a great thing; I just don't want it mandated by a bunch of worthless scumbags called congressmen who thwart every effort to get more domestic production. I'm all for independence, but unfortunately dirt bag Pelosi, her sidekick Reid, the chosen messiah "0" and all the other "leaders" in congress are hurting not helping. Pickens has an idea. Now lets get more of them and try them ALL! Drilling, nukes, wind, NG, oil shale, offshore northeast Atlantic, offshore Florida, offshore California. ALL of it!
    Reply | Link to Comment
  •  
    Jul 25 09:57 AM
    Michael Fitzsimmons - - -

    You are tackling a very worthwhile topic. The range of comments, from the trivial to the complex, show both the frustration and the careful thought this subject engenders. Personally, I believe the energy crisis could be either the vehicle of decline for our beloved country or the financial opportunity of the century. I try to discuss this in the latest post on my website.
    Reply | Link to Comment
  •  
    Jul 25 10:00 AM
    Mmarrkk, neither Gore or Pikens are suggesting your fantasy of giving up things, they are saying change your fuel sources (wind, solar, natural gas (definitely the interim fuel source of choice), nukes, electric and natural gas transportation). Obviously, neither man is a luddite. Also, the tax code is used to redistribute wealth, and that fact doesn't change regardless of the party in power. Further, drilling is ONLY a part of the solution, which is something BOTH Gore and Pikens acknowledge, and the other fuel sources you mention are also part of the solutions, which ironically is not part of the GOP "drill, drill, drill" mantra, and actually it is largely the Democrats supporting the comprehensive approach you seem to suggest. Furthermore, the drilling issue is mostly going to get opposition in the states, where ironically you have GOP governors. Fact is playing the partisan game in this area, makes no sense for America.
    Reply | Link to Comment
  •  
    Jul 25 10:06 AM
    I guess I was wrong. The only ones not to recognize global warming are FOX, George Bush, Dick Cheney, User 141176, Mmarrkk and Clearlead. When I was kid, I learned about the 7 continents. By the time my grandchildren are born, they'll be learning about the 6 continents because Antarctica will be gone. Al Gore is the messenger, not the message. You don't have to live in a dark cave, ride a bike everywhere and wear Birkenstocks to realize there's a problem out there. And the "growing number of scientists that are dismissing the global warming hoax"? What, it went from one to two? By the way, the phrase "thank God he wasn't elected back in 2000" doesn't go very far these days considering the absolute disaster that George Bush and Dick Cheney have been to our country. You guys are fairly pathetic if you think ANY politician (Democrat or Republican) can fix all this. We've had a Republican in the White House for going on 8 years now, and a Republican congress for 4 and a Democratic congress for 4 and we still don't have an energy plan, other than the one Dick Cheney pulled out of his butt that virtually every economist has lampooned as more of the same.
    Reply | Link to Comment
  •  
    Jul 25 10:07 AM
    Sorry, I mistakenly included Clearlead in that last list. My mistake.
    Reply | Link to Comment
  •  
    Jul 25 10:19 AM
    CT: way back when there was only one continent. Things change! There were also dinosaurs...before the endangered species act I guess. Polar bears may or may not go extinct. Circle of life!!

    Clear: I don't think the GOP's only solution is drill. It is one part. But they are not in the leadership of the congress; still waiting on Nanci's and Harry's solution. Long term. We do agree that ALL things need to be worked. That is common ground for you and I.

    And if you are counting Arnold as a republican, you are seriously mistaken. he is not a republican, regardless of what letter follows his name! But if the states don't want drilling, then that's fine. No drilling; but give them a choice. But I also think the states that do allow drilling should have the right to reap a disproportionate share of the benefits of drilling. Like an excise tax paid by all states that don't allow drilling. Or they should get disproportionate share of funds derived from drilling. I think that's being done in the OCS with royalties and fees. La, Tx and Ms are getting extra funds as they are allowing leasing.

    Now if we could just get those big gas bags up in Massachewwwwsits to put some windfarms off their beautiful pristine coasts.... but no we can't have that!

    Cheney's energy policy would have actually helped with some of our current problems. Had we started work in ANWAR 7 years ago, we'd be within a year or so of getting oil out, not 8-10 years from now. Economists aren't trained in Energy Policy. They are trained at making horribly inaccurate predictions! And they are good at it. Why should Economists be asked about energy policy? Do you ask your Dentist about your prostrate health?
    Reply | Link to Comment
  •  
    Jul 25 10:24 AM
    Michael - good discussion topic. IMO Al Gore is power hungry (like 90% of our culture) and will do or say what ever gets him on the headlines. As for global warming - we have the wisdom of a few hundred years of science over unknown number of years of our planets life - it's like a huge multi-variant equation - and some think they are smart enough to conclude because one thing happens they have it figured out. It's about a reliable as my conclusion that on the mornings I have toast with breakfast they will be a slow down on the freeway to work. Might happen occasionally my no evidence linking bread with traffic.
    But the basis of your story is right on - there are alternative sources that are here, renewable and viable. An nearly everything is driven by economics - the cost to produce and hook up one wind powered generator is $$$$$$$$$, the cost to produce and hook up 1000's of wind powered generators is $$. The incentive to produce more alterative energy sources IS directly coupled to the price of the BOE. And you can take that to the bank.
    Reply | Link to Comment
  •  
    Jul 25 10:28 AM
    it is not uncommon in discussions on global warming that people use terms like to belief or disbelief as though this were a problem of theology rather than physics. do you believe in god? do you believe in global warming? this is not the best way of resolving the negative issues of warming. regardless of the cause of these climate changes, we would do well to prioritize action against its ill affects our.

    per pickens and export of cash. i'm not certain that the 'export' of 700 million dollars to agents of foreign petroleum is that crucial in the context of an ump-teen trillion dollar economy.

    what i do endorse is his action. there are a lot of deep problems in america which often off-set the positives. dependence on fossil fuels, or at least untreated fossil fuels, is one of these problems. our leaders are not leading the way and have a murky vision at best of global future.
    Reply | Link to Comment
  •  
    Jul 25 11:06 AM
    "the REAL inconvenient truth: going forward, worldwide oil supply will not be able to keep up with worldwide oil demand."

    Huh? How about this?

    The REAL inconvenient truth: going forward, OPEC will continue to rob us blind by setting oil prices at ANY LEVEL THEY DESIRE.
    Reply | Link to Comment
  •  
    Jul 25 11:06 AM
    "the REAL inconvenient truth: going forward, worldwide oil supply will not be able to keep up with worldwide oil demand."

    Huh? How about this?

    The REAL inconvenient truth: going forward, OPEC will continue to rob us blind by setting oil prices at ANY LEVEL THEY DESIRE.
    Reply | Link to Comment
  •  
    Jul 25 11:18 AM
    Mike as usual has hit the nail on the head. His energy plan should form the basis of a discussion on a national energy policy. As for Pickens' plan, the wind turbine build out looks to be a no brainer but the idea of using NG in compressed form except in some applications is not affordable or feasible IMO. That would require 3000 psi tanks in every retrofitted vehicle and giant 3000 psi tanks in every filling station refueled by 3000 psi+ tankers sharing the highways and byways with we the happy motoring public. Are you listening and making notes Mr Bin Laden ? I suspect you are licking your bewhiskered chops. Mike is right as is Pickens saying that we must halt oil demand and in fact reduce demand. If we used the same oil per capita as most of the rest of the industrialized world, our consumption would be 10 million BPD not 20 million. That should be the minimal goal ASAP. Want energy independence? Reduce it to 6 or 7 million BPD and you are living off your own domestic production. How to do this is painfully obvious with an emphasis on painfully. You can tax it or ration it. Take your pick. It's one or the other. Taxing it is the least painful if you use the tax to build a transportation infrastructure which logically would be electrified rail and other forms of mass transit which is way cheaper and more durable to build than asphalt and the petroleum based binders for highways. Will this kill long distance commuting by private automobile? Of course. Will it be horrendously expensive to start laying track and building train stations,terminals and train cars? Of course. There are some real upsides like zillions of jobs for Americans but we have to pay for it somehow. The 2 or 3 trillion that will be spent on Iraq before that fiasco is over would have been a good start but that opportunity was pissed away by the incompetent neocons who happen to be from the soon to be defunct republican party. But the dems are showing real signs of carrying that incompetence forward as their party standard. Incompetence seems to be the national standard. I suspect absolutely nothing will be done until the next depression is well underway caused by by a credit and housing debacle with the bad guys going unpunished and the taxpayer bailing out everyone. That flushing sound you hear is the dollar going down the toilet.
    Reply | Link to Comment
  •  
    Jul 25 11:30 AM
    Mike, the difference between your talking or Al Gore's talking (even a stopped clock is right twice a day) and T. Booone Pickens talking, is that Boone's is not only deliberate, accurate and to the point, but he is doing something about it .
    Reply | Link to Comment
  •  
    Jul 25 11:31 AM
    Pickens wants his wind and natural gas investments to go up. Having lived in Tehachapi I can tell you wind won't be the answer the industry will die tomorrow without tax incentives. As for natural gas the public won't allow LNG ports much the same way they fight offshore drilling and ANWAR. In California the liberal politically correct Democrats are getting exactly what they voted for high gas prices and green B.S..
    Reply | Link to Comment
  •  
    Jul 25 11:55 AM
    Everyone always talks about all of the $$$ that go overseas when the price of oil goes up. Here is something to consider: Exxon, Chevron and Conoco all rake in huge profits and use that money to buy back their shares instead of putting it into solutions that would be good for the country (and themselves) like T. Boone Pickins. When the price of oil went up from $125 to $147 per barrel the price of gasoline went up 65 cents per gallon and yet now that oil has come back down to $125 per barrel gas has come down 10 to 15 cents per gallon. Maybe it is time that we nationalize the oil industry like Hugo Chavez did. After all, we still subsudize these same oil comglomerates to the tune of $1 billion.
    Ever heard of the Ice Age? One theory that it was caused by a huge meteor. Maybe someone should be working on creating a man made one to lower the warming trend. Climate change happens all of the time.
    Reply | Link to Comment
  •  
    Jul 25 12:01 PM
    Reading the above comments assure me that mankind is f**ked. Defending Cheney's Enron conceived energy policy goes beyond the pale-are you nuts?
    Reply | Link to Comment
  •  
    Jul 25 12:12 PM
    Jerry: "green BS"...ate too much spinach?? ha. I agree with you on the small minded resistance to LNG import facilities, although I would tell you that until our nat gas prices get to over $15/mmBTU, there won't be much LNG coming our way. The Japanese are buying all they can get at higher prices than US consumers are willing to pay. So, LNG gets you back in to a security issue like imported oil. Not to mention more money being sent to "not so nice dictators".

    hypratt: you got a problem with oil companies returning their profit to their shareholders...the OWNERS of the companies?? How socialist of you! And do you know who these shareholders are? Pension funds, mutual funds, IRA holders, 401-k holders, etc. These folks are then free to take those profits and invest them in anything they want, including up and coming green alternative energy companies!! Nationalize oil: what a joke! You see how well Hugo's company is doing? losing production by the day. How about PEMEX? Can't find their way into production increases. I've got it: let Congress or politicians run the oil companies! Yeah, great idea. Politicians were running Fannie Mae and Freddy Mac as they went down the tubes too. Mostly Clinton ex's who padded their pockets and then falsely boosted company earnings to gain big bonuses. Same thing as Enron except they were prosecuted because they were politically connected. So yes, lets let the inept politicians run the oil companies. That will get oil to $300 really quick!!

    Maybe the messiah can come up with a solution when he gets back from Europe on his campaign swing that the taxpayers are paying for. As the annointed one I'm sure he has an idea that involves taking my money and doing something with it that I don't approve of.
    Reply | Link to Comment
  •  
    Jul 25 12:15 PM
    Boone Pickens owns 16% of a stock in canada called westport inovations inc. wpt -toronto wptff - nazdaq guess what they convert diesel engines to natural gas, he also owns Clean Energy Fuels, they make LNG the fuel for diesel engines, they are tied in with fruehoff and cummings engines, have contract with port of Long Beach for 2009 conversion for 8,000 diesel trucks, daaaa
    Reply | Link to Comment
  •  
    Jul 25 12:18 PM
    Cheney's energy plan had nothing to do with Enron and their reasons for failing. Did you read the energy plan? Do you know what was in it? It was put together with input from hundreds of energy exper