Domestic Oil Investment Opportunities

Last week Forbes published its list of the world’s 25 biggest oil companies.

The top three produce a combined 28.6 million barrels a day. And these top three are based in countries that don’t typically have our best interests in mind. They are Saudi Aramco, Gazprom, and National Iranian Oil Co.

Moreover, of the 25 biggest oil companies included on Forbes‘ list, nearly 40% are based in OPEC nations. Combined, they produce 35.6 million barrels per day. Another 20% are based in China and Russia.

So basically, roughly 60% of the world’s oil is produced by just over a dozen companies operating out of China, Russia, Venezuela, and the Middle East.

Combined, all 25 of the companies on this list produce 86.1 million barrels a day — or about 97% of global demand for the remainder of this year and into 2013, according to the Energy Information Administration (EIA).

Think about that for a moment…

Nearly every ounce of oil produced across the globe is concentrated in the hands of a very small group of suppliers, with the lion’s share of production happening outside of the United States in enemy territories.

Of course, this isn’t necessarily news.

But when you peel back the layers of how this affects a post-Peak world — particularly when talking about the foreign power players on this list — it’s pretty ominous.

Thieves and Liars!

We aren’t dealing with boy scouts here, folks.

Trustworthy, loyal, clean, and reverent are not words I would use to describe some of the world’s biggest oil-producing nations… especially those that have funded terrorist activities against the United States using our own money.

You may remember back in 2007 when Abdallah al-Saif, Saudi Aramco’s vice president for exploration, told U.S. diplomats the country had about 716 billion barrels of oil, and that this number would increase to 900 billion barrels in the next 20 years.

Turns out those numbers were overstated by as much as 300 billion barrels.

Or go back a year earlier, to 2006, when Petroleum Intelligence Weekly uncovered a leaked memo from the Kuwait Oil company revealing Kuwait’s proven reserves were only half of what was initially reported.

Around the same time this news hit the wires, a former senior official with the National Iranian Oil Company (also on Forbes‘ top 25 list) announced Middle East oil reserves were about half or even less than what respective national governments claimed.

So basically, most of the folks we rely on to supply the world’s oil needs are hostile toward U.S. interests and consistently lie about production and supply data.

This does not bode well for a nation reliant upon close to 19 million barrels per day.

Why I’m Buying Domestic Oil & Gas

Some have declared Peak Oil to be dead. They typically do this by inflating production numbers to include natural gas plant liquids and associated liquids in oil production. In fact, they often avoid using the term ‘crude’ and instead use the term ‘total liquids.’

The EIA, the International Energy Agency, and OPEC do this all the time.

OPEC nations will often put out optimistic oil production reports referring to ‘total liquids production.’

But as my colleague Keith Kohl has pointed out in the past, this is deliberate misinformation that creates the illusion that the world is producing enough oil to keep up with demand.

They tell us the world’s daily crude oil production is 90 million barrels. But it’s not. It’s not even 80 million.

The only reason these numbers get above the 90-million-barrel mark is because they throw in all liquids — which include crude oil and condensate, natural gas plant liquids, and other liquids like ethanol.

Meanwhile, production of just crude oil and condensate has been relatively flat for years, increasing about 10% in the last decade.

According to Keith:

Even if we give drillers the benefit of the doubt and we see 15% growth over the next ten years, we’d still only be talking about 85 million barrels of crude oil and condensate by 2022.

So, if global production reaches 110 million bbls/d, it would mean that 25.5 million barrels of it would come from NGLS and other liquids.

That’s nearly one-quarter of the world’s oil production that isn’t even oil.

Suffice to say I’m not bullish on this scenario at all.

There’s zero doubt that even with modest increases in production, supplies will continue to get tighter and tighter…

Which is why I continue to scream from the rooftops, “Load up on domestic oil and gas stocks!”

Mark my words: It won’t be long before someone leaks another memo that’s going to reveal just how little recoverable crude remains in the deserts of the Middle East.

My Biggest Gains

Some of my biggest gains in this sector continue to come from enhanced oil operations in North America and your basic domestic oil and gas production plays, like Linn Energy (NASDAQ: LINE).

This is probably one of the most lucrative domestic oil and gas plays out there.

**In keeping with our full disclosure policy, I do have a sizable position in this one. I’m very fond of the 7% dividend, too.**

Of course, I’m also benefiting handsomely from natural gas infrastructure plays like this one here.

Look, the bottom line is that nearly every one of the world’s largest oil companies will never come clean about the realities of Peak Oil. They have no incentive to do so.

Moreover, there isn’t a single OPEC nation that can be trusted when it comes to oil reserves and production.

But this doesn’t change the fact that our nation falls off an economic cliff without a steady supply of the black stuff.

So our choices are simple: trust those oil-producing nations with a decades-long track record of deceit and manipulation… or invest from domestic producers that will keep our economy growing long after OPEC chokes on its own lies.

From where I’m sitting, it’s a pretty easy choice.

To a new way of life and a new generation of wealth…

Jeff Siegel Signature