The Shell GameMoreover, many don't seem to grasp the difference between the large, vertically integrated companies (such as Royal Dutch Petroleum ( RD), which is the parent group of Shell) that are net buyers of oil in a hypercompetitive arena at prices that fluctuate on a world scale and the corner gasoline station that is a net seller of gasoline at prices set at whatever the market will bear on a local scale.
Crude, Crude Everywhere, but...Right now there is plenty of crude oil in the world's pipeline, but a scarcity of gasoline. Katrina knocked a considerable amount of crude oil production out of commission in the Gulf of Mexico, to be sure. But as a gesture of goodwill, and to make a buck, our allies in the Organization of the Petroleum Exporting Countries, such as Saudi Arabia and Kuwait, agreed to produce more than their usual allotments to keep world reserves stable. At the same time, the U.S. government agreed to release tens of millions of barrels of crude oil from the Strategic Petroleum Reserve, an energy piggy bank started 30 years ago after the Yom Kippur War between Israel and its Arab neighbors disrupted supply. You can have all the oil in the world and still run short of gasoline, if major refineries are out of action. Refineries are large, smelly, unattractive plants that "crack" crude oil's hydrocarbons into the stuff that makes modern life go, such as heating oil, kerosene, jet fuel, the feedstock for plastics, diesel and automotive gasoline.
Light, Sweet RevengeStrangely enough, despite energy companies' explosive move in the stock market over the past two years, many of the shares are still very cheap. This has happened because unlike, say, a retailer, a commodity-based business can decide to sell some or all of its product in the futures market at a set price for a certain length of time.
|Well Worth the Exploration |
These energy exploration companies have low valuations and strong earnings-growth rates
|Company Name||Est. EPS Growth '06||Market Cap||9/6 Price|
|Range Resources (RRC)||56.5%||$3 billion||$34.61|
|ATP Oil & Gas (ATPG)||1829||905 million||30.67|
|Plains Exploration (PXP)||124.8||2.8 billion||36.00|
|Toreador (TRGL)||69.9||475 million||33.90|
|Source: MSN Money|