As I know many of our offshore investor readers have interests in Petroleum and Natural Gas, I thought the following guest post by David Galland, of Casey Researchwould be interesting. By the way, Casey have recently done a big makeover on their portfolio of investment research services. You might want to take a look – the link is at the bottom of this post.

At the height of its late 2005 rally, natural gas in the U.S. was selling for just over $16/MMBtu, 350% higher than today’s price of $3.56. The oil/gas ratio, now over 18, is an all-time high… suggesting that natural gas is dirt cheap. So, it’s a buy, right?

In a phrase, not exactly.

According to a recent report by Natural Gas Intelligence, U.S. natural gas available for production “has jumped 58% in the past four years, driven by improved drilling techniques and the discovery of huge shale fields in Texas, Louisiana, Arkansas and Pennsylvania, according to a report issued Thursday by the nonprofit Potential Gas Committee (PGC).”

According to the report, the increase in gas discoveries and production improvements means that North America shouldn’t have to be concerned about gas supplies for up to 100 years!

Dr. Marc Bustin provided an overview of the situation in the May edition of Casey Energy Opportunities.

In the United States, the tremendous growth in natural gas resources and estimated recoverable natural gas, particularly from gas shales, just in the last two years (Figure 1) is sending tremors through the entire industry. These tremors include the risk of making obsolete the proposed $26 billion Alaskan and $16 billion northern Canadian pipelines to tap northern gas resources and a slue of proposed LNG terminals… unless they are for export!

The numbers currently kicked around are that something around 2,000 trillion cubic feet of gas are technically recoverable in the United States. At current production rates, this supply would last about 90 years.

Some analysts are predicting that even if the U.S. economy recovers in the next year, the amount of gas discovered to date in gas shales will severely dampen any increase in gas price for some time. According to a new study by energy consulting firm CERA (Cambridge Energy Research Associates), new technologies for unconventional gas fields are being applied so successfully that supply is essentially no longer a driver in either production or price in the North American gas market – whatever the market wants, North American gas fields can supply. CERA reports that natural gas production in the Lower 48 states has risen a startling 14% from 2007 to 2008, for example.

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Figure 1. Major shale areas or formations in the U.S. and the estimated recoverable natural gas in 2006 and 2008. Modified from Daily Oil Bulletin (May 4, 2009).
Given the increase in production and the small slide in demand, the price of natural gas has fallen to around $3.50-$4.00 per MMBtu (down from $13 per MMBtu last summer). At these prices, many gas prospects are uneconomic, and thus there has been a marked decline in the number of wells being drilled. Rig activity (how many rigs are operating) is down about 50% in North America.

But here is where an interesting feedback mechanism kicks in. One of the characteristics of unconventional shale gas wells, and to a lesser extent natural gas wells in general, is that the production rate declines through time. Most shale wells’ production rates decline 60 to 90% in the first year. If you were a gas company trying to survive amidst today’s low prices, the rate of return on your capital investment would also be painfully low for a significant amount of gas if this were your initial year of production.

Another complementary fact is that over 50% of natural gas consumed in the United States today is from wells drilled less than three years ago, and 25-30% of the gas produced today comes from wells drilled last year (Figure 2).

Hence it follows that if there are 50% fewer wells drilled this year (from the drop in rig activity), new production will decline about 35-40% by the end of the year, so there will be gas shortages. Those will in turn lead to higher North American prices, which in turn should lead to additional drilling.

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Figure 2. Historical gas production in the U.S. showing the percentage of production from vintage of well (modified from Chesapeake April 2009 Investor presentation from original data of HIS Energy)
Everything else being equal (which it’s not, this being the real, not the mathematical world), gas prices and drilling will see-saw until an equilibrium is reached. In detail, of course, things are more complicated, but it is pretty clear that gas prices will have to rise within the year, and the big losers will remain the more expensive plays that require higher gas prices to be economic.

Where will the gas price end up in the short term? A poll of analysts by Reuters suggests $6 MMBtu in 2010 (Daily Oil Bulletin, May 4, 2009), but I don’t think I would bet on a gas price based on a vote by analysts. At the same time, it’s an interesting coincidence (or not – coincidence, that is) that many prospects become economic at around the $6 MMBtu range. Among them are the Haynesville and Marcellus shales – and it’s no large leap from there to see their tremendous gas production potential acting as a buffer to gas prices going much higher in the near term.

Thus, while there may be some seasonal and relatively short-term trading opportunities in natural gas, the overhang of ready supply places a fairly firm cap on the price. Which begs the question, which big-trend energy opportunities should be getting our attention today?

Marin Katusa, who heads the Casey Research energy team, answers the question by, correctly, cataloging the opportunities according to geography.
In North America
1. Geothermal — the most interesting of the alternative energy sources, by a wide margin.

2. Nuclear.
3. Oil.

In Europe

1. Unconventional gas has, by far, the most upside.
2. Unconventional oil.
3. Small hydro (such as run of river).

In Africa

First and foremost, you want to avoid infrastructure plays (pipelines, refineries, etc). Then you want to look for areas with huge oil potential, which have been held off the market by concerns over political risk. I like what Lukas Lundin is doing in Ethiopia, Somalia, and Kenya, hunting for “elephants” with the idea of eventually selling the discoveries off to the Chinese.
In Asia,
1. Liquid Natural Gas (LNG)

2. Coal Bed Methane (CBM)

Lessons to Learn

There are a couple of useful lessons to be derived by investors looking to tap into the virtually unlimited opportunities in energy.

First, just because something is “cheap” doesn’t mean it can’t stay cheap, regardless of historical ratios — if there has been a fundamental shift in the supply/demand equation. Which is very much the case with North American natural gas.

Secondly, geological and transport considerations make much of the energy complex a “local” market.

For example, while North America enjoys an abundance of natural gas, Europe is forced to rely on the heavy-handed Russians for the bulk of supplies. As you read this, there are companies looking to break the Russian grip by applying the same unconventional gas technologies that have so successfully built gas supplies in the U.S. — technologies that are only just now being applied in Europe. Early investors could reap huge profits.

In short, the real opportunities are not found by simply “investing in energy” but rather by taking the time to understand the structural differences within the energy complex and cherry picking the special situations that invariably exist in a sector this large.

David Galland is the managing director of Casey Research, LLC., a private research firm providing independent analysis and investment recommendations to individual and institutional investors in North America and over 100 other countries around the globe. To learn more about the monthly Casey Energy Opportunities advisory, including a special three-month, fully guaranteed trial subscription, click here now.

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A few months ago I wrote an article for Q Wealth Report on the multi-trillion-dollar bank nobody has ever heard of. You can read my blog entry on CLS Bank here, and a more detailed article in a forthcoming edition of The Q Wealth Report. A news release from CLS Bank dated 17th September 2008 informs us:

Today, CLS Bank International (CLS Bank) set a new record for the volume of payment instructions settled in one day. CLS Bank settled 1,554,166 payment instructions with a gross value of US$ 8.6 trillion. CLS Bank was able to settle this gross value with a total pay-in requirement of only $50 billion, representing a net funding percentage of 0.58%

More comments on that later, but it bears thinking about. That’s a pretty darn big bank!

Today, however, let me introduce another multi-million dollar corporation you may well never have heard of. DTCC is bigger than GM, GE, Google, Microsoft and many other mega-companies – all added together. Are you sure you never heard of them? In fact, this mega-corporation DTCC happens to be the registered owner of 99% of all commercial paper (stocks, bonds, securities, etc.). Scary, but true.

And they have a perfectly good reason for it – with electronic trading, it is impossible to make timely changes to registered ownership of the paper. Last year, DTCC settled more than $1.86 quadrillion in securities transactions, according to its website dtcc.com

There’s a good blog entry here about DTCC. The author asks:

Wow – can you believe these guys are this central to everything that is going on and we have not heard a peep out of them? Wouldn’t you think that their expertise might come in handy right now? Maybe they are – but not for the benefit of you and me.

Why is there so much secrecy in our financial system? Why is so much of the system, and our wealth, controlled by so few people who are so far removed from the law and the Constitution? And how is it they have been getting away with it for so long?

Regular readers know I am not big on conspiracy theories. But my investigations into CLS and DTCC really, really seriously make one wonder what is going on. The fact is, none of us with holdings in the stock market are even the legal owners of our investments. We rely on this secretive unknown corporation that turns over quadrillions of dollars to hold our investments as trustee. The entire global financial system is putting blind faith in this one private corporation which is not subject to any reasonable oversight.

We certainly live in interesting times. Expect a detailed article on this in the next edition of The Q Wealth Report. If you haven’t yet signed up, you should! By visiting the Q Wealth Report site you can now download a free sample copy if you would like to ‘try before you buy.’

P.S. We’ll be talking about DTCC and CLS at Recipes for Success in Panama next month. This is positively your last chance to sign up for this one of a kind event. I am pasting below the text of a special offer that Q Wealth Limited sent out on Friday. Please note it is valid only until this coming Friday. The following message is internal sponsorship.
The US Presidential race is drawing to a close. Events unthinkable just three months ago have been shaking the global financial system to the core. It is very clear that markets are being manipulated in a big way so you can’t rely on logic when investing. Not just that, but the financial crisis is being used as an excuse to implement yet more totalitarian controls on your money and your life!

What does this mean for you personally? Do you have a plan?

Are your finances and savings at risk? Or are you going to be one of those who comes out of the crisis not just unscathed but with big profits?

If you don’t already have a detailed road map for the coming years, the time to start thinking about it is right now. You need to talk it through likeminded, free thinking individuals, and experts who have dedicated their lives to the concepts of personal freedom, financial freedom and privacy.

I won’t beat about the bush. I think the solution for you is to come to Panama next month and sit down with members of The Q Experts Panel. In a luxury resort, in a pampering atmosphere behind closed doors, you will participate in high level discussions that will cut through the lies in the mass media.

We planned this event some months ago for the week after the elections, and recent events have shown that we could not have timed it better. Things may be looking bad now, but they are set to get a lot worse before they get better.

The reason for writing to you today is that I consider this event so useful and so essential for Q Wealth readers, that we have decided to extend the early bird discount to anyone who signs up before next Friday. That means for just $3,497 per couple (instead of the normal price of $5000), you will get a working week full of expert advice in a small group tailored to your situation. There is a further discount for singles and for VIP members. . You will get to meet at least 4 members of the Q Experts Panel, and we expect to have 2 more pending final confirmation.

I’ve been to quite a number of events like this over the years and every one is different. The one thing they all have in common is that, besides the regular program that you can read about at www.qwealthevents.com, everybody gets substantial fringe benefits out of these events. In my view, these fringe benefits are probably the most valuable aspect of the whole event. It’s sometimes hard to express this in words, because I just don’t know what will happen. That is the fun of putting a group of free thinking individuals into a melting pot for a week! There is just no way to put a monetary value on participating in this.

I just cannot tell you what it will be this time, but believe me the people you meet might be a little offbeat but they are the best brains in the business. They are people who really understand the geopolitical situation, economics, wealth psychology and real health. Some of them are TV presenters. Others are very private people who rarely appear in public. That is why the event is by invitation only and we won’t tell you exactly where it is until you sign up. We are not inviting Big Brother!

You will meet people with practical experience who have been there, done that. Just one idea, tip or inspiration could make you hundreds of times the investment involved in attending. You can invite these people aside for a coffee or a cold beer and sit down to chat with them informally about your own ideas and plans, and get feedback from different experts as you formulate your own personal plan.

One thing I feel is very important to point out is that this is a small group. You will get to know everybody on first name terms and make new friends – individuals who think like you. This is a world apart from mass market “offshore” seminars in Panama where you will just meet people who are trying to sell you something – be it real estate, offshore structures or rare stamp collections as investments.

This could be the right opportunity for you that is coming along at just the right time. That is the reason for this special bulletin. You’ve probably already read about this event but maybe you have not thought seriously about attending.

We didn’t just choose Panama at random. For one thing, it’s easy to get to. Plenty of direct flights from the Americas, and from Amsterdam and Madrid. Another thing, it’s a business friendly offshore and retirement haven. You’ll see how the Panamanian real estate bubble is bursting, and how there are great opportunities there too. You’ll have the chance to visit brokerage houses, banks and credit card providers and open accounts there on the spot if you wish.

Some people are cutting back on spending at the moment. They should be! But now is not the time to cut back on essential things. This is not a holiday or excursion. It is an investment in yourself, that should pay high returns over the coming years. Your life is your responsibility, not the kind of thing that comes with guarantees. Once you acquire this unique knowledge and experience, it is up to you to do something with it. But we will help you make concrete plans, goals and strategies for this.

How can you sign up for this event and qualify for the discount? Either go to www.qwealthevents.com and sign up online, or email me direct (info@petermacfarlane.net) or call our co-coordinator Dana Parkinson today. Call our London office at +44 20 7855 2563 or toll free from the US and Canada at 1-800-583-1637. If you have any questions before signing up, don’t hesitate to call.

This Special Offer closes definitively at close of business London time on Friday 17th. We need this cut-off time to make accommodation arrangements. Don’t miss out – sign up today!

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That’s a question I’m often asked by clients in relation to offshore company formations, particularly in relation to Panamanian companies where nominee directors are standard. There’s a good article here.

Below is an extract:

What is the difference between Nominee Directors and Professional Directors

A Professional director is a term normally used to refer to nominee directors who have been specifically hired to take on an active role in the management of the company. Unlike nominee directors who simply rent their names and sign documents prepared by lawyers, a professional director is typically either a professionally qualified person such as a lawyer, or a well-known businessman with many years experience. (Retired businesspeople frequently take on such positions)

The underlying purpose is broadly similar – to disguise the underlying ownership and control. But the professional management are expected to demonstrate active participation in the day-to-day affairs of the company. They may write letters, make public appearances, and hold official meetings where company business is decided upon.

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This is interesting. It’s from the Toronto Globe and Mail. Think about the second paragraph:

Canada’s financial intelligence agency warns that criminals may be exploiting Internet-based companies that convert cash into electronic gold, exposing a new front in the international effort to restrict terrorist financing and money laundering.

While other channels of money laundering are successfully being shut down, authorities are increasingly worried about a proliferation of “digital precious metals operators” websites that offer clients a chance to conduct Internet business in units backed by gold and silver rather than paper currencies. 

Well, at least they admit it. They’re worried about the public having the opportunity to conduct business using gold or silver. It is now official Canadian government policy that we should use only debaseable fiat money, backed by nothing more than the full faith and credit of the government (which is bankrupt by most logical standards). You can’t get much blunter than that, can you?  Oh, and of course, it’s for our own protection!

There’s more on this at The Real Deal blog, along with some other interesting Gold and Banking Crisis articles.

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Am writing this from the airport, just leaving Cancun, Mexico where a small but select group of investors gathered for the first “Recipes for Success” event.

The event was great fun and feedback has been overwhelmingly positive and the hotel’s service could not have beeen better! We had a diverse group of couple and singles from different countries and backgrounds… but the one thing they had in common was a desire to protect their privacy, and increase their wealth and well being. Everyone here was already well versed in basic offshore and PT theory, so the presenters moved swiftly to a higher level and some very interesting discussions resulted. We are even planning some group trips in South America later this year!

Anyway, the next Recipes for Success event will be in Panama City, Panama in the first week of November. We already have some signups. Details of the event should be up on the site of Q Wealth Events (www.qwealthevents.com) within the next couple of weeks, but if you would like to put your name down ahead of time, please email info@petermacfarlane.net  I’m looking forward to meeting you there!

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Why register your car offshore? We offer low registration cost and annual fees, huge potential tax savings – avoid European VAT, luxury taxes, etc., no need to travel – plates sent to you by DHL courier, legally avoid expensive compliance tests, small additional cost for personalized plates for global citizens, permanent tourists, diplomats and consuls, employees of international organizations, military personnel and others.

http://www.easycarregistration.com/

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Learn  how  you  can  legally  divorce  “offshore”  in  as  little  as  24  hours, with or without consent of your spouse, offering fast legalization by consulates of USA, UK, Ireland, Italy, Philippines or any other country, reducing the trauma: get it over fast and get your life back on track now and potentially save thousands of dollars in legal fees!

http://www.vipdivorce.com/ 

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Your reliable portal for offshore investments in the Dominican Republic and Caribbean region! We are experts in offshore banking, international credit and debit cards, tax-tree residence, second citizenship, international asset protection, company formation, real estate, divorce, vacation properties, hotels and golf in Dominican Republic, Panama, Haiti and Cuba.

http://www.invest-dr.com/ 

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What can the Q Wealth Report do for you? You will discover how to legally avoid taxes, discover how to protect the assets you already have, you will learn the secrets of generating wealth – often with no money down, learn how to be financially secure and free – never have to worry about money again – instead live a relaxed, happy lifestyle, acquire the skills to apply knowledge to put your ideas into action to increase your freedom, autonomy, security and independence, have opportunities to connect with like-minded people, refresh and refocus at Q Wealth Events. Above all you will be inspired and will acquire a new, free, mindset!

http://www.qwealthreport.com/

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Q Wealth Events, exclusive gatherings covering successful international investing and living… a great way in which to discover some quite extraordinary secrets about acquiring, protecting and growing your wealth in a secure international environment – from unique experts you would never normally be able to find!

http://www.qwealthevents.com/

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