Wednesday, April 18, 2007
If you want to find the best oil investments in the world, you've got to know guys like Cactus Schroeder...
Based out of Abilene, Texas, Cactus is the latest in a long line of Texas oilmen. He owns his own small oil-exploration company, called Chisholm Exploration. Chisholm focuses on the Permian Basin around Abilene. If you saw Friday Night Lights, you know the Permian Basin.
Cactus has a nose for oil fields in the Permian, and Chisholm averages 2,000 barrels of production per day.
That output may not sound like much to folks used to hearing about billion-barrel deposits. But trust me, small, off-the-radar companies like Chisholm can build fortunes for people with the courage and smarts to drill exploration wells in West Texas.
Cactus has both. And he's got the stories and huge ranches to prove it.
Given Cactus' experience, I make it a point to talk to him at least once a month to get an insider's take on the best oil and gas stocks in the world. This week, Cactus presented his best ideas at our private editors' conference in Naples, Florida...
Cactus presented several interesting ideas... one of which I'll share with you today. He sees growth in the giant international oil-service companies like Halliburton (HAL) and Schlumberger (SLB). That's because countries like Venezuela and Mexico need these guys more than ever. With world-class technology and consulting, companies such as Schlumberger allow less-developed countries to exploit their oil fields... and, of course, to fund government projects.
Take Mexico's main source of income, the Cantarell Field, for example. Considered the second-largest oil field in the world, Cantarell is in serious decline. And Mexico's national oil company simply doesn't have the expertise to keep Cantarell flowing on its own. It requires the expertise of an international service company to keep the oil flowing.
Venezuela is in a similar situation. Its domestic oil production is down by 1 million barrels per day since Hugo Chavez took office. Venezuela's national oil company lacks the kind of expertise required to maintain production at current levels. Hence, there's going to be plenty of business down the road for skilled service companies.
So which company does Cactus believe is the best investment in this sector?
Well, if you invested $10,000 in Halliburton one year ago, you'd be down about $1,000 on your investment. Schlumberger has performed much better, and would have returned $2,300.
Cactus made the point that Halliburton is at a disadvantage in its competition with Schlumberger. While both are international giants, Halliburton is widely regarded as an American company, while Schlumberger is regarded as French. That allows Schlumberger to operate in areas that would be hostile to a U.S. operation. In fact, the U.S. government bars Halliburton from operating in certain countries... which puts Halliburton at a distinct disadvantage to Schlumberger.
I'm in agreement with Cactus. I recommended Schlumberger a year ago to readers of the S&A Oil Report. We're up 26%... and I expect more gains to come. The stock isn't considered cheap by standard valuation measures, but I think a big improvement in earnings will drive the stock higher.
Schlumberger is my favorite large oil-service company. Not so much for its international reputation, but because the company enjoys a ubiquitous presence in the world and its work is widely considered top notch by folks like Cactus.
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