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Oil Growth in Production vs. Stock Prices

April 17, 2013 | About:
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EconMatters

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Fortunes are being made in North Dakota right now as a result of the oil boom there. Not only the oil producers but pipeline operators, railroads, oilfield services providers -- and numerous companies benefiting indirectly from the crude bonanza are making out very well.

Oil production is also booming in some other unlikely places. Tracking the trends in national and regional oil production could help investors identify related investment opportunities that may arise. This could be an oil company with operations concentrated within a specific area, or an exchange-traded fund for a country whose oil production and exports are growing rapidly.

According to the 2012 BP Statistical Review of World Energy, nearly 20 countries saw double-digit growth in oil production from 2006 to 2011. The table below shows the 15 countries with the highest percentage oil production growth over that time.

oilgrowth1.png

Source: 2012 BP Statistical Review of World Energy.

The global percentage leader over the past five years was Colombia, which grew oil production from 559,000 barrels per day in 2006 to 930,000 bbl/day in 2011. This increase is even more impressive considering that armed conflict was taking place in the country throughout the period, with guerrilla fighters regularly attacking oil fields, taking hostages, and demanding payment from oil companies operating in Columbia.

Pacific Rubiales Energy (TSX:PRE) is the fastest-growing private oil company in Colombia, and one of the major drivers behind the gains in Colombian oil production. It’s an exploration and production company with expertise in heavy crude oil and natural gas that’s also active in Peru.

But as investors in Brazilian oil giant Petrobras (PBR) have learned, investing in South American oil companies can be risky. PRE shares have suffered a similar fate as those of PBR over the past year, falling 26 percent over the past 12 months. PBR shares fell 32 percent over the same time period; by contrast shares of Chevron (CVX) increased by 19 percent.

Many of the entries in the table above wouldn’t come as a surprise to most readers, but few would have likely guessed at Colombia’s position on the list. Further, countries like Peru, Thailand, and India don’t readily come to mind as oil producers, but all three made strong percentage gains from modest totals during the period. Investors wishing exposure to Peru and Thailand’s oil industry will find limited offerings, but India has a number of publicly traded oil companies.

It may also be surprising to see that major oil producers like Saudi Arabia, Russia, and Canada did not make the list. Each of these countries did increase oil production over that time period, just not enough to make the top 15. In terms of volume, the US led all producers with a 1 million bpd increase in production from 2006 to 2011. Iraq ranked second with a production increase of 800,000 bpd.

Countries showing major percentage declines between 2006 and 2011 include Libya (-74 percent ), Denmark (-34 percent ), the UK (-33 percent ), and Norway (-27 percent ). Of those countries, Libya’s production should eventually see a strong rebound.

Within the US, most people could guess that North Dakota would be near the top of the list. Indeed, the table below shows that state with a whopping 435 percent increase in oil production in 2007-2012. (The five-year period ends in 2011 for international production data because 2012 data are not yet available.) But the largest volume gainer was Texas, which saw production rise by 900,000 bpd to reach just under 2 million bpd on the back of strong growth in the Eagle Ford shale and Permian Basin.

Twenty-eight of the 50 US states showed some oil production during the five-year period, with big percentage gains coming from a number of non-traditional oil producers like Alabama and Michigan. Pennsylvania was once a major oil-producing state, and production there is once more on the rise, primarily as a byproduct of the natural gas fracking boom that is taking place in the state.

Surprisingly, since part of the Bakken Shale lies underneath the state, Montana was one of the biggest losers during the period with a 25 percent decline in oil production. I expect that as the Bakken continues to be developed, Montana will reverse course and see some gains in oil production over the next five years.

Oil Production Increases in US States from 2007 to 2012oilgrowth2.png

Source: Energy Information Administration

While these tables identify areas that are seeing strong growth in oil production, keep in mind that money can be lost even as production is growing. I’ve previously pointed out that US ethanol production has grown exponentially over the past eight years, yet many ethanol companies operate on the edge of bankruptcy.

Likewise, once again Petrobras has shown that oil production within a country can show strong growth (Brazil was 9th on the international growth list) and yet the major oil company operating within a country can flounder. So these tables can be useful guidelines to indicate where action is happening, but investors must still be selective with the companies they choose.

[/i] [i]Courtesy Robert Rapier atInvesting Daily - profitable advise for smart people (EconMatters author archive here)

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