Investing in energy : a primer on the economics of the energy industry

237 Pages·2011·3.29 MB·English

by  Bern

P1:OTA/XYZ P2:ABC
JWBT502-fm JWBT502-Bern May5,2011 7:14 PrinterName:ToCome
i
P1:OTA/XYZ P2:ABC
JWBT502-fm JWBT502-Bern May5,2011 7:14 PrinterName:ToCome
INVESTING IN
ENERGY
i
P1:OTA/XYZ P2:ABC
JWBT502-fm JWBT502-Bern May5,2011 7:14 PrinterName:ToCome
Since1996,BloombergPresshaspublishedbooksforfinancialprofessionals
oninvesting,economics,andpolicyaffectinginvestors.Titlesarewrittenby
leadingpractitionersandauthorities,andhavebeentranslatedintomorethan
20languages.
TheBloombergFinancialSeriesprovidesbothcorereferenceknowledge
and actionable information for financial professionals. The books are writ-
ten by experts familiar with the work flows, challenges, and demands of
investmentprofessionalswhotradethemarkets,managemoney,andanalyze
investmentsintheircapacityofgrowingandprotectingwealth,hedgingrisk,
andgeneratingrevenue.
Foralistofavailabletitles,pleasevisitourwebsiteatwww.wiley.com/go/
bloombergpress.
ii
P1:OTA/XYZ P2:ABC
JWBT502-fm JWBT502-Bern May5,2011 7:14 PrinterName:ToCome
INVESTING IN
ENERGY
A Primer on the Economics of
the Energy Industry
Gianna Bern
iii
P1:OTA/XYZ P2:ABC
JWBT502-fm JWBT502-Bern May5,2011 7:14 PrinterName:ToCome
Copyright©2011byGiannaBern.Allrightsreserved.
PublishedbyJohnWiley&Sons,Inc.,Hoboken,NewJersey.
PublishedsimultaneouslyinCanada.
Nopartofthispublicationmaybereproduced,storedinaretrievalsystem,ortransmittedinanyformor
byanymeans,electronic,mechanical,photocopying,recording,scanning,orotherwise,exceptas
permittedunderSection107or108ofthe1976UnitedStatesCopyrightAct,withouteithertheprior
writtenpermissionofthePublisher,orauthorizationthroughpaymentoftheappropriateper-copyfeeto
theCopyrightClearanceCenter,Inc.,222RosewoodDrive,Danvers,MA01923,[phone],
fax [phone], or on the Web at www.copyright.com. Requests to the Publisher for permission
shouldbeaddressedtothePermissionsDepartment,JohnWiley&Sons,Inc.,111RiverStreet,
Hoboken,NJ07030,[phone],fax[phone],oronlineat
http://www.wiley.com/go/permissions.
LimitofLiability/DisclaimerofWarranty:Whilethepublisherandauthorhaveusedtheirbesteffortsin
preparingthisbook,theymakenorepresentationsorwarrantieswithrespecttotheaccuracyor
completenessofthecontentsofthisbookandspecificallydisclaimanyimpliedwarrantiesof
merchantabilityorfitnessforaparticularpurpose.Nowarrantymaybecreatedorextendedbysales
representativesorwrittensalesmaterials.Theadviceandstrategiescontainedhereinmaynotbesuitable
foryoursituation.Youshouldconsultwithaprofessionalwhereappropriate.Neitherthepublishernor
authorshallbeliableforanylossofprofitoranyothercommercialdamages,includingbutnotlimitedto
special,incidental,consequential,orotherdamages.
Forgeneralinformationonourotherproductsandservicesorfortechnicalsupport,please
contactourCustomerCareDepartmentwithintheUnitedStatesat(800)762-2974,outsidethe
UnitedStatesat(317)572-3993,orfax(317)572-4002.
Wileyalsopublishesitsbooksinavarietyofelectronicformats.Somecontentthatappearsinprintmay
notbeavailableinelectronicbooks.FormoreinformationaboutWileyproducts,visitourwebsiteat
www.wiley.com.
LibraryofCongressCataloging-in-PublicationData:
Bern,Gianna.
Investinginenergy:aprimerontheeconomicsoftheenergyindustry/GiannaBern.
p. cm.–(Bloombergfinancialseries)
Includesindex.
ISBN978-1-57660-375-8(hardback);ISBN978-0-47087-878-1(ebk);
978-1-118-12838-1(ebk);978-1-118-12839-8(ebk)
1.Energyindustries–Finance. 2.Investments. I.Title.
HD9502.A2B4752011
333.79–dc22 2011006383
PrintedintheUnitedStatesofAmerica
10 9 8 7 6 5 4 3 2 1
iv
P1:OTA/XYZ P2:ABC
JWBT502-fm JWBT502-Bern May5,2011 7:14 PrinterName:ToCome
Thisbookisdedicatedtomyincrediblefamilywhose
encouragementeradicatedanydoubtthatthisprojectwas
achievable:mytreasuredparents,mysister,brother,andtheir
spouses,andmyhusbandandchildren,whohavelovingly
nurturedandsustainedtheheartandsoulofthisbudding
author.Thankyouallforyoursupport,patience,
andunderstanding.
v
P1:OTA/XYZ P2:ABC
JWBT502-fm JWBT502-Bern May5,2011 7:14 PrinterName:ToCome
vi
P1:OTA/XYZ P2:ABC
JWBT502-fm JWBT502-Bern May5,2011 7:14 PrinterName:ToCome
Contents
Preface xiii
Acknowledgments xv
PARTI:INTRODUCTIONANDFINANCIAL
CONSIDERATIONS
CHAPTER1
HistoricalPerspectives 3
OilandGasProducers 4
ProductionPerspectives 5
ImportanceofReserves 6
RegulatoryEnvironment 7
AlternativeEnergyForms 8
AlternativeEnergyGrowth 8
EnergyInvestmentCostConsiderations 12
ConcludingThoughts 12
CHAPTER2
InvestmentOpportunitiesinEnergy 15
AsiaComesofAge 15
Australia’sNaturalGasBoom 16
BrazilBeckonswithDeepwater 17
Iraq’sRoadtoRecovery 20
NorthAmericanUnconventionalNaturalGasPlays 23
SolarPowerGeneration 24
ConcludingThoughts 24
CHAPTER3
CashFlowandLiquidityatVariousCrudePrices 27
IndependentOilCompanies 27
NationalOilCompanies 28
vii
P1:OTA/XYZ P2:ABC
JWBT502-fm JWBT502-Bern May5,2011 7:14 PrinterName:ToCome
viii Contents
CapitalExpenditurePlanning 29
Liquidity—CashIsStillKing 31
LiquidityMetrics 32
Cash-FlowConsiderations 32
Cash-FlowMetrics 33
Leverage 33
ConcludingThoughts 34
CHAPTER4
CapitalStructureandCapitalMarkets 37
CapitalStructure 37
Investors 39
AlternativeEnergySubsidies 42
ConcludingThoughts 43
CHAPTER5
TheQuarterlyEarningsDisconnect 45
ShortTermversusLongTerm 45
BusinessRisks 49
ConcludingThoughts 50
PARTII:CRUDEOILANDNATURALGAS
CHAPTER6
AnalyzingReserves 53
AuthoritiesonReserves 53
ProvenReserves 54
IndustryNomenclature 54
ProvenReserveCriterion 55
UnprovenReserves 57
CertificationProcess 58
MoreonReserveAuthorities 59
MeasuringReserves 61
ConcludingThoughts 63
CHAPTER7
CrudeOilMarketsandProduction 65
TheCrudeOilMarkets 65
BenchmarkCrudes 65
InventoryLevels 67
CrudeOilQuality 67
CrudeOilMarkets 68
ConcludingThoughts 74