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Sunday, July 31, 2011

Zodiac Exploration - back down to $.64

From Macquarie:


Stock: ZEX CN

Name: Zodiac Exploration Inc.

26 Jul 2011 price: C$0.60

Market Cap (m): C$216m



Current valuation (1x RENAV): C$1.50



12-month target: C$1.50



12-month TSR: 150%



Recommendation: Outperform



Volatility Index: High



Event



• Based on further technical analysis from its 4-9 vertical well, Zodiac Exploration has upgraded the Kreyenhagen shale formation to a primary target for the company.



• Note that the company previously reported that the 4-9 well vertical well tested 24bbl/day of 29°API oil over a nine-day period following a 24 ton fracture stimulation over a 30 ft siltstone interval within the Kreyenhagen formation. Based on pressure tests, the company has determined this interval had significant skin damage (+13), which likely inhibited optimal flow rates. Interestingly, this well could have demonstrated flow rates of up to 120bbl/d, assuming a pressure drawdown of 60% and removal of the formation damage from +13 to 0.



• Separately, the 1-10 horizontal well reached a total drilling depth of 13,515ft and the company is now preparing to set the intermediate casing string. The 1-10 well reached this depth within 36 days from spud versus 57 days to a similar depth in the 4-9 well. A large independent oil and gas producer has elected to participate in the drilling of the 1-10 well, while holding a 20% working interest.



• The results of the Lower Vaqueros completion in the 4-9 well are currently being analyzed, while testing operations in the Whepley formation are slated to begin during the first week of August.



Impact



• Kreyenhagen – positive. The vertical flow potential from an undamaged Kreyenhagen formation represents another positive data point for Zodiac, showcasing the potential of this expansive and thick (800-1,000ft) tight oil resource. Preliminary reservoir characteristics for the siltstone interval of the Kreyenhagen also appear very favourable. Specifically, the reservoir is highly overpressured (2.0x), with log porosities and permeability estimated between 10-13% and 0.4-3.0mD, respectively.



• Look for results in the Whepley/Vaqueros. We believe the next set of catalysts for Zodiac will be the test results from the Vaqueros and Whepley formations in the 4-9 well. Longerterm, we anticipate the 1-10 horizontal will serve as the key focal point for the company during 2H11.



Action and recommendation



• With an unrisked NAV of C$3.40/share (C$1.56/share risked), we maintain our view that Zodiac offers very compelling exploration upside at these levels. Thus, we reiterate our Outperform rating and C$1.50 target.

Friday, July 29, 2011

Corporate Cash Hoard in the Trillions

http://www.theglobeandmail.com/globe-investor/investment-ideas/streetwise/corporate-cash-hoard-in-the-trillions-moodys/article2111286/

Pabrai/Berkowtiz Common Holding

http://seekingalpha.com/article/283128-shared-ideas-from-concentrated-value-investors-goldman-sachs

What I'm Reading and Writing

Investment case for Lexmark and Las Vegas Sands

http://www.gurufocus.com/news/139930/an-investment-case-for-lexmark--las-vegas-sands-from-grey-owl-capital-management

Q2 Commentary from Steve Romick FPA

http://www.gurufocus.com/news/139929/steve-romick-first-pacific-advisors--q2-commentary

John Templeton 16 Rules for Investment Success

http://www.gurufocus.com/news/139823/john-templetons-16-rules-for-investment-success-

Omaha World-Herald Recap of Recent Buffett Television Comments

http://www.gurufocus.com/news/139768/omaha-worldherald-article--recap-of-recent-warren-buffett-comments

Chesapeake Announces New Liquids Play Worth About $25 per share

F-me.  I remember vividly putting a buy order in on a Saturday night last summer for CHK at $21.  I was ready to plop 10% of my portfolio down on it.

I chickened out before Monday because I just couldn't get over Aubrey and his pay packages and margin calls.  Now up more than 50% from there and still likely worth 3X the current share price someday.

Big news on a Utica play:

http://seekingalpha.com/article/283043-chesapeake-energy-s-new-liquids-play-worth-as-much-as-entire-current-share-price

Thursday, July 28, 2011

Talisman Charges Into Duvernay Shale

http://www.reuters.com/article/2011/07/28/talisman-duvernay-idUSN1E76R1DD20110728?feedType=RSS&feedName=rbssEnergyNews&rpc=43

Looking forward to seeing where the 120,000 acres that Petrobakken has assembled on the down low are.  And if they have added to them.

2012 = Peak Oil Reality

Oil demand for second half of 2012 projected to be 92 million barrels a day.  Current global oil production roughly 88 million barrels per day.  How do we come up with another 4 million barrels per day ?

http://seekingalpha.com/article/282523-analyzing-the-global-oil-supply-2012-is-the-year-for-peak-oil

Wednesday, July 27, 2011

Housing Horror Show Worse Than You Think

http://www.businessweek.com/magazine/the-housing-horror-show-is-worse-than-you-think-07072011.html

"Simon also points to the affordability index, which measures the ability of a family with the median national income to buy a median-price home at current mortgage rates. The index is near an all-time high and double its level in 2006 at the peak of the bubble—meaning buyers should find many more homes within their budgets. “I would never have believed this index could get so high,” he says. A rise in affordability should have spurred purchases, boosting prices and keeping a lid on the index. “What this instead means to me is that the credit is not available to most people,” he says. “Houses aren’t cheap if you can’t get the loan.” Simon worries that the problem will get worse in October, when Fannie Mae (FNMA), Freddie Mac (FMCC), and the Federal Housing Administration drop the maximum mortgage they will buy to $625,000 from $729,750 as a temporary increase expires. "

How is this for a plan ?  I hold my oil investments until Q4 2012.  At that time with $130 to $150 oil I should have done ok.  I sell them.  Now I'm loaded with cash in Canadian dollars each of which by then buys me say $1.30 American.  So I take my oil profits, amplified by the exchange rate difference and by me a bunch of extremely reasonably priced rent to value properties somewhere nice in the States.

Sounds pretty good.  Don't know if they would allow my pet Grizzly Bear in Arizona or Vegas though.

Primary Petroleum News

Reason for the day and a half halt to trading.  They have an LOI with someone who is going to farm in on their big Alberta Bakken acreage:

http://www.reuters.com/finance/stocks/PIE.V/key-developments

Muhlenkamp's Top Holdings and List of Worries

http://seekingalpha.com/article/282088-assessing-muhlenkamp-fund-s-top-10-holdings

His positions are all so boring...........no wonder he consistently does pretty well

Why I Won't Invest in Apple

http://seekingalpha.com/article/282123-an-investment-in-apple-is-too-risky-for-me

I do not question the incredible success of this company or the quality of its products.  What frightens me is the sheer scale of cash flow and sales that they must maintain and grow from.  The valuation is reasonable, but how long is it reasonable to think that one company can keep going at this kind of $$ value of sales ?

Berkowitz Provides Some Detail On His BAC Thinking

http://www.gurufocus.com/news/139711/bruce-berkowitz-details-his-thesis-on-bac

Tuesday, July 26, 2011

Fairfax and Wilbur Ross team up to buy chunk of Bank of Ireland

http://www.irishtimes.com/newspaper/finance/2011/0726/1224301383971.html

Hathor Exploration Provides Update

I wrote about this one back in May and bought a smidge at $2.60 hoping to get a better price to build a position:

http://www.gurufocus.com/news/134720/hathor-exploration--how-long-until-it-is-acquired

I thought it might be worth at least $6.  Better price hasn't arrived and now at $3 with this news:

http://www.marketwatch.com/story/hathor-intersects-52-m-at-240-u3o8-including-95-m-at-561-u3o8-and-confirms-potential-for-far-east-zone-as-roughrider-drilling-continues-2011-07-26-71500?reflink=MW_news_stmp

I've looked at and passed on taking real positions in several big winners in the past year (Sandridge at $4 comes to mind, as does universal power which was a multi-bagger).  A bit painful, but trying to only invest when I'm fully confident.  I suppose I had some pretty good success with Ensco, Stone, Cobalt, Diamond Offshore bought last summer as well though.

Come on Petrobank/Petrobakken.  Let's get going.  Fresh start after a wet Q2 and Kerrobert news on the way.

Articles of Interest

Jim Rogers video - watch Jim be patient with the young lady who doesn't feel what Jimmy is sayin'

http://www.gurufocus.com/news/139690/jim-rogers--the-united-states-lost-its-aaa-rating-long-ago-who-cares-what-moodys-says

Andy Beal running what amounts to an FDIC insured hedge fund - ATP shareholders might be interested as this is the guy who provided the Titan financing

http://www.gurufocus.com/news/139687/andy-beal-and-his-fdic-insured-hedge-fund

Muhlenkamp Quarterly letter - I wonder if his beard itches ?

http://www.gurufocus.com/news/139679/muhlenkamp--company-quarterly-investor-letter

Sprott Inc Looking to Grow Internationally

http://m.theglobeandmail.com/report-on-business/managing/corporate-strategy/sprott-ceo-international-foray-will-drive-expansion/article2104238/?service=mobile

I've had this on my mind of late:

"As for the other funds, he expects much better performances in the second half of 2011 because physical gold prices are skyrocketing but corresponding equities have yet to catch up. "

Mr. Market doesn't seem to buy into the idea that gold producers will enjoy current gold prices for very long.

Interview With Eric Nuttal

http://seekingalpha.com/article/277710-eric-nuttall-looking-for-oil-and-gas-values-not-value-traps

Westfire is my second largest holding. 

Soros Hanging Em Up

Icahn, Druckenmiller and now Soros to quit managing external money:

http://www.washingtonpost.com/blogs/blogpost/post/george-soros-retiring-as-hedge-fund-manager/2011/07/26/gIQACS7UaI_blog.html

Interview With ATP CEO

http://www.ogfj.com/index/article-display/8661830819/articles/oil-gas-financial-journal/volume-8/issue-7/on-the-cover/deepwater-gom-operator-atp-will-explore.html

Sunday, July 24, 2011

Junior oil explorers searching for billion barrel fields

http://www.gulfkeystone.com/uploads/investorschronicle-22july2011.pdf

Jeremy Grantham Q2 2011 - Resource Limitations 2

“You and I, and our government must avoid the impulse to live only for today, plundering, for our own ease and convenience, the precious resources of tomorrow.” Dwight D. Eisenhower, 1961



“[They] would have us believe that there is no cause for anxiety, that reserves [of oil] will last thousands of years, and that before they run out science will have produced miracles. Our past history and security have given us the sentimental belief that the things we fear will never really happen – that everything turns out right in the end. But prudent men will reject these tranquilizers and prefer to face the facts so that they can plan intelligently…” Admiral Hyman Rickover, 1957

“The nation that destroys its soil destroys itself.” Franklin Delano Roosevelt, 1937

Introduction

Last quarter I tried to make the case that the inevitable mismatch between finite resources and exponential population growth had finally shown its true face after many false alarms. This was made manifest through a remarkably bubble-like explosion of prices for raw materials. Importantly, prices surged twice in four years, which is a most unbubble-like event in our history book. The data suggested to us that rarest of rare birds; a new paradigm. And a very uncomfortable one at that. (In general, though, I have tried here not to repeat arguments or data used last quarter.)

This quarter, I would like to focus on the most dangerous parts of the coming shortages. I will try to separate those that, for us rich countries, are merely going to slow down the growth rate of our wealth through rising prices, and those that will do not only that, but will actually be a threat to the long-term viability of our species when we reach a population level of 10 billion. In all cases, poorer countries will be the most threatened. Situations that will irritate some of us with higher prices will cause others to starve. Situations that will cause some of us to go hungry will be for others a real disaster, and I believe this, unfortunately, will not be in the dim and distant future.

Obviously, experts have written books on subtopics that I reduce to one sentence. I might add that these books and a myriad of articles by these experts – who have decades of experience – absolutely do not agree with each other. In fact, they differ probably as widely as any scientific topic around, often by a literal order of magnitude and often with heat. Unlike many scientific differences, some of those concerning our resources in the long run may actually be a matter of life and death. I have tried to start from a weighted-average position and then have allowed for a safety margin tilted in favor of protecting our long-term well-being. By definition, plenty of experts will disagree with each statement made here. My hope is that “our” experts are those that are more rigorous, intelligent, and protective.

Capitalism does not address these very long-term issues easily or well. It seems to me that capitalism’s effectiveness moves along the spectrum of time horizons, brilliant at the short end but lost, irrelevant, and even plain dangerous at the very long end.

Summary


 We humans have the brains and the means to reach real planetary sustainability. The problem is with us and our focus on short-term growth and profits, which is likely to cause suffering on a vast scale. With foresight and thoughtful planning, this suffering is completely avoidable.

 Although we will have energy problems with peak oil, this is probably an area where human ingenuity will indeed eventually triumph and in 50 years we will have muddled through well enough, despite price problems along the way.

 Shortages of metals and fresh water will each cause severe problems, but in the end we will adjust our behavior enough to be merely irritated rather than threatened, although in the case of metals, the pressure from shortages and higher prices will slowly increase forever.

 Running out completely of potassium (potash) and phosphorus (phosphates) and eroding our soils are the real long-term problems we face. Their total or nearly total depletion would make it impossible to feed the 10 billion people expected 50 years from now.

 Potassium and phosphorus are necessary for all life; they cannot be manufactured and cannot be substituted for. We depend on finite mined resources that are very unevenly scattered around the world.

 Globally, soil is eroding at a rate that is several times that of the natural replacement rate. It is probable, although not certain, that the U.S. is still losing ground. The world as a whole certainly is.

 The one piece of unequivocal good news can be found in the growth of no-till farming. In no-till, the residue of the previous crop is left on the ground and new seeds are planted without plowing. This technique reduces erosion by around 80%, reduces fertilizer run-off, preserves moisture, improves the soil (and, quite possibly, the quality of the food), and reduces the emissions of heat trapping gasses.

 The growth of no-till has been very rapid in South America, rapid in the U.S. (which is now at 35%), and moderate in many other developed countries. But it is used on only about 5% of farms globally.

 Overall, the best farms will have no erosion problems but, on average, soil will continue to be lost across the globe. Together with increased weather extremes and higher input prices (perhaps much higher), there will be increasing problems in feeding the world’s growing population.

 In particular, a significant number of poor countries found mostly in Africa and Asia will almost certainly suffer from increasing malnutrition and starvation. The possibility of foreign assistance on the scale required seems remote.

 The many stresses on agriculture will be exacerbated at least slightly by increasing temperatures, and severely by increased weather instability, especially more frequent and severe droughts and floods.

 These types of slow-burning problems that creep up on us over decades and are surrounded by a lack of scientific precision hit both our capitalist system and our human nature where it hurts.

 Capitalism, despite its magnificent virtues in the short term – above all, its ability to adjust to changing conditions – has several weaknesses that affect this issue.

o It cannot deal with the tragedy of the commons, e.g., overfishing, collective soil erosion, and air contamination.

o The finiteness of natural resources is simply ignored, and pricing is based entirely on short-term supply and demand.

o More generally, because of the use of very high discount rates, modern capitalism attributes no material cost to damage that occurs far into the future. Our grandchildren and the problems they will face because of a warming planet with increasing weather instability and, particularly, with resource shortages, have, to the standard capitalist approach, no material present value.



Perspective



With hindsight, there are a few additions and qualifications I would like to make regarding my letter on resources of last quarter. I will start with an overview of the prospects for our collective well-being: there is nothing about the resource limitation problem that we cannot resolve. We have the brain power and, especially, the inventiveness.



We have some nearly infinite resources: the sun’s energy and the water in the oceans. We have some critically finite resources, but they can be rationed and stretched by sensible, far-sighted behavior to fill the gap between today, when we live far beyond a sustainable level, and, say, 200 years from now, when we may have achieved true long-term sustainability. Such sustainability would require improved energy and agricultural technologies and, probably, a substantially reduced population. With intelligent planning, all of this could be reasonably expected.



A population reduction could be arrived at by a slow and voluntary decline (perhaps with some encouragement of smaller family size achieved, for example, through greater education). Such a reduction might leave us with a world population of anywhere from 1.5 billion to 5 billion, depending on the subtleties and interactions of many complicated variables. We would then be in long-term balance with our resources, including what will remain by then of our current biodiversity, which will hopefully be as much as one-half to three-quarters of what we have today.



The problem is not what we are capable of, but how we will actually behave. The wasteful status quo has powerful allies in the present corporate and political system. We do not easily accept bad news, nor do we easily deal with long horizon problems. As mentioned last quarter, we are not particularly good with numbers, especially when it comes to probabilities, compound growth, and discount rates. We have a capitalist system that reflects our weaknesses; one that is fine-tuned only for the present and immediate future. Because of these factors, we will probably wait to deal with the obvious problems of living well beyond our means until the signs are powerful and clear that we must change; until, that is, it is basically too late. Too late in the sense of failing to protect much of what we enjoy and value today. Too late to have avoided plundering our grandchildren’s resources.



It’s a shame, but it’s the bet a well-informed gambler, observing from another planet, would probably make. It’s why, in the environmental business, which shares many of the same problems with resource management, it can be honestly said that there are old environmentalists and optimistic environmentalists, but no old, optimistic environmentalists. I’m probably as close as you’re going to get. The following argument looks at the resource problems we face in order of declining optimism.



I think what follows is reasonable rather than apocalyptic. And, there is one remarkable piece of good news – the steady rise of no-till farming. In this, the developed world at least seems to have truly lucked out! However, with the pressures of short-term profit maximizing, there is some chance that we will not capitalize on our good luck.



A Possible Hierarchy of Problems

1. Energy



The transition from oil will give us serious and sustained problems. We passed peak oil per capita long ago and we are within 30 years, possibly within 10, of peak oil itself. The price will be volatile beyond our wildest dreams (or nightmares), and the price trend will rise, although at times this will be difficult to discern through the volatility.



Transportation will be difficult in general and air transportation in particular. But behind oil, there is a relative plenty of natural gas and coal, which can, although with cost and difficulty, be substituted for oil.



Even with coal and gas, however, we are dealing with only many decades of supply, not centuries. But beyond hydrocarbons there really is good news. Within 50 years or so, I believe we will have made spectacular progress in the science and engineering of solar, wind, tidal, and other energy sources, together with storage. One simple storage management idea for the nearer term, for example, is that every electric car would have two easily-exchangeable battery packs, with one in the garage, storing solar from your roof while you drive to work.



Whenever possible, all such batteries would be attached to an intelligent grid that would be able to raid batteries or deposit into them, giving massive flexibility by today’s standards. It is also possible (although, unfortunately, I believe improbable) that we will have a new, large-scale burst of activity in nuclear fission, perhaps stimulated by some technological improvements.



Further out, completely new forms of commercial energy are likely, perhaps from nuclear fusion of some kind, or perhaps from something completely off of our current radar screen. This is where my optimism comes in, for I believe that in 50 or so years



– after many and severe economic and, possibly, social problems – we will emerge with sufficient, reasonably-priced energy for everyone to live a decent life (if we assume other non-energy problems away for a moment) even if we don’t radically improve our behavior and make true sustainability our number one goal. In other words, current capitalist responses to higher prices should get the job done. We should realize, though, that reasonably-priced does not mean the nearly give-away prices of oil in the post war period, which serves as a real testimonial to the failure of standard free-market practices to recognize that a vital resource being finite changes everything in the long run.



“Reasonably-priced” fuel would be where prices rise steadily faster than the CPI rather than ruinously so.



2. Metals



Metals are, of course, a bigger long-term problem than energy. They are entropy at work ... from wonderful metal ores to scattered waste. Even the best recycling will have slippage. Entropy is impressive; everything really does run downhill, iron really does rust. So our future will undoubtedly be increasingly constrained, particularly if our population and its wealth both grow steadily. Eventually, the growth of both population and wealth will be limited and possibly even stopped by a lack of metals, but that should, with luck, be a long time away.



If we respond to increasing price pressures, as I’m sure we will, with a greater emphasis on quality and small scale along with an increasingly sensible and non-wasteful lifestyle, then we can push these serious constraints out for well over a hundred years. This is assuming, once again, no radical shift in attitudes and behavior other than those elicited by higher prices.



3. Agriculture



The trouble really begins with agriculture. This is the factor that I believe almost guarantees that we end up with a world population between 1.5 and 5 billion. The only question for me is whether we get there in a genteel, planned manner with mild, phased-in restraints, or whether we run head down and at considerable speed into a brick wall.



There are three particular aspects of agriculture where the shoe pinches the most: water, fertilizer, and soil. All three must be seen in the context of a rapidly growing population. To set the scene, Exhibit 1 shows arable land per person.



Unlike us, suitable land for agriculture has not increased since farming started some 10,000 years ago. In fact, with our help it has declined considerably, perhaps by as much as half or more!



A. Water



There is no doubt that water shortages will be a source of economic and social trouble forever. Countries will rattle sabers or, worse, go to war over access to river waters. That is certain. But viewed as a problem for the U.S. or for the planet as a whole, it does not seem to be a game stopper. The surface of our planet is, after all, mostly water. For our direct use and for our crops, we need a derisorily small fraction of Earth’s supply of water.



The entire planet’s current wasteful use of fresh water is equal to only 80% of the flow of the Amazon.



We also use our existing supplies of renewable fresh water with desperate inefficiency and wastefulness. As prices rise, we can save not just a few percent but a great majority of our water by growing the right things in the right places and by sensibly sharing and recycling the resource. Further out, with likely sources of reasonably cheap energy, we could supplement our supply with desalinated ocean water for coastal populations. Other than shifting crops, the main effect on agriculture will be a steady increase in the cost of water as we move slowly to recognizing the real costs of supplying water to farming.



However, come back in 50 or 100 years and we will, I believe, have been persistently irritated by water problems but never seriously threatened as a species.



For farming productivity, one of the greatest irritants for the next 50 years will be the depletion of fossil water: the great underground lakes of fresh water that receive little or no replenishment by rainfall. By bad luck, such vast deposits underlie and make possible some of the planet’s great bread baskets, including parts of the U.S. plains, parts of the Northwest of the Indian subcontinent, and parts of Northeastern China. If these very large areas are to stay in production, and they will certainly be needed, then major water transfer systems – canals of 500 to 2,000 miles in length – will have to be developed and the water taken from elsewhere. But even this, although it spells investment and environmental troubles in a big way, sounds ultimately doable, at a price. (The nastiest near-term problem of this kind will be in Yemen, where there is almost total dependence on underground fossil water, which is beginning to run out as I write!)



B. Fertilizers



Fertilizers are, I believe, less tractable. The three major macro nutrient fertilizers are the well-known N-P-K of lawn fertilizer: nitrogen, phosphorus, and potassium. Nitrogen, the most urgently needed of the three every year, is found in the greatest quantity so is happily the least problematical. Many crops, such as soya and alfalfa, supply or “fix” nitrogen for our main cereal production. Bioengineering is likely to increase this ability as well as broaden the range of plants that are able to do this. Electrical storms provide large quantities of nitrogen fertilizer out of the very air itself. (This provides about 5% of all nitrogen fixation, while modern agriculture accounts for about 50%).



More dependable man-made, or rather man-processed, nitrogen fertilizer is very efficiently made with natural gas, which is being found, fortunately, in increased quantities in many different regions of the world. Several of these regions – notably the U.S. and China – are major grain producers. Therefore, if we don’t go out of our way to waste our natural gas on less important products, we should be fine at least through this century. Nitrogen is the largest component of air and just needs energy to be converted into fertilizer. So, longer-term availability of nitrogen-based fertilizer is, as with water, about cost, not availability. But, starting with today’s almost ridiculously low prices for natural gas (20% BTU equivalency of oil – just about the lowest in history), farmers should count on seeing increasing multiples of the price for nitrogen fertilizer in the next 10 to 15 years.



Potassium (potash)



Potassium is in a less favorable situation. Today’s known resources are shown in Exhibit 2. Although it is found widely, very large and high grade (i.e., cheap) deposits are concentrated to quite a remarkable degree in two areas: one in Russia and Belarus and the other, happily for North America if we all stay friendly, in Canada. Unless there is considerable cartel-like behavior, which is certainly not unheard of these days with some commodities, then we have plenty of time to study the very long-term shortage problem. Luckily for us, potassium is a generously supplied element in the Earth’s crust.



Nevertheless, it is worth pointing out that both potassium and phosphorus (phosphates) have some characteristics that we are not accustomed to dealing with in our neat and short-term-oriented investment world. They are characteristics that make energy problems seem trivial because energy can be extracted in so many different ways.



 Potassium and phosphorus cannot be made. They are basic elements.



 No substitutes will do. Both potassium and phosphorus are required for all living matter, animal and vegetable. Most notably, us. We humans are, for example, approximately 1% phosphorus by body weight.



 Modern high-production, single-crop agriculture today is very dependent on fi nite mined resources, which, if used wastefully, could easily cause a severe problem within 50 years and, if used sensibility and sparsely, could last for perhaps 200 years. And then what? You must recycle and farm super intelligently, as if your life depended on it. And it will.



Phosphorus (phosphates)



The reserve situation for phosphorus is shown in Exhibit 3. Admittedly, there are big arguments over reserves of both potash and phosphates because neither has been explored as comprehensively as have oil reserves. Here, too, we are quite lucky because the reserve life gives us time to plan sensibly for the rest of our lives (as a species, that is). But here again, the reserves are not evenly distributed and this time the skew is more, shall we say, interesting. It is thought that between 50% and 75% of the reserves are in Morocco and “associated” Western Sahara. Morocco’s share of phosphates makes Saudi Arabia’s share of oil look like small potatoes and, in the end, who values heating more than eating?



The existing high quality reserves shown in Exhibit 3 look, superficially, very satisfactory. There are reserves equal to 369 years of current production. Even allowing for 2% growth to help maintain productivity, these reserves would not run out for about 200 years. But, without Morocco and at 2% growth, reserves would be totally depleted in under 50 years. So with or without new reserves being located, some substantial gamesmanship should be expected within a few decades. Or, put it this way: if the phosphates were in my kingdom, I would try to make some hay.



Exhibit 2

World Potash Production and Reserves

Source: U.S. Geological Survey As of 12/31/10

2010

Production Reserves

United States 900 130,000

Belarus 5,000 750,000

Brazil 400 300,000

Canada 9,500 4,400,000

Chile 700 70,000

China 3,000 210,000

Germany 3,000 150,000

Israel 2,100 40,000

Jordan 1,200 40,000

Russia 6,800 3,300,000

Spain 400 20,000

Ukraine 12 25,000

United Kingdom 400 22,000

Other Countries - 50,000

World Total (rounded) 33,000 9,500,000

(thousands of metric tons)



The long-term phosphorus supply is probably the trickiest and most threatening issue to date. There may be a lot of lower-grade reserves that have not been listed or even looked for. (Why pay money to do that when there are decades’ worth of low-cost, very high-quality reserves?) But there may not be.



We are currently ferreting out as much of the limited data there is available. (Data on this and the many other conundrums raised in several of the topics discussed in this letter will be relayed from time to time as we can dig them out.) Serious scientific experts at this point are mostly “supposing” that, as is the case with many other resources, there are more, often much more, lower-quality reserves that are currently unrecorded than there are known high-quality reserves. But this is not always the case.



The U.K., for example, had a lot of high-quality anthracite and bituminous coal reserves, which propelled them into the Industrial Revolution, but today all of its anthracite is gone, most of its bituminous is gone, and there are no very large reserves of brown coal or lignite as there are, for example, in Germany.



Most, if not all, of the potash and phosphate deposits are associated with former oceans or salty seas, or that is believed by many to be the case. Well, if you wanted to be pessimistic, you could argue that you either have a dried up former ocean due to the ground rising over aeons, or you don’t. Perhaps you don’t have masses of smaller dried up bodies of water, which normally would be salt-free. In any case, we are all speculating at this point. Despite its potential importance, reliable data is just not available.



Let us imagine for a minute what might happen in 50 or 150 years when the last affordable phosphorus is delivered and Morocco is, quite sensibly, charging thousands of dollars a ton for the last one-third of its resources. We might be developing offshore recovery from the continental shelf at a little less than Morocco’s price, but still a gaspingly high price that would not be even remotely affordable by poorer countries. But mostly we would be recycling, a word with which our grandchildren will get awfully bored. It’s how crops were grown in the pre-commercial fertilizer age, at least wherever farmers could not engage in slash and burn and move on. Chinese farmers in particular successfully maintained the productivity of their fields for thousands of years by almost religiously recycling: off to the town market with two buckets of beans and back with two buckets of “night soil.” Human and animal waste, as well as

Exhibit 3



World Phosphorus Production and Reserves

Source: U.S. Geological Survey As of 12/31/10

2010

Production Reserves

United States 26,100 1,400,000

Algeria 2,000 2,200,000

Australia 2,800 82,000

Brazil 5,500 340,000

Canada 700 5,000

China 65,000 3,700,000

Egypt 5,000 100,000

Israel 3,000 180,000

Jordan 6,000 1,500,000

Morocco and Western Sahara 26,000 50,000,000

Russia 10,000 1,300,000

Senegal 650 180,000

South Africa 2,300 1,500,000

Syria 2,800 1,800,000

Togo 800 60,000

Tunisia 7,600 100,000

Other Countries 9,500 620,000

World 176,000 65,000,000

World excluding Morocco 150,000 15,000,000

(thousands of metric tons)



vegetable waste, was scrupulously reused. Countries that pushed their production or were not so careful in recycling depleted their soils. Eastern Europe in particular had recurrent crop failures and starvation as late as the 1880s. And, we could do it better now than the Chinese did in the old days, for science has marched on. We have learned to reduce nutrient loss considerably in the last 50 years. There is also much more that we could do, and we had better get moving: the last time the world depended mainly on recycling, the global population was a mere one billion. The next time it may be 10 billion – cross your fingers it’s not more.



Could a world based on recycling nutrients, even one supplemented by very high-priced remnants of our mined fertilizer resources, really feed 10 billion? Or even 5 billion? I think the answer is certainly no if we do not get our act together in the next very few decades. Even then, it is more likely that true sustainability will be a much lower number than 10 billion.



C. Soil Erosion



Finally, there is the real bugbear: soil erosion.



The Earth is a wonderful place that obligingly creates new soil from bedrock, using the wear and tear of weather plus bacterial and microbial action. Perhaps even more remarkably, this new soil arrives with a good complement of phosphorus and potassium. This is pretty good treatment from a very generous planet. Before humans appeared, the rains would dissolve and wash away the soil and its associated nutrients just as fast as it was produced, but no faster. That’s a pretty neat balancing trick too. We can record the steady, modest rate of erosion in ancient lake beds. Humans, alas, with their tree lust, initially for heat and shelter and later for arable space and fertilizer (burning the forest sheds its store of fertilizer and other nutrients), began to cut forests down so fast that the erosion rate increased. Nothing increases erosion and net nutrient loss faster than deforestation. (And, ironically, nothing encourages deforestation like erosion, because erosion decreases productivity and, hence, increases the pressure to bring on new land to fill the gap in a rather vicious feedback loop.) As our population grew, the forests were thus diminished in size, and the arable land increased. Even plowing savannahs, where trees had seldom or never grown, increased erosion by a large multiple.



Sometimes these factors would accumulate with predictable results. In Panama, for example, it is common to see very hilly land that was once totally forested being used for cattle grazing. The cattle create paths that form gullies that funnel the tropical rains, which in turn denude whole hillsides in a few decades.



What the precise situation is today is hard to tell: First, erosion varies widely from region to region by type of soil and agricultural practice. Second, its measurement must also be difficult, for scientists have widely different views as to the best methodology. At one extreme, the reports are almost terrifying. A group of scientists from Cornell University writing in Science magazine5 summarized their findings as follows: “Soil erosion is a major environmental threat to the sustainability and productive capacity of agriculture.



During the last 40 years, nearly one-third of the world's arable land has been lost by erosion and continues to be lost at a rate of more than 10 million hectares per year ... In the U.S. an estimated 40 billion tons of soil ... are lost each year.” Unfortunately, Cornell’s Agricultural School has high standing in its field – reading their summary, one’s instinct is to say, “Well that’s it then. In a hundred years, everyone starves.” Fortunately, there are also those at the other extreme who think we’ll muddle through just fine, at

least in the U.S. And, as we will see, the rise of no-till farming has the potential to help a lot.



The brief nitty-gritty on erosion and replacement is that somewhere between 50 and 1,000 years is needed to naturally replace one inch (25mm) of subsoil, depending on local conditions and who is doing the research. Different soil has different weights, but averages about 5 tons per acre per millimeter or 125 tons per acre per inch. Therefore, the natural replacement rate is equal to 2.5 to 0.125 tons per acre per year, rather than the 5 tons per acre per year that the U.S.D.A. has been using as an acceptable erosion rate. To state this very conservatively, current U.S. soil losses are very probably higher than natural replacement and possibly considerably higher. In Australia too, where records go back into the nineteenth century, it is also clear that more than 70% of arable land has been degraded to some considerable degree. For the planet as a whole, soil losses are certainly higher than replacement, and for some areas, notably in Africa, they are disastrously higher.



Further offsetting any of the more favorable data in the U.S. is a recent report from Iowa State University.6 The report, which claims new accuracy levels, holds that typical erosion is not the issue, but that the rare extreme storm can cause one to several years’ erosion in a single night as new gullies form in a way totally unlike those that form during regular rain storms. These outlier storms have unfortunately become much more common globally in recent years, with formerly rare weather events having become more frequent as a consequence of a warming climate.



History of Erosion



We now know that population density in the Fertile Crescent and some of the other centers of early civilization often dropped precipitously as their soils, due mainly to plowing, eroded. By the time they were finally disposed of by invaders, they were often shells of their former might with tiny fractions of their original populations left. North Africa was home to empires such as Carthage, which were powerful enough to challenge Rome and, in other cases, fertile enough to help feed Rome, which was the case of ancient Libya and Tunisia. Most of this territory has lost the great majority of its former agricultural capacity. Ancient Greece, Central Italy under the Romans, Syria, Iraq, and many others all suffered from the effects of subsoil erosion over a period of one thousand or more years, thus limiting their populations and reducing their economic and military power. In its later years, Rome, once at the center of fertile plains, abandoned farms everywhere and was totally dependent on imports from Egypt and Syria.



Syria’s history is one in which whole cities, with their dozens of surrounding villages, were later completely abandoned to the desert as their soil disappeared due to unsustainable agricultural practices. Fifteen hundred years ago in the Americas, civilizations such as the Mayans overtaxed their soils and provably lost enough soil to make it impossible to reliably feed their peak populations. (Two readable books for the summer that cover this topic in detail are: Dirt: The Erosion of Civilizations, by David R. Montgomery and Collapse: How Societies Choose to Fail or Succeed by Jared Diamond.)



The academic study previously cited,7 claims the loss of one-third of our soil globally in just a few

decades. It is easy to believe that since the beginning of human history it might be fully one-half, or even more.



The history of soil erosion bringing ancient empires down might have served as a powerful warning, but it does not seem to have done so. Since Colonial times, the U.S. is thought to have lost one-third to one-half of its topsoil, and today is still losing at a rate faster than replacement, although at a recently much-reduced rate. Yet, as recently as the 1920s, the 1930s of Dust Bowl fame, and the 1940s, U.S. farms were eroding at disastrous rates – well over 10 times replacement, despite the historical warnings.



Globally, the situation has been, and remains, much worse than in the U.S. It is not clear what it will take to drive home the message that erosion is perhaps the single largest threat to our long-term well-being. It is certainly one of them. But erosion is insidious in that it has always crept up very slowly on both ancient and modern civilizations alike. Syrian farmers in 100 A.D. were concerned with supplying Rome in a year when prices were high. We can be sure that slow (even if steady) losses of productivity seemed to them to be academic abstractions in contrast. Today, what we might call the tyranny of the discount rate guarantees the same behavior. Damage far out has little value, and there is no adjustment factor for damage to all of us collectively. Only the gain of the individual or the corporation appears in the spreadsheet. This is a severe, perhaps even fatal, fl aw in traditional free-market capitalism, and there

are others that relate to this general topic: capitalism has not easily handled the finiteness of our resources.



This topic – defi ciencies in capitalism – is a big one and I will try to do it justice next quarter. For now, to link the current topic of erosion with that of next quarter’s on capitalism, I offer a brief story of the Devil and the Farmer.



The Devil and the Farmer



The Devil, disguised as an innocent agent of a large agricultural company, arrives at a typical Midwestern farm. He has come to suggest to the farmer that he engage in more aggressive farming, and he comes, as usual, with a contract.



The contract, if signed, pledges the farmer to farm aggressively and pledges the Devil to guarantee that the farmer’s profits will be multiplied five-fold. But, as always, there is a catch: Footnote 23 is a clause that informs the farmer that squeezing out maximum short-term output will result in the loss of just 1% per year of his soil. The Devil’s deal is dangerously reasonable, and therefore I would guess that 90% of farmers would feel that their families’ well-being requires that they accept it.



The Devil has included a spreadsheet that accurately lays out the profits and also lays out the steady decline in the soil’s productivity and, fiendishly, does it honestly. By the end of the 40-year contract, the

farm’s productivity is down by barely 5%, and the farmer’s net financial gains are enormous.



So successful has this period been that the farmer re-ups for another 40 years. Once again, the Devil does not cheat. By the 80-year mark, the soil depth after some natural replacement is almost precisely half of its year 1 level (and, remember, it also lost one-third to one-half of its soil on average in the fi rst 150 years of farming), but the farm has prospered enormously. And, even after the soil loss, it is still by no means particularly sub-average because it turns out that all of the local farmers have made the same deal. All of their productivities have dropped by 20% to 25% but, because of global pressures on grain prices, the deal still looks attractive.



The spreadsheets, which have not lied in the past, still accurately and honestly show how profitable it will be for great-grandson and all of his neighbors to re-up yet again. In this way, by always adopting the plan with the optimal present value and by following strict capitalist principles, the Midwest and the planet marches off the edge of the cliff, as farmers, prosperous almost to the very end, are finally overwhelmed by armies of starving city dwellers!



Finally, the Good News



So as not to end too gloomily, I have saved the best news for the end; news so good that Cornucopians can jump for joy and gloomy Malthusians can think “What undeserved luck!” Most huge improvements in anything take equally huge investments of time, energy, and capital. This one, which reduces erosion rates from way over sustainability to acceptable levels, requires very little except a willingness to change one’s ways, a characteristic not always in great supply in any group, including farmers. No-till farming, developed in recent decades has, after a slow start, been spreading very rapidly in South America. It is now used in more than 50% of all arable land there, which, given the heavy rains in much of the area, is just as well. In the U.S., the adoption of no-till has very recently accelerated and it now accounts for more than 35% of farmland according to the U.S.D.A.



In general, it is growing elsewhere, albeit slowly, and hardly at all in Africa. The bad news is that globally, despite its advantages, it makes up only a 5% share of grain production. Just as it sounds, no-till leaves the crop residue on the field and the following year, instead of plowing up the ground, a rotating wheel pierces the ground every few inches and plants a seed, sometimes together with a precisely measured dose of fertilizer. After a few years, the mat of ground cover massively reduces the erosion

caused by heavy rains: the average academic study reports more than an 80% reduction, with the highest being 98% and the lowest 50%. In one fell swoop, the erosion problem can be effectively resolved.



Protecting the soil may be the biggest single advantage of no-till, but there are several other important ones. When soil is washed or blown away, it is the very top soil that goes, and this is the soil that carries much of the nutrients that have been added at no small cost. About one-third of the fertilizer is wasted. This was an irritant when potash was $175 a ton five years ago. At the more recent price of $420 a ton, it is a serious saving – enough to get farmers’ attention. With no-till, there are incremental nutrients in the accumulated stubble, which further reduces costs and, more importantly, reduces the load on critical limited fertilizer resources.



Water retention in the soil also greatly increases because the effects from full-scale plowing, which exposes the moist soil to the sun, are mitigated by no-till. When rain is plentiful and evenly spaced, there is little difference between the two systems in this respect, but when rains are scarce or there is full-scale drought, the extra moisture protected by the ground cover can make a big difference to productivity. So life is easier for the soil, whether it is a flood or a drought; a particularly compelling case in these days of increased weather instability.



Finally, the quality of the relatively undisturbed soil improves as the number of microbes, bacteria, fungi, and other living critters steadily multiplies. This in turn arguably increases the carbon density of the soil and definitely further increases the water retention capacity and the amount of micronutrients, which, under full plowing, basically fall to zero. It is widely believed that micronutrients make food healthier and that their chronic absence in modern food has not been healthy for us, molded as we are by tens of thousands of years of eating more complicated foods.





All in all, no-till is like a gift from Ceres and single-handedly would remove or long postpone most of our long term productivity problems. With no-till, productivity typically drops slightly in the fi rst few years, but then slowly increases. Conversely, with high-erosion plowing, it slowly decreases, with potentially severe consequences over very long periods. Another disadvantage of no-till is that it requires more insecticide, especially in the first few years, which has environmental and financial costs.



Researchers, though, increasingly believe that most of this increase can be removed by fine-tuning crop rotation, cover crops, and other “engineering” tricks. The bottom line seems to be that if we adopted no-till globally for a great majority of our grain crops, the only serious threat to agricultural productivity

would be from the very long-term shortage of mined fertilizers, with even that threat much postponed.



Additional efforts with soil enhancement and full-scale organic farming could further improve fertility and lower the need for “outside” fertilizer, but that is a topic too complicated and controversial to be covered here.



Conclusion



None of this changes the ultimate equation that we have a finite carrying capacity. As the population continues to grow, we will be stressed by recurrent shortages of hydrocarbons, metals, water, and, especially, fertilizer. Our global agriculture, though, will clearly bear the greatest stresses. It may have the responsibility for feeding an extra two to three billion mouths, an increase of 30% to 40% in just 40 years.



The availability of the highest quality land will almost certainly continue to shrink slowly, and the quality of typical arable soil will continue to slowly decline globally due to erosion despite increased efforts to prevent it. This puts a huge burden on increasing productivity.



Such increases have to contend not only with thinner soils, but also with increasing climate instability, rising costs of all inputs, and long-term availability limitations of fertilizer. In a way that has not applied to the last one or two hundred years but certainly did to many ancient civilizations, we will need to protect and nurture our resources – particularly our farms – if we do not intend to follow them into sand and rocks and depopulation. Encouraged by higher prices, we will become more frugal and more sensible and stretch out our resources, buying us more time for a natural decline in population to eventually bring us into balance. (Leading candidates for greater frugality in grain consumption, for example, would be reduced meat consumption and the banning of the use of quality farmland to produce gasoline substitutes.



The U.S. ethanol program is, on a global level, a callous trade-off between unnecessary help to U.S. farmers on the one hand and increasing malnutrition and outright starvation in some of the poorest

countries on the other hand.)



Here, the discussion is about the pain and time involved in getting to long-term sustainability as well as trying to separate the merely irritating from the real, often surreptitious, threats to the long-term viability of our current affluent but reckless society. The moral however, is clear. As Jim Rogers likes to say: be a farmer not a banker – the world needs good farmers! I might add: or become a resource efficiency expert and help the world save some of them for our grandchildren. Farming will be a satisfying and enriching experience if, on a global basis, we rise to the long term agricultural challenges. And, if good old short-term profit maximizing continues as it did for the Syrian, Greek, and Roman farmers before us, then at least today’s farm owners will go down with the ship, travelling in first class.

Friday, July 22, 2011

A week of Seeking Alpha

Exxon wants more shale gas, Encana has lots of it

http://seekingalpha.com/article/281224-exxon-mobil-wants-more-shale-gas-assets-is-encana-a-target

Trauner/Pitkowsky not on the same page with Berkowitz

http://seekingalpha.com/article/280768-former-fairholme-fund-managers-don-t-share-old-boss-s-bullish-view-on-financial-sector

Jim Grant likes Walmart

http://seekingalpha.com/article/280457-how-wal-mart-can-ease-your-many-fears

Tilson Short Book

http://seekingalpha.com/article/280148-is-whitney-tilson-smarter-than-these-great-investors

Chesapeake worth $80 to $100 per share

http://seekingalpha.com/article/279778-chesapeake-energy-ripe-for-the-picking

Could Exxon swallow Encana ?

They want more shale gas.  Encana short on cash flow and capital.

http://seekingalpha.com/article/281224-exxon-mobil-wants-more-shale-gas-assets-is-encana-a-target

Paulson Plans to Start Researching Asian Stocks before investing in them

Likely not a bad idea.......

http://finance.yahoo.com/news/Exclusive-Paulson-says-bets-rb-2706023513.html;_ylt=Aotd5D1Uz5viPZK6L56fKsO7YWsA;_ylu=X3oDMTE1YzhlOHViBHBvcwM3BHNlYwN0b3BTdG9yaWVzBHNsawNwYXVsc29uc2F5c2I-?x=0&sec=topStories&pos=3&asset=&ccode=

Thursday, July 21, 2011

What I'm Reading and Writing

New Yorker article on world's largest hedge fund

http://www.gurufocus.com/news/139324/profile-of-bridgewater-associates-ray-dalio

25 Minute  Michael Burry Bloomberg video

http://www.gurufocus.com/news/139362/25minute-video-with-michael-burry

My Man Tilson Takes a Definite Pass on News Corp

http://www.gurufocus.com/news/139275/tilson-gives-us-the-quick-and-dirty-on-news-corp

Trapeze Asset Management Thinks Now is an Extraordinarily Good Time to Invest

http://www.gurufocus.com/news/139247/trapeze-asset-management--now-an-extraordinarily-good-time-to-invest

Jennings Capital

Some big upside to some of their target prices

http://www.investorvillage.com/uploads/57776/files/jenningscen.pdf

Barry Minkow gets 5 Years in prison

http://www.bloomberg.com/news/2011-07-21/fraud-detector-minkow-gets-five-years-in-prison-for-stock-fraud-conspiracy.html

Exxon Looking to Buy More Shale Gas

Idiots ! They sink $40 billion into XTO in 2009.  Get to analyze the well results for two full years and still can't figure out shale gas is a Ponzi scheme !!!!

http://www.bloomberg.com/news/2011-07-21/exxon-mobil-seeks-more-shale-gas-acquisitions-as-texas-wells-pump-profits.html

It is almost as if the data tells them more important information than the NY Times and its e-mails from several disgruntled industry sources

Ex-Fairholme Managers Don't Follow Berkowitz

http://seekingalpha.com/article/280768-former-fairholme-fund-managers-don-t-share-old-boss-bullish-view-on-financial-sector

Interesting that they leave around the time he gets deep into financials and they don't have a whiff of them in their fund.

Curse the genius who gave us BAC

http://www.bloomberg.com/news/2011-07-21/curse-the-geniuses-who-gave-us-bank-of-america-jonathan-weil.html

How the hell could anyone external to this company know what its assets are worth ?

Short Note from BMO on Arcan ops update

Solid Operational Update



Impact Positive


Details & Analysis Arcan detailed results on its latest wells from its Swan Hills lands with

both wells achieving better-than-expected results. The 1-4-68-8W5 and 5-

35-67-8W5 wells produced 732 boe/d and 681 boe/d over their first 30

days on production. The wells were completed with 14-stage acid

fractures with more hydrochloric acid than the company’s previous well

completions. Arcan increased the stimulation of the wells to 1,400 m3, up

from 600 m3 and each were estimated to cost $4.4 million to drill,

complete and equip. The company is currently running two rigs and

recently spud its 36th horizontal well in the play. Current production is

4,400 boe/d, up from the Q1 average of 2,551 boe/d and early June levels

of 3,900 boe/d despite challenges associated with wet weather and thirdparty

outages. The company is still guiding to exit 2011 at 5,000 boe/d

with an average of 4,000 boe/d. Given these encouraging results, we

expect the company to achieve these targets. The recent investment by

Crescent Point is a strong vote of confidence in the attractiveness of the

Swan Hills play and we continue

Wednesday, July 20, 2011

Westfire CEO on BNN

How did I miss this ?  Need to watch more television I guess.  Damn that Lowell is charismatic !

http://watch.bnn.ca/commodities/july-2011-/commodities-july-8-2011/#clip497719

I've heard him speak a few times.  Quite fond of him so far actually and I think they have a real good plan with the Orion merger.

Hidden Gems in the oilpatch

http://business.financialpost.com/2011/07/19/energy-slump-creates-bargains/

Mentions Skywest and Westfire.

Smart man that Mr. Bay. 

Arcan Resources - First of Several Successful Investments ?

http://www.completegrowth.com/cvi/blogs/devonshire/?p=100

A pattern I hope to see repeated with Novus, Westfire, Second Wave, Skywest and even Petrobakken as these emerging light oil plays become better known.

Walmart A Low Risk Reasonable Return Idea ?

http://seekingalpha.com/article/280457-how-wal-mart-can-ease-your-many-fears

I saw Jim Grant discussing.

Novus Update

This little fellow is the second largest holding for me.  Update looks encouraging

CALGARY, July 20, 2011 /CNW/ - Novus Energy Inc. ("Novus" or the "Company") is pleased to announce that the Company is now halfway through its 2011 Viking oil drilling program, and has now successfully drilled 26 Viking oil wells in the Dodsland area of Saskatchewan, with 20 of these wells having been completed. Seventeen of the wells that have been completed have been placed on production, with the remainder to follow. Novus is pleased with the initial rates the first wells have demonstrated to date. Drilling and completion costs in the Dodsland area continue to meet the Company's budgeted figures of $850,000 per well. Novus expects to provide a further update in August, as more wells are completed, and more production data is collected.


With two drilling rigs running, Novus expects to drill a total of 52 net Viking oil wells in the Dodsland area by the end of the third quarter of 2011, and complete a total of 46 wells, assuming normal summer weather, by the end of September 2011. The remaining wells will be completed early in the fourth quarter of the year.

Total estimated field level corporate production as of July 18, 2011 was approximately 2,120 boe/d. Novus expects production will continue to steadily increase through the balance of the third quarter as additional wells are drilled and placed on production. The Company is comfortable that given the progression of its drilling plans and results to date, that it will meet its previously announced exit rate guidance of 3,000 boe/d. The Company's anticipated exit rate of 3,000 boe/d represents a near doubling of production from the 1,544 boe/d the Company reported in its first quarter of 2011.

Novus remains excited about its Flaxcombe sub area in the Dodsland region. The Company has determined that these previously undrilled lands are characterized by two distinct cycles in the Viking formation. In 2011, the Company has now drilled two horizontal wells targeting the lower cycle and one horizontal well targeting the upper formation. Virgin pressures realized on these wells were in excess of 7,500 KPa which are amongst the highest pressures the Company has recorded in any of its Viking wells drilled thus far. These three wells have now all been producing for in excess of 30 days, and have demonstrated estimated field level average production rates per well of 74 bbl/d for the last 30 day period. Novus has mapped over ten sections of its lands where both cycles are present and expects this area to significantly add to its existing drilling inventory of 592 net Viking oil locations, and reserves and production growth as development of the two distinct Viking cycles progresses. Production from the recently drilled wells has exceeded expectations, and is supportive of the longer term potential the Company believes the area exhibits.

The upgrades at Novus' owned and operated facilities at Whiteside and Avon Hills have now been completed. Gas production from the Whiteside area is currently being conserved with a number of additional pipelines being surveyed to handle new solution gas volumes from our current drilling program.

With recent land acquisitions in the Dodsland area, Novus now controls 115.25 net sections of Viking rights, and has identified 592 net Viking oil drilling locations.

Novus has recently acquired a 100% working interest in approximately 55 net sections of land with rights in the oil bearing Birdbear formation in the Dodsland area of Saskatchewan, which complements the 24 net sections of land with rights in this formation already owned by Novus.

Successful Birdbear oil wells in the area are amongst the most economic in Canada due to high deliverability rates, large oil reserves and low drilling and completion costs. The Company will be dedicating some of this year's capital expenditure program towards the shooting of 3D seismic and the potential drilling of a number of Birdbear locations.

Vancouver Housing Bubble

http://ca.finance.yahoo.com/news/Vancouver-real-estate-prices-afp-3867314975.html?x=0

Partial Transcript of Michael Burry on Bloomberg

http://www.valuewalk.com/financial-crisis/special-michael-burry-bloomberg-tv-tonight/

CNOOC to acquire Opti Canada

http://finance.yahoo.com/news/Cnooc-to-Acquire-Opti-Canada-bloomberg-2979923286.html?x=0&sec=topStories&pos=4&asset=&ccode=

Tuesday, July 19, 2011

Bellatrix provides Cardium Update

http://www.bellatrixexploration.com/pdf/110719-Q2%20Operational%20Update.pdf

Interesting that they have copied Petrobakken in moving to slickwater fracs:

"The following graph has been updated to show the Cardium well performance on average for the

nine months since introducing water fracture treatments. The average production rate of 26 water
fraced wells is 123 BOE per day at nine months which compares to the average of 14 oil fraced
wells at nine months of 65 BOE per day."

Short sellers blamed for Petrobakken share jump

http://www.edmontonjournal.com/mobile/business/energy/Short+sellers+blamed+PetroBakken+stock+jump/5127189/story.html

Sinopec Looking to Make Near Term Shale Gas Investment

What are they thinking ???  Don't they know it is a ponzi scheme ?  We have e-mails from disgruntled employees and one geologist who makes a living crying wolf !

On a serious note.  Maybe Petrobakken could JV their northern BC gas properties.

http://business.financialpost.com/2011/07/19/inopec-sees-near-term-shale-gas-investment/

Is Tilson Smarter Than These Guys ?

http://seekingalpha.com/article/280148-is-whitney-tilson-smarter-than-these-great-investors

Recent Reading/Writing

Shale gas ponzi scheme suggestions are nonsense

http://www.gurufocus.com/news/139131/can-anyone-at-bhp-billiton-read-they-just-dumped-15-billion-into-the-shale-gas-ponzi-scheme

Pitkowsky and Trauner First Report Post Fairholme Fund

http://www.gurufocus.com/news/139117/former-berkowitzfairholme-team-members-pitkowsky-and-trauner-release-first-shareholder-letter-for-their-new-fund

Muddy Waters Carson Block Interview

http://www.gurufocus.com/news/139070/get-to-know-muddy-waters-carson-block

John Couger Muhlenkamp quarterly letter

http://www.gurufocus.com/news/138991/muhlenkamp-fund-quarterly-letter-and-top-ten-holdings

Canada Looking To Diversify Energy Customers

The federal government is strengthening its support of a controversial pipeline project, as Canada’s energy and industry ministers gather in Alberta in hopes of pressing forward a national energy strategy.


One of the key planks of such a strategy, those ministers said, is more co-ordinated government support for Asian exports of Canadian oil and gas.

Part of that includes a renewed effort to beat back red-tape barriers to new projects, as it becomes clear that such exports are an increasing priority for Ottawa. On Monday, federal Natural Resources Minister Joe Oliver offered some of his clearest statements to date in support of such efforts.

“We want to diversify the marketplace,” he told reporters after a visit to the Fort McMurray area. “The Americans are a great customer, but 97 per cent of our energy [exports] is going to one customer, and it clearly behooves us to diversify.”

Mr. Oliver was especially pointed with regard to Northern Gateway, the $5.5-billion pipeline proposal by Enbridge Inc. to connect the oil sands with the British Columbia coast, where crude could be shipped to customers in China, California and elsewhere.

Gateway has stirred fierce criticism among B.C. aboriginal groups, fearful that spills will foul salmon-bearing rivers and ocean waters integral to traditional ways of life.

But “Gateway, in our opinion is in the national interest,” Mr. Oliver said, suggesting a strong willingness by Ottawa to support development of the controversial project, which has yet to gain regulatory approval. Reducing regulatory obstacles is a key goal, Mr. Oliver said.

Discussions between ministers will touch on ways of “improving the regulatory system so it’s less duplicative, so it’s more fair, transparent and independent – but takes into account the need for expeditious review.”

It’s clear that Canada’s political leaders increasingly believe the stakes are high for Canada if it is not able to find other markets for its energy products, which are the single largest contributors to the country’s economy. Several developments have heightened those stakes. The discovery of immense U.S. shale gas reserves is already shouldering out Canadian product. In addition, delays in the U.S. approval decision for another controversial pipeline, TransCanada Corp.’s Keystone XL project, have stirred worries about the security of future energy sales south of the border.

Without other alternatives, growth in Canada’s energy sector could be choked off, an event that would hurt not only Alberta, but other areas of the country that have benefitted both from manufacturing oil sands equipment and sending workers west.

The energy ministers meeting is taking place against that background. Over the weekend, a number of political leaders visited oil sands projects owned by Suncor Energy Inc., Cenovus Energy Inc. and Canadian Natural Resources Ltd. Over the first few days of this week, ministers will hear from industry and environmental group, as they work to draft the foundation of a Canadian energy strategy.

New exports, Alberta Energy Minister Ron Liepert said, are a “natural starting point” for such discussions.

“If in fact we’re going to be a global energy superpower, then we better find ways to get our product to markets globally,” he said.

For industry, the possibility of increased government support for exports is welcome news. In addition to Gateway, several others companies are looking at ways to pipe or rail oil sands crude to the coast for export; at least four groups are also pursuing projects to liquefy natural gas and ship it across the Pacific.

Having governments speaking with one voice will help build confidence in overseas markets about buying Canadian – a key consideration, given that this country’s energy must compete globally, said Tim Wall, president of Apache Canada Ltd., one of the firms pursuing LNG exports.

Companies must have “the ability to be able to compete with people like Australia,” he said. Governments, he added, can help pave the way, “and then we come in behind and try to market our product being a Canadian product.”

International confidence in the regulatory system is especially important if Canada is to woo foreign investment dollars, said Greg Kist, vice-president of investor relations and marketing with Progress Energy Resources Corp, which is also working toward LNG exports.

“Foreign markets have to be comfortable that Canada is open for business, and Canada is willing to put in place the things necessary to allow this energy to move abroad,” he said.

But, he warned, “time is of the essence. … We can’t wait 10 years for this to happen. Otherwise, others will ultimately supply those Asian markets.”

Monday, July 18, 2011

Sprott Resource Corp Takes Position In Galleon Energy

Just sold my Sprott Resource Corp.  Likely worth taking a deeper dive on Galleon, it is clearly cheap maybe Sprott can help realize that value

"TORONTO, July 15, 2011 /CNW/ - Sprott Resource Corp. (TSX: SCP) - Sprott Resource Corp. ("SRC") announced today that it has acquired ownership of 1,990,100 common shares of Galleon Energy Inc. ("Galleon"), which, based on information contained in documents publicly filed by Galleon, represents approximately 2.4% of the total issued and outstanding common shares of Galleon. The common shares were acquired through the facilities of the Toronto Stock Exchange for a purchase price of $3.10 per common share.


After giving effect to the acquisition referred to above, SRC owns 10,244,966 common shares of Galleon at an average purchase price of $3.11 per common share, which, based on information contained in documents publicly filed by Galleon, represents approximately 12.2% of the total issued and outstanding common shares of Galleon.

SRC has acquired the common shares of Galleon for investment purposes. SRC may purchase or sell securities of Galleon in the future on the open market, in private transactions or otherwise, depending on market conditions and other factors material to the investment decisions of SRC.

About Sprott Resource Corp.

SRC is a Canadian based company, the primary purpose of which is to invest and operate in natural resources. Through acquisitions, joint ventures and other investments, SRC seeks to provide its shareholders with exposure to the natural resource sector for the purposes of capital appreciation and real wealth preservation. SRC is well positioned to draw upon the considerable experience and expertise of both its Board of Directors and Sprott Consulting Limited Partnership (SCLP), of which Sprott Inc. is the sole limited partner. Pursuant to a management services agreement between SCLP and SRC, SCLP provides day-to-day business management for SRC as well as other management and administrative services"

Canaccord on CPG, ARN, SCS

I sold my Arcan today as detailed earlier at $6.90 to $6.96 but I still have Second Wave (very small amount), Penn West which are known players in Swan Hills.

I also have Petrobank which through Petrobakken has a position in the play, not sure of the size of yet.

"I don't know where the rumours were coming from. Crescent Point has confirmed that it has accumulated over 380 (165 net) sections of highly prospective land in the emerging Beaverhill Lake light oil resource in the Swan Hills area of northern Alberta. The company's entry into this play had been widely rumoured over the past several months but until now the details were slim and the rumours never confirmed by the company. This position in the Beaverhill Lake light oil resource play was build up over the past 18 months through a series of joint ventures, farm-ins and crown land sales. The majority of this land was acquired in a joint venture with private company Coral Hill Energy, while a smaller portion was picked up through a farm-in agreement with Second Wave Petroleum. Crescent Point has spent approximately $70 million to date (including $40 million in 2011) in Swan Hills on land and development costs. Of note, a total of 8.0 (3.0 net) wells have been drilled to date and brought


on production with an average first month rate over 1,000 bopd gross, which is well above the company's internal type curve estimate of 295 bopd. Crescent Point did not provide any further detail on costs, well control or drilling inventory; however, like any new play the company will likely need to complete more drilling to delineate the land and better understand the productivity/variability of the play. Concurrent to this news, Crescent Point also announced the recent acquisition of 8 million common shares of Arcan Resources, which increased its total ownership to 16.75 million shares, or 19% of the company. Canaccord Genuity Oil & Gas Analyst Kyle Preston commented what while this had been widely rumoured over the past several months and therefore does not come as a huge surprise, he nonetheless views it as a positive development for the company. The Beaverhill Lake light-oil resource play is still in the relatively early stages of development; however, he believes there have been enough wells drilled to date to establish it as one of the top light oil plays in Alberta. Preston is not ascribing any value at this time but he does estimate a very preliminary valuation potential of $2.00-8.00 per share. "

Canadian Oil to Flow to China ?

http://www.bloomberg.com/news/2011-07-15/canada-seeks-china-oil-sales-amid-environmentalist-rhetoric-.html

http://www.pittsburghlive.com/x/pittsburghtrib/business/columnists/markowitz/s_747056.html##ixzz1SQCbLvvQ

Rare Recent Success

Sold two holdings today that were not held very long and were rare bright spots over the past 3 months.

Arcan Resources - In at $4.10 a couple of months ago and out today at $6.96 (70% up).
Sprott Resource - In at $4.40 a couple of months ago and out today at $5.29 (20% up).

I've traded Sprott a few times, it is in a tax deferred account as is Arcan.

I see Arcan being taken out at a price under $10 so I think the upside in several others is much larger.

Was also getting very low on cash, so this fixes that at least until I invest it elsewhere.

Aubrey on Bloomberg - Trying to Create a Natural Gas Demand Revolution

http://www.chk.com/News/Articles/Pages/TV_2011071202.aspx

Arcan comments on Crescent Point 20% stake in company

CALGARY, ALBERTA, Jul 15, 2011 (MARKETWIRE via COMTEX) -- Arcan Resources Ltd. ("Arcan") /quotes/zigman/447282 CA:ARN +9.52% has been made aware that Crescent Point Energy Corp. ("Crescent Point") has acquired a total of 16,750,000 common shares of Arcan through market purchases, which represents approximately 19% of the total issued and outstanding common shares of Arcan on a non-diluted basis.




I'm weighing the price at which I'll sell Arcan.  We are getting fairly close.  The rest of the unconventional resource group has gotten smoked over the past quarter and likely have more upside if Arcan is likely to be taken out in the $8 to $9 range.

"Management views the interest shown by Crescent Point in purchasing Arcan shares, together with the other transactions relating to the Beaverhill Lake light oil resource play announced in Crescent Point's news release issued on July 14, 2011, as providing further evidence of the significant light oil development potential in the Beaverhill Lake zone in the Swan Hills area. This demonstrates that other leading industry participants are following Arcan's lead in evaluating and undertaking significant capital expenditures in the area. Arcan continues to execute its current development plan in the Swan Hills area and does not plan to make any changes to its current operations or its long-term growth plans as a result of Crescent Point's announcement on July 14, 2011. "

http://www.marketwatch.com/story/arcan-resources-comments-on-acquisition-of-shareholding-position-by-crescent-point-2011-07-15?reflink=MW_news_stmp

Sunday, July 17, 2011

Another $15 billion spent on shale gas resources

If shale gas is a ponzi scheme why can't any company in the industry figure that out ?   Despite constant scrutiny companies continue to shell out billions.  It is almost as if the industry experts think that shale gas is for real.....

http://seekingalpha.com/article/279778-chesapeake-energy-ripe-for-the-picking

Saturday, July 16, 2011

CIBC on Crescent Point/Arcan News

Crescent Point Energy Corp. (CIBC)


Announces Swan Hills Land Position; 19%

Ownership Of Arcan; Positive Catalyst



CPG announced that it has accumulated more than 380 gross (165 net)

sections of land in the Beaverhill Lake formation in the Swan Hills area (i.e.,

tight carbonates). The lands were acquired via JV agreements with Coral Hill

Energy (private) and Second Wave (SCS-TSX).



CPG also announced that it has acquired 8MM shares of Arcan (ARN-V) for

$5.08/share. CPG now controls over 16.8MM shares of Arcan (or 19% of

outstanding shares). CPG has spent $70MM in Swan Hills to date and

indicated an incremental $100MM of capex is possible in 2011.



We view this announcement as a positive catalyst to CPG. While we

suspected the company had been accumulating land in the tight carbonates,

we do not believe any value had previously been attributed to CPG stock for

its 165 net sections in the play (which we value at $2.13/share).



We are maintaining our Sector Outperformer rating and are increasing our

price target to $61 (from $59) based on an unchanged 1.2x target multiple

to our revised Risked NAV of $52.11/share (up from $49.98).

Friday, July 15, 2011

30 minutes of Buffett on Bloomberg

http://www.bloomberg.com/video/72153912/

Crescent Point Unveils the Beaverhill Light Oil Resource Play

http://seekingalpha.com/article/279594-crescent-point-energy-lets-a-light-oil-play-out-of-the-bag

Puts Arcan and Second Wave on a very short timeline for takeout methinks.  And what about Midway ?

Icahn put Clorox in play

http://finance.yahoo.com/news/Carl-Icahn-offers-to-buy-rb-2648883696.html?x=0&sec=topStories&pos=1&asset=&ccode=

Credit Suisse on Petrobakken

Credit Suisse has revised its estimates but kept an Outperform rating and $22 target price on PetroBakken Energy Ltd. (PBN.TO), which is now up 6 cents at $12.65, but earlier touched a new year low of $12.53.


Q211 Preview: "PetroBakken is scheduled to report Q211 results on Aug. 9. We are now forecasting production of 38,000 boe/d (87-88% liquids) for Q211 versus 41,562 boe/d for Q111. Previously, we had been expecting Q211 production of 40,000 boe/d. Ongoing wet conditions in Saskatchewan affecting the Bakken play have led us to be more conservative with our production forecast. As a result, our new full year production forecast of 42,029 boe/d compares to our previous 42,528 boe/d. Financially, we are estimating Q211 EPS/CFPS at C$0.34/1.01 vs. current IBES consensus of C$0.26/0.94 and Q111 at C$0.29/0.92."

Credit Suisse Gas Price Outlook: "The Credit Suisse equity research team has lowered its long term NYMEX natural gas price forecast from $6.50 to $6.00 per MMBtu on the premise that the cost curve will continue to fall as lower-cost US onshore shale gas becomes a larger component of the North American gas supply mix. In the nearer term, Credit Suisse has also moderated its NYMEX natural gas price outlook."

Changes to Estimates: "Incorporating updates for Q2 actual pricing, changes to the Credit Suisse gas price outlook, and operational issues, we have made the following changes to full year estimates for PetroBakken. Our 2011 EPS/CFPS go from C$1.14/3.93 to C$1.23/4.03 while 2012 go from C$1.31/4.40 to C$1.28/4.36. Our 2013 EPS estimate goes from C$1.95 to C$1.92."

Target Price & Rating: "With only modest changes to our cash flow estimates, we are maintaining our C$22 target at this time. With ~80% total return potential to our target we are also keeping our Outperform rating intact. Our target is based on 6.75x 2012E EBIDAX of C$913 million, a ~20% discount to peers."

Thursday, July 14, 2011

Arcan Resources - Crescent Point takes 19% stake in Arcan

Lucky timing on me writing this:

http://seekingalpha.com/article/279455-arcan-resources-i-smell-a-takeover

Because today we learn this:

Crescent Point is also pleased to announce that it has acquired ownership of 8,000,000 common shares of Arcan Resources Ltd. ("Arcan"), which is a leading Beaverhill Lake producer, at an effective price of $5.08 per Arcan share. These shares, which represent 9% of the issued and outstanding common shares of Arcan, were acquired through the facilities of the TSX Venture Exchange. As a result of the acquisition of the Arcan shares, Crescent Point now has ownership and control over 16,750,000 common shares of Arcan, representing approximately 19% of the issued and outstanding common shares of Arcan, as of the date hereof, on a non-diluted basis.

Arcan Resources

I smell a takeover.

http://seekingalpha.com/article/279455-arcan-resources-i-smell-a-takeover

I was shocked by how bluntly Murray Nunns of Penn West at a recent conference said that the small Swan Hills players would be taken out in fairly short order.

Cheap energy company in Egypt

http://www.gurufocus.com/news/138786/how-is-your-appetite-for-political-risk-part-3--the-new-sea-dragon-energy

Not sure I've got the stomach for such locations.  My recent plan has been to buy Canadian and then watch the paper losses accumulate.

Conoco Phillips to Split into Two Companies

http://finance.yahoo.com/news/Oil-giant-ConocoPhillips-to-apf-3429493328.html?x=0&sec=topStories&pos=8&asset=&ccode=

Wednesday, July 13, 2011

Ugly First Half for Reinsurers

http://www.gurufocus.com/news/138717/berkshire-hathaway-reinsurance-business-might-have-a-banner-2012

More on Oil Supply/Demand - Numbers Becoming Obvious

http://www.firstenercastfinancial.com/news/story/43903-oil-production-running-stand-still

http://www.investorvillage.com/smbd.asp?mb=4288&mn=75269&pt=msg&mid=10710015

JP Morgan - There is already little or no spare capacity in the oil market

http://www.investorvillage.com/uploads/44821/files/07-11-11_-_EOTM_-_Twilight_of_the_Gods__PWM_.pdf

Page 3

IEA July Report

http://omrpublic.iea.org/


Highlights of the latest OMR

dated: 13 July 2011

The IEA announced on 23 June a coordinated release of 60 mb of strategic stocks for an initial 30 days, in response to the ongoing Libyan crisis. The Libya collective action aimed to provide a bridge between rising oil demand in 3Q11 and extra supplies made available by major OPEC producers.

Crude oil prices were volatile in June, after an initial bearish impact from the collective action was tempered by non-OPEC supply outages. Early indications are that the stock release has helped realign sweet-sour price spreads, distorted by lost Libyan barrels, and flattened earlier Brent backwardation. Brent and WTI were last trading at $116/bbl and $95/bbl.

Global oil demand in 2012 is expected to rise by 1.5 mb/d year-on-year to 91.0 mb/d. Growth is driven entirely by non-OECD countries, with OECD demand declining slightly. The global estimate for 2011 is raised by 0.2 mb/d to 89.5 mb/d (+1.2 mb/d year-on-year), with upward non-OECD baseline revisions outweighing downward adjustments in the OECD on persistent high prices and weaker economic activity.

Global refinery throughputs are set to increase by 2.3 mb/d to 75.9 mb/d from 2Q11 to 3Q11, on lower maintenance and as refiners strive to meet seasonally higher demand. The sharp rise follows an exceptionally weak 2Q11, when runs were curtailed by extensive turnarounds, Libyan crude and refining outages, earthquake damage in Japan and poor margins.

Global oil supply in June increased by 1.2 mb/d from May, to average 88.3 mb/d, with OPEC crude rising by 0.8 mb/d to 30 mb/d as Saudi Arabia boosted supply. Non-OPEC supply is now seen averaging a lower 53.1 mb/d in 2011, on prolonged production outages, before rising to 54 mb/d in 2012. The ‘call on OPEC crude and stock change’ now rises by 1.3 mb/d in 3Q11 to 31.3 mb/d. It averages 30.7 mb/d for 2012, +0.1 mb/d versus 2011.

OECD industry stocks rose by 23.9 mb to 2 680 mb or 58.6 days of forward demand cover in May. Preliminary June data point to a decline in both onshore OECD industry stocks and short-term oil floating storage. This takes end-June onshore stocks close to five-year average levels, after many months of substantial overhang versus historical levels.

I don't know how to show the supply-demand graphs from IEA , but their quarterly demand forecast/estimate is shown on the link below:

http://omrpublic.iea.org/DashBoard/demand.gif

Q3-A4 2011 IEA forecast 90+ mbpd, and Q3-Q4 2012 it should rise close to 92 mbpd.

Will that be possible?

Tuesday, July 12, 2011

Buffett Has Been Buying Something In Decent Size

http://www.gurufocus.com/news/138627/buffettberkshire-elephant-gun-lightened-after-4-billion-in-stock-purchases

Must be something new as he requested a delay in disclosure

US Global Investors

Some discussion of the influence of China

http://www.usfunds.com/media/files/pdfs/shareholder-report/2011/ShareHolderReport_2011_Vol2.pdf?CFID=3726322&CFTOKEN=89717639

Article on undervaluation of Large Cap Tech Stocks

http://www.washingtonpost.com/business/amid-tech-ipo-frenzy-overlooked-elders-such-as-microsoft-ibm-get-more-attractive/2011/06/26/gIQAlaYm0H_story.html

“What’s priced into this stock is that this is a one-time [earnings] bump from the new versions of Windows and Office driving a final hurrah, and it’s all downhill from here,” Tilson said. “I wouldn’t go so far as to say we’re excited about Microsoft — it’s not like Apple in the sense that it’s got products that really get you excited. As investors, we don’t have to be excited about Microsoft to own it at seven to eight times earnings, net cash. We just have to believe it’s not going into a rapid and permanent decline.”


George Sertl, co-manager for the Artisan Value Fund, says it’s taken more than a decade for tech stocks to get back to prices that look appealing to value investors after their late-’90s and early-2000s peaks. Take Cisco, for example. Shares peaked at about $80 in 2000, when it was earning 53 cents a share. To own Cisco, investors were paying 153 times earnings.

“It usually doesn’t work out too well when you pay 153 times earnings,” Sertl deadpanned.

This year, analysts estimate Cisco will earn about $1.60 a share, and with its stock at about $15, it’s trading for about nine times earnings.

Artisan Value Fund’s top holdings are, in descending order, Microsoft, Apple and Cisco. Hewlett-Packard, Ingram Micro and Texas Instruments are also among the top 10. Sertl says investors need to adjust their expectations for the pace of growth in older tech companies that were once highfliers.

“These companies will grow at a slower rate than they have in the past, there’s no doubt — these are huge companies,” Sertl said. “But I think they’ll still grow faster than the economy. And they’re selling at multiples that are usually given to companies that have poor balance sheets, poor return on capital and poor future prospects. That’s the opportunity.”