The Oil Spill: An Amazing Mess! (6.16.10)

Good afternoon everyone.....I wanted to comment on the reality of the oil spill and what we see as its ever reaching effects, which we believe are much worse than what the media is portraying. Sadly, the gushing oil estimates are seemingly rising every day. Latest reports have an estimate between 35k and 65k barrels of oil per day. We think the latter figure is more accurate and may even still be underestimating the amount. These are significant numbers and we are not even close to capping this off and capturing the oil. As for clean-up efforts, well at best they are horrible and it is everyone that has ever dealt with this, from business to government, who is to blame. Our Government cannot claim neutrality based on the regulations to dig and drill in places they should have known are almost technically impossible with a safe amount of risk given our current technological abilities. The company, BP, has always chosen a less expensive route for metals etc. But now we need to focus more on the outcome even if capped off tomorrow (unlikely).

Trying to gain a visual picture of this mess is no easy task. We are attempting to clean up this large amount of oil with a dispersant, which is highly toxic and doesn’t clean up the problem, it separates the oil. Doesn’t this make it worse? Who knows, it may make some of the deposits that wind up on or near land a little less dense, but it will spread farther. Isn’t this the six of one, half dozen of another scenario? It is in my book. We are also using decade old methods, I am waiting for ShamWow to come in and start picking up this mess.

Now let’s talk about the US agricultural community. That’s right, the land crops not just the fishing industry and diverse aquatic bio-systems that we may not think we depend on, but we very much do. We are currently seeing reports of higher levels of acidic rain in the southern region, and corn crops are displaying mysterious dots on plant leaves believed to be from the dispersant. This mess is likely to destroy thousands of acres of crops that will directly affect us, and others around the world. Advisors are already buying more shares of companies that focus on Peru Agriculture and the like, as we will need to get food from somewhere. On the marine life side, we are not just destroying larger fish/shellfish, but the whole aquatic food chain. This will also take decades to repair as larger fish will have nothing to eat.

I am not sure how this will wind up, but I think that investors should look for opportunities based on the ramification above. I also think the story we have created for Natural Gas over the past six months is even more prevalent, although I am not happy with the reasons why. I am more confident than ever that Natural Gas will power much of our future. All the best for now, our next update will be soon enough.

Bob Fuest
COO & Head of Investment Research