Gold and Energy Advisor: Gold, Oil & Energy Markets Investment Research
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Real Wealth

Real Wealth #002  12/20/2005



Tired of High Energy Prices? Just Sue the Bastards...

Tuesday, December 20, 2005

 

By James DiGeorgia

 

Dear Investor,

 

Sue the bastards.

 

It's the American way, isn't it?

 

If you don't like the way you're treated by a business partner, don't try to work it out — just file a lawsuit.  If your morning coffee is too hot — or your orange juice too cold — you can have a suit filed in federal court before it's time for your evening commute.

 

And now — if you feel like energy prices are too high...well, all you need to do is sue the companies you feel are responsible.

 

So that's precisely what the state of Alaska has done, filing suit on Monday afternoon in federal court against Exxon Mobil Corp. and BP — the largest publicly traded oil companies in the world.

 

According to the lawyers for the Exxon Mobil and BP, of course, this suit is pure nonsense.  But then again, what would you expect them to say?

"This is another sobering reminder of our litigation-crazed society. This suit is frivolous and it's totally without merit," Exxon spokesman Russ Roberts told the media.

 

And maybe Roberts has a point. 

 

But the state of Alaska has a slightly different perspective.

 

Officials for the state of Alaska claim that Exxon Mobil and BP are conspiring to keep natural gas prices high by dragging their feet on negotiations to bring over 37 trillion cubic feet of natural gas in Alaska to market.

 

Ah yes, negotiations — did I forget to mention the negotiations?

 

It seems that the state of Alaska has been in negotiations with Exxon Mobil, BP and ConocoPhillips for some time on a deal to build a pipeline over the state that would finally allow Alaska's enormous natural gas reserves to be exploited.


ConocoPhillips signed off on a deal with the Alaskan officials two months ago.  But ExxonMobil and BP have refused to do so.  Their preference is for a larger pipeline that would run through Canada.

 

This alternative, of course, would likely mean higher profits for ExxonMobil and BP...and less economic impact for the state of Alaska.

 

So the negotiations — which have been ongoing for months — and now the state has decided to sue ExxonMobil and BP as a way of trying to move things along. 

 

At the end of the day, who is right in this case?

 

Are ExxonMobil and BP really conspiring to keep natural gas prices high?  Wouldn't it make sense for those companies to find the most efficient way possible to bring Alaska's natural gas to market?  And is the state of Alaska simply trying to bully these companies into making the best deal for Alaska and not necessarily the best deal for ExxonMobil and BP shareholders?

 

The truth is, none of us really know everything that's at play here.

 

I do, however, know this:

 

  • Natural gas is still trading for over $14 per 1,000 cubic feet — and I remain convinced that we're still in the early stages of a long-term energy bull market.

 

  • Just last week, the U.S. Energy Department released a report showing that natural gas inventories fell by 202 billion cubic feet to 2.96 trillion cubic feet last week.

 

  • The energy stocks in our Gold & Energy Advisor portfolio continue to do well.  As a matter of fact, ConocoPhillips — the company that actually closed a deal with the state of Alaska — is up 36% since it was first added to our portfolio last December.

 

Here's the bottom line: people are fed up about high energy prices.  There's absolutely no question about that. 

 

And we all know that politicians certainly are not above doing whatever they need to do — be it a lawsuit or legislation — in order to benefit from the outrage of their constituents.

 

It's possible that the state of Alaska will ultimately get ExxonMobil and BP to agree to a deal on favorable terms for the state.  But don't bet on it.

 

And most importantly — don't bet on any news like this having a significant impact on the long-term trend for energy prices in the U.S.

 

Regards,

 

James DiGeorgia

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