Your Ticket to a Trillion Dollar - Agora Financial

12 Pages·2010·0.8 MB·English

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Gas Find:
Inside OI:
This Worldwide Energy Producer is About to
Cash in on America’s Largest Gas Field, Now’s
Executive Summary
Your Chance to Join Them…
Your Ticket to a Trillion
Dollar Gas Find By Editor: Byron King
This worldwide energy
producer is about to cash
Not long ago, I had a long telephone talk with Rick Rule. Rick,
in on America’slargest gas
field, now’s your chance to as most readers know, is a highly respected and very successful
join them… old hand in the world of resource investing. He’s a popular speaker
at many investment seminars. And he’s an all-around great friend.
Prospects for the Oil
Service Sector: You Have
Rick and I talked about where things are heading in the world
to Know Where to Look
Let’s take a look at oil trends of energy and mineral resources. At one point, Rick and I discussed
and the best way to profit… what’s going on with the Marcellus play in Pennsylvania. As OI
readers know, the Marcellus is a vast shale formation — rich in
1,000 Barrels of
Oil…Delivered to Your natural gas — that covers two-thirds of the Keystone State and
Doorstep extends north into New York, west into Ohio, and south into West
Looking for a physical delivery
Virginia, Virginia and Kentucky.
of oil or gold? Here’s the best
way to invest in your favorite
staple commodities… Marcellus — Obscure No More
5 Hot Buys For I mentioned to Rick that until just three years ago, the
Right Now! Marcellus was an obscure name for an obscure rock formation in
Check page 11 for this
the backwaters of geological research.
month’s 5 hot buys!
Longtime Marcellus researcher Penn State professor Terry
Action to take:
Buy Talisman Energy Inc. Engelder told me, “When I used to go to conferences, my talk on
(TLM: NYSE) up to $20. the Marcellus Shale was usually scheduled for the last session, at
4:00 on Friday afternoon, the last day of the meetings, when all
the big names were on their way to the airport. I was talking to grad
Be sure to sign up for
students, not oil company geologists with exploration budgets.”
weekly email alerts by
Not anymore. Now, when professor Engelder speaks, the room is
emailing us at
packed.
[email protected]
The tipping point came when professor Engelder demonstrated
that the Marcellus holds as much as 500 trillion cubic feet of natu-
Continued on next page…
DJIA10,122.04 nSpot Gold1085.40 nS&P/TSX Energy283.61 nSpot Oil73.64
RRaannkkeedd tthhee ““##11 PPeerrffoorrmmiinngg AAddvviissoorryy ooff tthhee LLaasstt FFiivvee YYeeaarrss”” 1
ral gas — the equivalent of total U.S. gas con- into the wells to fracture the formation
sumption for 25 years. There’s over a trillion (hence, “fracking.”) You need to pump tiny
dollars’ worth of gas down there — probably sand or ceramic grains down in the cracks, to
much more. Even if the estimate is off by 50% hold things open when you take off the pres-
or so (and that 500 trillion cubic foot number sure. Then the fractures release the gas.
might be on the LOW side), Marcellus is a
After all this drilling and completion work,
very big resource.
the gas flows out of the wells. In Marcellus
As Rick and I talked, we kept coming back country, as a significant upside to the process,
to the idea that the best investment returns many areas yield “wet gas.” That means gas
usually come from shares in companies with a with dissolved natural gas liquids (NGLs) like
solid “production story.” That is, you want to butane, pentane, octane — all the way up to
find companies that are going to move the complex substances like natural gasoline frac-
needle ahead in terms of output. You want to tions. This adds huge value to the output.
see cash flow grow, based on selling a valu-
able product into a strong market. Biggest of the Big Plays
Let’s return to an earlier point. How big is
Nothing Is Easy
the Marcellus? See the map on the following
The Marcellus play certainly offers a lot of page showing all of the major shale gas-bearing
potential for many great production stories. basins in the U.S. and Canada. The Marcellus
There are hundreds of firms out there, leasing is labeled No. 27 — and I don’t mean in terms
in Marcellus country, and several dozen of of size. As you can see, the Marcellus dwarfs
those firms are fully permitted and actively all the others. (It’s bigger even that the Williston
drilling. Still, when it comes to exploiting the Basin of North Dakota, Montana and
Marcellus, nothing is easy. Saskatchewan.)
Exploiting the Marcellus gas resource Leave it to Rick Rule to condense a lot of
requires advanced — and costly — drilling points in one pithy comment. During our talk
techniques, such as those pioneered over the about the Marcellus, he said, “It’s about time
past decade in the Barnett developments we found a lot of natural gas that’s near a
down in Texas. That is, exploiting the major market.”
Marcellus gas requires directional drilling,
Yes, indeed, the Marcellus area is big.
along with “fracking” the rock formations
The overall resource is big. It’s also right next
to get the gas out.
to some of the most important natural gas
First, you have to drill wells — and drill markets in the world. Really, can you get
them in the right places, by the way. Then you much closer to New England, or the Eastern
pump high-pressure water and other fluids Seaboard, or the industrial Midwest of the U.S.?
s Outstanding Investments is published monthly by Agora Financial LLC, 808 St. Paul Street, Baltimore, MD 21202-2406, www.agorafinancial.com.
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Signed articles represent the opinions of the authors and not necessarily those of the editors. Neither the publisher nor the editor is a registered investment adviser. Readers
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t Publisher:Joseph Schriefer; Associate Editor:Matt Insley; Graphic Design:Andrew Ascosi
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The wells will be expensive,
and sophisticated — filled with
modern down-hole technology.
This is a 50-year operation, and
probably more.
Big Acreage in Big Gas Plays
Today, I want to introduce
you to a company that holds
214,000 net acres of Marcellus
in Pennsylvania (about 335
square miles) and 647,000 acres
of Marcellus in New York (over
1,000 square miles).
Coming Home to the Old Pennsylvania
Most of the acreage is contiguous, which
Oil Patch
makes development much easier than if the
In many respects, the Marcellus play leases were chopped up into small tracts here
brings the drilling industry back home, near and there. This company’s acreage is near
where things started back in 1859 with Col. a couple of major gas pipelines, can it get
Edwin Drake at Titusville. better?
After Col. Drake drilled his famous well, Take another look at the map above, with
there was a Pennsylvania oil boom that lasted the 29 gas basins of the U.S. and Canada
from the 1860s to about 1900. It was mostly outlined. Look just above the Marcellus, at
shallow drilling — 2,000-foot wells, at the basin No. 26. What’s that? It’s part of the St.
most. That’s all you could do back then with Lawrence Basin, with shale gas prospects
the technology available. By the early 1900s, focused on the Utica Formation. The Utica is
the Pennsylvania fields were playing out. The a black shale that’s similar to the Marcellus
and also very rich in natural gas and NGLs.
oil and gas industry moved away, in search of
larger and more prolific locales.
The company that I’m about to describe
controls 771,000 net acres in Quebec (over
For the past century, the oil, gas and
1,200 square miles). The Utica Shale is “highly
related drilling business has been a minor
prospective,” as the saying goes. The search
sideshow in Pennsylvania and neighboring
is on in Quebec for shale gas, or, as they refer
states. The “oil business” in the region
to it in those parts, gaz naturel non classique.
(including gas) was mostly about drilling low-
volume wells and running stripping operations This is Canada’s newest unconventional
to squeeze out the last barrels from the shallow resource play.
formations. In its best years, the oil and gas
If a company controlled just the one M
business was modest. No longer. a
acreage set of the Marcellus play in Pennsylvania r
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Now with news of the gigantic Marcellus and New York or the other acreage play of h

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resource — which is at greater deeper depths the Utica in Quebec, you’d think this was a 0
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than the early oil development — the big firm that’s going places. You’d think that this

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players are coming to town. They’re leasing was one of those great “production stories” o
acreage, setting up shop, moving equipment that Rick Rule and I discussed. But this com- l.
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and getting ready for the long haul. Drilling pany controls large and significant acreage
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the Marcellus will require much deeper wells. in BOTH plays. Outstanding! s
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And that’s not all. This company has exist- within other Canadian shale plays, development
ing oil production in North America. It’s got drilling will more than double. Meanwhile,
more oil output in the North Sea, Asia and Talisman will also spend $270 million on
other energy plays in South America. The North American conventional properties.
company has a market capitalization of over
Talisman has an inventory of 10 years’
$17 billion and makes money. It sports a
worth of shale gas drilling locations in the
price-to-earnings ratio of about 10. It even
U.S. (Marcellus) and Canada (Utica, and
pays a dividend, currently giving you a
another play called the Montney, up in British
1.2% yield.
Columbia). After aggressive land acquisition
and test drilling, Talisman is now ready in
What’s the Name?
2010 to shift to commercial development and
OK, I won’t tease you any more. The name drilling. Talisman will move from its current six
of the company is Calgary-based Talisman drilling rigs working Marcellus plays to 10 rigs.
Energy Inc. (TLM: NYSE). If the name is familiar
Talisman will also continue drilling test
to long-term readers of OI, it’s because Talisman
wells in the Utica Shale, to “derisk” the area
was part of the OI portfolio from 2001–2005,
and create a baseline for future development.
delivering a return of nearly 200% in the days
According to Talisman geologist Jean-Yves
of oil at $20–30 per barrel.
Chatellier, “The beauty of Quebec is that
Talisman is very much a global, diversified Talisman has 1 million gross acres (771,000
upstream oil and gas company. Its three major net) of contiguous land in the St. Lawrence
operating areas are North America, the North Lowlands… This is early in the game, but until
Sea and Southeast Asia. Talisman also holds a proven otherwise, the whole basin is deemed
portfolio of other international exploration prospective.”
opportunities.
According to Mr. Chatellier, “The Utica
In 2010, Talisman plans capital spending has incredible gas in place.” That is, there
of $5.2 billion, an increase of more than are overpressured zones that will likely yield
10% over 2009. The money will come from what are called “super wells” in the shale gas
operating cash flow, as well as selective sale development business. It’s just a question of
of overseas assets. time and further investment to verify the
scope of the resource.
The Talisman budget is designed with
pricing assumptions of $60 per barrel of oil —
Company Priorities —
well below the recent price range in the $70s-
Drill More Marcellus
low $80s. And it assumes natural gas will sell
for $3.50 per mcf, about half the current going According to Talisman CEO John A.
rate. Of course, Talisman can adjust its spending Manzoni, “Our main priority in 2010 will be
up or down in light of conditions as things continuing the portfolio transition.” This term
unfold throughout the year. — “portfolio transition” — means more
drilling in Marcellus country, along with the
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n Putting Its Money Where Utica Shale and further north in the Montney
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m the Prospects Are of British Columbia.
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n $1.6 billion, which represents over 30% of its returns and profitability. We expect returns to
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n capital spending, on North American shale increase as we successfully cycle capital into
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t properties. Within the Marcellus, and also higher-value investments, which should also
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lead to continued improvement in our finding When you break it down further, the
and development costs.” Talisman focus shows 85% of capital directed
toward development, with 15% of capital
The key thing to understand is the internal
directed toward international exploration.
focus on efficiency within the Talisman structure.
In the ultra-competitive world of oil and gas Within the development portfolio, 36%
these days, the effort has to be on managing
is allocated toward shale programs in North
capital programs more efficiently. Companies
America, 19% for Norway, 18% for the U.K.,
focus on the highest return for the lowest
18% for Southeast Asia, 6% for North
level of drilling risk — which plays right into
American conventional gas and 3% for the
the shale gas effort.
rest of world.
Other Worldwide Energy Assets Through it all, Talisman is working to
increase overall energy output, while improv-
I mentioned above that Talisman also has
ing the quality of its production portfolio.
operations elsewhere, besides the Marcellus
and Utica plays. Along with the extensive and
And this gets to the reason I want to add
promising North American shale gas assets,
Talisman to the OI portfolio. I believe that
Talisman holds concessions in both the British
Talisman will improve the overall quality of our
and Norwegian sectors of the North Sea. In
portfolio. It’s well positioned in several of the
2010, Talisman will spend $1.1 billion total on
hottest shale gas plays in North America, from
further developments there.
the well-known Marcellus to the lesser-known
Talisman will also spend $780 million Utica. And Talisman is a highly respected,
developing prospects in Southeast Asia. successful worldwide explorer.
Talisman holds concessions for new oil field
Shares are trading in the $17 range, down
developments in Vietnam and Australia, as
from a recent price over $20. This pullback
well as development drilling and platform
appears to be related to the strengthening
upgrades in Malaysia.
dollar and worries about near-term weakness
Talisman has also budgeted $700 million
in the price of oil. But with growing output
of international exploration spending, with
and rising energy prices over a longer period
key wells in South America (Peru), the Middle
of time, I expect Talisman shares to double in
East (the Kurdish region of Iraq) and Southeast
price over the next two years.
Asia. This last item includes drilling four new
onshore wells in Papua New Guinea, including Action to take: Buy Talisman Energy Inc.
a development well. (TLM: NYSE) up to $20.
Prospects for the Oil Service Sector: You Have to
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by Byron King 0
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2009 was a hard year for oil service com- of energy companies. Oil and natural gas V
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bottom line across the oil service industry. So bad news that’s bad for share prices. And
how do things look going forward? then there’s bad news that’s tempered by the
prospect of future good news. Let’s look clos-
Tough Times for the Big Three er at what’s going on out in the energy patch.
In late January, Baker Hughes Inc. (BHI: According to a statement by
NYSE) announced that its fourth-quarter profit Schlumberger, margins decreased due to
plunged 81%, dropping in parallel with last lower activity and soft pricing, particularly in
year’s economic crash. For all of 2009, Baker North America. Schlumberger noted “area
Hughes earned $421 million, or $1.36 per decreases” of 37% in North America, 13%
share. This is down from $1.64 billion, or in Europe/CIS/Africa and 9% in the Middle
$5.30 per share, for 2008. Annual revenue in East and Asia. In Latin America, however,
2009 fell 19%, to $9.66 billion, from $11.86 Schlumberger’s revenue was flat — not bad,
billion in 2008. considering the decline in business that was
going on everywhere else. (Brazil and Mexico
Still, despite the falling numbers, Baker
are key markets for Schlumberger, which has
Hughes stock has managed to climb near
a significant presence throughout Latin and
52-week highs in recent weeks. We’ll think it
South America.)
through, below.
Among the Schlumberger oil service tech-
Meanwhile, Halliburton (HAL: NYSE)
nologies most affected, the decreases were
released similarly gloomy numbers. Revenues
most significant for well services, wireline log-
for Halliburton were $14.7 billion for 2009,
ging and drilling and measurement services.
a decrease of 20% from 2008. Halliburton’s
This is directly related to reduced spending
operating income was $2.0 billion, a decrease
for drilling. Schlumberger’s overall work in
of 50% from 2008. On a per share basis,
geophysical surveying, particularly seismic,
Halliburton booked $1.28 per diluted share
actually held up well. This is a good sign for
in 2009, compared with $1.91 in 2008.
the future. Oil companies don’t drill oil wells
Again, however, the bad numbers have without first doing lots of seismic.
not kept Halliburton stock from climbing over
most of 2009 and into 2010. Better News Ahead
Rounding out the “big three” in oil services, Looking ahead, there’s more good news
Schlumberger reported fourth-quarter earnings from the oil patch. Many operators, including
down 31%, due to declining energy prices many national oil companies (NOCs), have
and lower demand from energy companies. already announced increases in upstream
For the full-year 2009, Schlumberger’s revenue spending for 2010. Saudi Aramco is continu-
was $20.5 billion, down 16% from 2008. Pretax ing its decade-long push to build spare
operating income of $4.33 billion was 33% capacity in the Kingdom of Saudi Arabia.
lower than in 2008. Pemex, of Mexico, is frantically working to
stem the precipitous decline in output from
As with Baker Hughes and Halliburton,
ts its fast-fading Cantarell field.
n Schlumberger stock had a slow, but steady
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m rise through 2009, and now is sitting just Other near-term targets for increased
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es below its 52-week high. drilling are new frontier developments and
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stand on its own. According to Dave Lesar, fourth quarter [of 2009], international revenue
CEO of Halliburton, “We expect operator benefitted from customer requests to acceler-
investment will remain weighted toward the ate delivery of some large product orders and
second half of the year.” This is not raw spec- improved geographic and customer mix.”
ulation. When it comes to the complex opera- Accelerate delivery? Every business executive
tions that Halliburton performs out in the field, likes to hear that. It’s certainly evidence of a
it often takes many months just to stage the pickup in energy development activity.
logistics. Thus, Mr. Lesar’s comment reflects
In a recent forecast, Baker Hughes noted
a pragmatic forecast, based on looking at
that it expects stronger international activity in
contracts with customer ink on them.
2010, driven by rising global demand for oil
At Halliburton, Mr. Lesar believes 2010 and gas. But margins for Baker Hughes — as
“will be a transition year as the industry seeks with Halliburton and Schlumberger — will
to balance supply growth with recovering remain under pressure, due to past discounts.
hydrocarbon demand.” Also, oil service com-
North America shows strength for Baker
panies will continue to endure tight margins
Hughes. In recent months, we’ve seen a slow,
because of fierce price competition among
but steady rise in rig counts. There’s also
firms. It doesn’t help that margins on numer-
increased activity in shale gas development
ous projects will stay trapped in a narrow range
(mostly in the Marcellus play, but in some
due to discounts negotiated in 2009.
other areas as well), plus deep-water drilling
At Schlumberger, CEO Andrew Gould
in the Gulf of Mexico.
noted that “Our outlook for 2010 remains
largely dependent on the prospects for the Trends, Past and Present
general economy. At the end of the third
Revenues and profits have risen sharply at
quarter (2009), we were encouraged that
oil service companies since 2006. The reason
signs were emerging that demand for oil and
is that high energy prices prompted a wave of
gas would begin to increase.”
spending by oil and gas producers.
Meanwhile, as we look at the macro level,
But by 2008, oil prices reached record-
there are numerous big-picture forecasts that
breaking levels — $147 per barrel of oil in
global oil demand in 2010 will increase, par-
July 2008. Along with the overheated price of
ticularly in the developing world. If it happens,
oil, there were worrisome levels of inflation in
it’ll be the first time since 2007.
costs for inputs such as steel, machinery, labor
Is the Future Already Here? and (while we’re on the subject) oil services.
The future may already be showing up at When oil prices crashed in late 2008, the
the door for Baker Hughes. According to CEO upstream energy players — aka “customers” —
Chad Deaton, “The sequential improvement staged a strong pushback. Between cancella-
in our fourth-quarter earnings was the result tions and a stonewall level of negotiating, the
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of increased revenue in every region, as well floor just plain caved in for the oil service sec- a
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as the aggressive cost-cutting measures we tor at the end of 2008 and in early 2009. c
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took throughout the year. Incremental margins 2
In the very big picture of things, the bub- 0
were particularly strong in North America, 1
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driven by increased horizontal drilling in the V
other bubbly sectors of economies in Europe, o
U.S… and improved rig mix in the Gulf of Japan and China — is deleveraging. This is l.
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causing serious changes in demand patterns
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in the midst of unraveling the post-World War pre-salt play, they can stroke a check and
II world trade system that was inherently watch Petrobras do all the heavy lifting. We
biased toward the West in general and the might see Petrobras morph into a Brazilian
U.S. in particular (another discussion entirely). version of Saudi Aramco, capitalized by a
long list of world financiers. The “operating”
With these kinds of historic trends ongoing,
oil industry will likely go elsewhere — unless it
all that an oil service investor can do is stay
develops a lucrative contracting and consulting
alert and get out of the way of fast-moving
business, keeping an auditor’s eye on Petrobras
objects. The good news, though, is that the
for all of those check writers who aren’t really
world energy industry needs the oil service
in the oil business.
companies.
Another region that should see significant
The Future Is Looking Better — If You development is Iraq, where BP (BP: NYSE)
Know Where to Look has gained an important presence. This
assumes, of course, that the Iraqi government
Despite the gloom at high economic levels,
can maintain overall security, hold publicly
the signs are clear that global spending on oil
accepted elections and pass an oil law. (Other
and gas exploration and production is growing.
than that, it’s a safe bet.)
By one internal estimate from a private
consultant, global exploration and production Back to the Beginning
spending will increase by 11% in 2010, revers-
So we come full circle, back to the oil
ing a 15% drop in 2009. Looking at things
service companies. They had a tough year,
from the drill decks of the world, it appears
but their share prices are near annual highs.
that there’s a new wave of oil service activity
The bad news for share prices came with
building up over the next three years. Then
the oil price crash of 2008 and early 2009.
again, you have to know where to look.
The recovery came with rising energy prices
Worldwide, the natural gas sector appears in 2009.
to be a strong arena. In the U.S., we’ve got
Is there more room on the upside for oil
massive shale gas development about to
service shares? Yes, but you have to accumu-
occur in the Marcellus formation of the
late a position carefully and set your invest-
Appalachian Basin, as well as similar develop-
ment horizon. In the near term, you might be
ments in lesser-known basins. Down under,
able to day trade your way to profits. Follow
there’s the titanic (in terms of size — $30
the daily oil prices and the ups and downs
billion — and not a reference to the ill-fated
that go with the oil service guys. Rising oil
ocean liner) Gorgon development off Australia.
prices are good for oil services. And vice versa.
We’re seeing other big gas plays in Russia,
Central Europe, South Africa and South In the medium term — the next year or
America. so — we will probably see oil prices swing
wildly, perhaps down into the $50s per barrel
Meanwhile, there are sweet spots for
s and up toward the $100 range. These price
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n future oil development. One promising locale
e swings will reflect much larger events that are
m is the massive development plan for Brazil’s
t floating like sea mines all through the world
es deep water offshore. There, Petrobras (PBR:
economy. We could see a dollar crisis, related
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I to loss of confidence in the ability of the U.S.

g salt concessions, holding at least a 30% stake.
n government to raise funds to pay its obliga-
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n So in Brazil, if someone with cash (anyone tions. We could see a China bubble crisis,
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apparent or through an outright Chinese more valuable. So if that’s your focus, watch
crash. We could see political issues turn into for down days in the market and nibble away.
warfare that disrupts oil flows (the Far East,
When you boil it down to the essence, if
Middle East and Africa come to mind).
the world didn’t have oil service companies,
At root, OI is designed for the investor the world wouldn’t have oil. You can’t find a
with a longer-term horizon. And in the long better endorsement for the oil service sector
term, oil will surely be getting scarcer and than that unarguable fact.
1,000 Barrels of Oil… Delivered to Your Doorstep
by Matt Insley
“Where do you plan on storing this oil?” Believe it or not, this is still what people
asks the roughneck driver of the first truck. think of when they hear about the commodi-
ties market — a foggy concept of trading that
Looking further down your driveway, you
could end up r-e-a-l-l-y bad.
can see that three more trucks are waiting in
line — clearly, you’ve got to find a place to But today, I’d like to give you another
store 1,000 barrels of light sweet crude oil. perspective — a more clear-cut look at making
money by investing directly in staple commodi-
After all, you wanted to invest in oil, right?
ties like oil, gold, silver, corn or sugar.
OK, OK… oil’s a little too messy, and
obviously, you don’t have room to store four Top 3 Reasons to Trade Physical
truckloads, so what about another investment? Commodities
Two days later, after you’ve turned away No. 1. Transparency — Compared with
the stock market, the commodities market is
four angry truckers, an armored security
much more transparent. Here’s what I mean…
vehicle pulls up your driveway.
Take the company GE, for example. Byron
The guard and his partner look around
has written extensively about its accolades,
the area just to make sure they have the right
but also about its financial Achilles’ heel — so
address.
we all know GE has its pros and cons.
“Yep, this is it” one of them says.
But GE is the perfect example of foggy
After you sign a few of their forms, they
stock market antics.
proceed to the back of the truck… still leery
Days before an earnings announcement,
of their surroundings. Then they hand over
you may hear a rosy forecast from CEO Jeff
the 6.8 lb. package. M
Immelt about how well his company is set to
a
Using some back-of-the-napkin math, these perform — then the very next day or week, rc
h
guys know that they just dropped off $109,000 GE could announce how much money its 2
0
in pure gold. And now it’s your job to protect finance service division lost, sending the 1
0

your stash, not to mention pay for it. share price plummeting. V
o
But you wanted to invest in gold, right? Do you mean to tell me the CEO of l.
1
0
Hmmmn, maybe this rudimentary type of the company didn’t have this information?
I
s
investing just isn’t for you. C’mon, now. s
u
e

3
Continued on next page…
9
Here’s a look at some of the most popular commodity contracts, the amount of
physical commodity that they control and the current value:
Contract: Specs: Approx. Street Value
Crude Oil (Ticker: CL) 1,000 Barrels $74,150
Natural Gas (Ticker: NG) 10,000 mBtu $51,500
Gold (Ticker: GC) 100 Troy Ounces $109,000
Silver (Ticker: SI) 5,000 Troy Ounces $82,100
Corn (Ticker: C) 5,000 Bushels $17,900
Soybeans (Ticker: S) 5,000 Bushels $46,450
Wheat (Ticker: W) 5,000 Bushels $24,150
Live Cattle (Ticker: LC) 40,000 lbs $34,100
Orange Juice (Ticker: OJ) 15,000 lbs $21,900
Sugar (Ticker: SB) 112,000 lbs $32,250
To be clear, sometimes the stock market is low risk. What could be better?
a frickin’ dog and pony show. But that’s not so
No. 3. You’re Holding Assets With Real
with physical commodities. When everything
Intrinsic Value — Unlike the share price for
is said and done, commodities come down to
your favorite company, the value for a com-
simple supply and demand.
modity is unambiguous. There’s no outstanding
And frankly, I’ve never heard an ear of debt in the commodities market. Instead,
corn talk, which makes me believe it can’t everything has a clear market-derived value.
distort the facts.
Unlike a Wall Street bank that’s backing
No. 2. Leverage — With commodities bad loans, commodities like corn, crude and
and options, you can multiply your money in silver will always have value — simply put,
a short amount of time. Since you’ll be con- the price of physical commodities can’t go
trolling 100 ounces of gold or 1,000 barrels to zero. How’s that for risk protection!
of oil, small price movements can really pay
off — that’s the power of leverage! The Best Way to Invest in
Commodities…
But to be clear, leverage can also work
against you — so you need to be careful. You see, commodities really aren’t that
That’s precisely why I mentioned options scary — plus, once you get past the fear factor,
s
nt above. With the use of commodities options, you can really make a killing.
e
m you can use the power of leverage in a com-
So where is the best place to get started?
t
s pletely limited-risk setting.
e For starters, you could try using exchange-
v
n
I Options limit the amount of money you traded funds (ETFs) that control physical com-

g
n risk. They also segregate you from things like modities, like the SPDR Gold Trust (GLD:
di
n margin calls or physical delivery. With options, NYSE) or the United States Oil Fund (USO:
a
t you can play fast-moving commodities with NYSE). But funds like these have overhead
s
t
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O
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