35206 Petroleum AR 01
Total Page:16
File Type:pdf, Size:1020Kb
Petroleum &Resources Corporation Annual Report 2001 2001 AT A GLANCE THE COMPANY STOCK DATA • a closed-end equity investment company NYSE Symbol. PEO emphasizing natural resources stocks Market Price as of 12/31/01 . $23.46 • objectives: preservation of capital Discount. 5.8% reasonable income 52-Week Range . $32.65–$22.06 opportunity for capital gain Shares Outstanding . 21,147,563 • internally-managed • low expense ratio • low turnover SUMMARY FINANCIAL INFORMATION Year Ended December 31 2001 2000 Net asset value per share $ 24.90 $ 32.69 Total net assets 526,491,798 688,172,867 Unrealized appreciation 200,798,077 365,144,132 Net investment income 10,098,102 7,671,089 Total realized gain 22,308,303 27,333,550 Total return (based on market value) (8.7)% 36.1% Total return (based on net asset value) (19.0)% 33.1% Expense ratio 0.35% 0.59% 2001 DIVIDENDS AND DISTRIBUTIONS Amount Paid (per share) Type March 1, 2001 $0.03 Long-term capital gain March 1, 2001 0.05 Short-term capital gain March 1, 2001 0.05 Investment income June 1, 2001 0.13 Investment income September 1, 2001 0.13 Investment income December 27, 2001 0.94 Long-term capital gain December 27, 2001 0.05 Short-term capital gain December 27, 2001 0.12 Investment income $1.50 2002 ANNUAL MEETING OF STOCKHOLDERS Location: Royal Palms Hotel, Phoenix, Arizona Date: March 26, 2002 Time: 10:00 a.m. Holders of Record: February 15, 2002 PORTFOLIO REVIEW TEN LARGEST PORTFOLIO HOLDINGS (12/31/01) Market Value % of Net Assets Exxon Mobil Corp. $ 47,728,358 9.1 Royal Dutch Petroleum Co. 39,706,200 7.5 ChevronTexaco Corp. 22,617,564 4.3 BP plc ADR 22,417,820 4.3 Anadarko Petroleum Corp. 16,926,860 3.2 General Electric Co. 16,032,000 3.0 El Paso Corp. 13,383,000 2.5 BJ Services Co. 12,980,000 2.5 Schlumberger Ltd. 12,605,530 2.4 Equitable Resources Inc. 12,299,270 2.3 Total $216,696,602 41.1% SECTOR WEIGHTINGS (12/31/01) 30% 30% 25% 25% 20% 20% 15% 15% 10% 10% 5% 5% 0% 0% Cash & Services Paper & Domestics Producers Distributors Equivalent Internationals & Other Electrical Power Basic Materials Forest Products 1 LETTER TO STOCKHOLDERS In this annual report, you will find our financial state- combination of surprisingly solid OPEC compliance to ments for the year 2001, the report of independent these new quotas and the need to rebuild unusually low accountants, our year-end portfolio holdings, and sum- inventories resulted in a balanced market and oil prices mary financial information for the Corporation. trading in a range of $26 to $30 through August 2001. THE YEAR IN REVIEW Unfortunately, the terrorist acts of September threw the already weakening worldwide economies into a further The return on net assets, including income and capital tailspin, causing global oil consumption to decline. gains distributions for the calendar year was a decrease of With inventories building sharply and oil prices declin- 19.0%, exceeding the 11.8% negative rate of return for ing by $7 per barrel, OPEC needed to reduce its pro- the Standard & Poor’s 500 Stock Index. Similarly, the duction further. However, in a surprising announce- Dow Jones Energy Index fell 13.3% and the average nat- ment in November, OPEC stated that its quota reduc- ural resources mutual fund provided a return of –10.0%. tion of 1.5 million barrels per day required a commit- Total dividends and distributions paid in 2001 were $1.50 ment by leading non-OPEC countries to a cut of per share compared to $1.74 in 2000. 500,000 barrels per day. While this action was In concert with the general stock market, all major ener- designed to slow the recent rapid production growth of gy sectors recorded declines for the full year. Major various non-OPEC producers, it was aimed principally international oils were the leading performers, produc- at Russia, Mexico and Norway. The latter two coun- ing a decrease of only 5%. Oil service, mid-sized explo- tries agreed to significant cutbacks and negotiations ration companies and oil drilling stocks all recorded with Russia continued to year end. As a result, the declines exceeding 20%. In response to sharply lowered crude oil price traded near $19 per barrel for the final growth prospects and investor concerns over financial six weeks of 2001. security, our investments in natural gas pipeline and Natural Gas Industry electrical power generators experienced a substantial decrease in valuation. While a small capital gain was Domestic natural gas prices declined steadily and dra- recorded with liquidation of our Enron Corp. holding matically throughout the year. In January, prices peaked during the year, Enron’s collapse and bankruptcy filing to record levels in response to extremely cold winter were particularly disappointing. Our diverse holdings in weather and low storage levels. The following months basic industries recorded excellent results with paper saw gas prices drop approximately 70%, reflecting sev- and forest products stocks showing a modest gain while eral factors: fuel switching to cheaper energy, softness in the basic materials sector collectively outperformed the summer demand due to cool weather, and the impact of S&P 500. Our cash and short-term investments were the slowdown in industrial production and other eco- expanded to a year-end position of 11.1% of net assets nomic activity. During the fourth quarter, with tempera- compared to 4.4% the prior year. tures averaging over 20% warmer than normal, natural gas demand and prices remained at low levels. Energy equities recorded only three months of positive performance for the full year. Although oil prices Electric Power remained near $28 per barrel during the first quarter, What began as an optimistic year for the industry ended the Dow Jones Energy Index declined 5.7% reflecting with a major reassessment of growth for power genera- concern that excess OPEC oil production would soon tion and distribution. The initial positive outlook reflect- become disruptive. In April, the Index reversed course, ed the continuing expansion of electricity consumption advancing 10.3%, as OPEC adhered to its newly by technology users, the relatively stable economy and reduced oil production quotas and significantly lowered the need to replace aging power facilities. The California output. Over the summer, with worldwide economic power crisis in particular focused attention on the poten- activity and energy demand weakening, energy equities tial for regional power shortages and the need for more declined steadily. The tragic events of September 11 reliable power supply. As the year progressed, the weak- caused both the overall stock market and energy equities ening domestic economy, coupled with unfavorable to drop approximately 11% for the month as investor summer weather from a power demand perspective, confidence was shaken and energy usage fell sharply. resulted in lower electricity usage. Reflecting the Enron Despite concerns over crude oil and natural gas pricing, collapse, regulatory uncertainty and concern over the the Index advanced 7.7% during the fourth quarter. industry’s financial stability, the power sector concluded Oil Industry the year with a crisis of investor confidence. OPEC began the year stating its intention to defend the INVESTMENT RESULTS $25 per barrel crude oil price. During the first quarter, Net assets of the Corporation on December 31, 2001 were concern over the impact on oil demand by slowing $526,491,798 or $24.90 per share on 21,147,563 shares worldwide economies caused OPEC to reduce its pro- outstanding as compared with $688,172,867 or $32.69 duction quotas in February and again in March. The per share on 21,053,644 shares outstanding a year earlier. 2 LETTER TO STOCKHOLDERS (CONTINUED) Net investment income for 2001 was $10,098,102 com- influenced by the severity of the winter heating season pared to $7,671,089 for 2000. These earnings are equiv- during the first quarter and the strength of economic alent to $0.49 and $0.37 per share, respectively, on the recovery over the final six months. On the supply side, average number of shares outstanding throughout each domestic production will decrease due to natural gas year. In 2001, our 0.35% expense ratio (expenses to field declines and reduced drilling activity. Overall, average net assets) was once again at a very low level unless an extended recession develops, the natural gas compared to the industry. market is forecast to move into better balance with Net realized gains amounted to $22,308,303 during the prices improving by mid year. year, while the unrealized appreciation on investments Electric Power decreased from $365,144,132 at December 31, 2000 to Growth in power consumption will accelerate with $200,798,077 at year end. domestic economic expansion. The need for continuing DIVIDENDS AND DISTRIBUTIONS infrastructure improvements in transmission and distrib- ution will provide opportunities. Uncertain deregulation Total dividends and distributions paid in 2001 were trends and anticipated capacity surpluses in some $1.50 per share compared to $1.74 in 2000. As regions will offer challenging market dynamics. In announced on November 8, 2001, a year-end distribution view of greater scrutiny by credit rating agencies and consisting of investment income of $0.12 and capital investors, industry leaders are currently taking aggres- gains of $0.99 was made on December 27, 2001, both sive action to secure their financial structure. Once liq- realized and taxable in 2001. On January 10, 2002, an uidity concerns and reduced profitability targets are fully additional distribution of $0.13 per share was declared defined, investors are expected to revisit the positive payable March 1, 2002, representing the balance of fundamentals of the industry.