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Energy the Defining Issue Energy The Defining Issue James J Puplava President of PFS Group: Strategic Wealth Builders Casey Research Gold & Resource Summit 2 October 2010, Carlsbad, California ©PFS Group, 2010 PFS GROUP: THREE COMPANIES SHARING THE SAME VISION Puplava Financial Services, Inc Registered Investment Advisor Puplava Securities, Inc Broker/Dealer Member FINRA/SIPC Financial Sense® Investor Education Investment Advisory Services offered through Puplava Financial Services, Inc, Registered Investment Advisor. Securities offered through Puplava Securities, Inc, member FINRA/SIPC. Accounts are carried by National Financial Services LLC, member FINRA/SIPC. Puplava Securities, Inc is a wholly owned subsidiary of Puplava Financial Services, Inc. This presentation contains confidential or privileged material. Any use of this information by anyone other than a client of Puplava Securities, Inc is prohibited. If you have received this presentation in error please destroy all copies that are in your possession. At PFS Group, we are committed to providing exceptional asset management and educational resources that help investors build, maintain and preserve their wealth. Post Office Box 503147 · San Diego, CA 92150-3147 10809 Thornmint Road 2nd Floor · San Diego, CA 92127-2403 (888) 486-3939 Toll Free · (858) 487-3939 Tel · (858) 487-3969 Fax www.puplava.com | www.financialsense.com LEGAL NOTICES Forward-looking statements do not relate strictly to historical or current facts. This presentation may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, but not limited to, statements as to future operating results and plans that involve risks and uncertainties. We use words such as “expects”, “anticipates”, “believes”, “estimates”, the negative of these terms and similar expressions to identify forward looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the companies or events discussed to differ materially from any future results, performance or achievements expressed or implied by those projected in the forward- looking statements for any reason. LEGAL NOTICES PFS Group strives for accuracy in its reading of the market, the market environment, and individual stocks’ potential, please be aware and be informed that all statements and assertions made in this presentation are merely the opinions and beliefs (albeit well-researched) of the PFS Group staff and should be evaluated as such. The Perfect Energy Storm Rising Demand Tighter Supply Infrastructure Decay Developing world Depletion Aging fleet China Lack of discoveries Aging workforce India Restricted access Old infrastructure OPEC Underinvestment The Decline of World Oil Production & Its Possible Impact World oil production at or near maximum When decline begins, shortages will develop & increase each year until mitigation kicks in Oil prices will escalate and economic damage will increase Severe problems will create opportunities August 2009 “Global Oil Depletion” UK Energy Research Centre February 2010 “The Oil Crunch” UK ITPOES February 2010 “The JOE 2010” United States Joint Forces Command 10 mbd shortfall by 2015 February 2010 “Forecasting World Crude Oil Production...” Professors at Kuwait University World oil production peak March 2010 “The Status of Conventional World Oil Reserves” Oxford University June 2010 “Sustainable Energy Security” Chatham House/Lloyd’s of London August 2010 Drastic oil crisis German military think tank study World Maximum Oil Production Forecasts Pickens, T Boone (oil & gas investor) 2005 Deffeyes, Kenneth (retired professor and retired Shell Oil geologist) 2005 Bakhtiari, Samsam, d. (Iranian National Oil Co planner) 2005 Westervelt, ET et al (US Army Corps of Engineers) At hand Simmons, Matthew, d. (oil expert & businessman) Very soon Bentley, Roger W (professor & energy analyst) Around 2010 Campbell, Colin (retired oil company geologist) 2010–2011 Skrebowski, Chris (editor of Petroleum Review) 2010–2011 Pang, Xiongqi (China University of Petroleum) Around 2012 Meling, LM (Statoil geologist) A challenge around 2012 Volvo Trucks Within a decade De Margerie, Christophe (CEO of Total) Within a decade Al-Husseini, Sadad (retired Saudi Aramco executive) 2015 Merrill Lynch (brokerage, financial) Around 2015 West, J Robinson (founder & CEO PFC Energy) 2015–2020 Maxwell, Charles T (senior energy analyst, Weeden & Co) Around 2020 or earlier Wood Mackenzie (energy consulting) Tight balance by 2020 Cambridge Energy Research Associates (CERA) After 2030 US Energy Information Association (EIA) After 2030 International Energy Agency (IEA) After 2030 ExxonMobil No sign of peaking Modified from Drs Roger H Bezdek & Robert L Hirsch, “The Peaking of World Oil Production: Implications, Opportunities & Pitfalls,” briefing for presidential candidate organizations, January 2008, p 16 2005: Tipping Point Peaking of World Oil Production Impacts, mitigation & risk management Robert Hirsch, Roger Bezdek, Robert Wendling May Twilight in the Desert The Coming Saudi Oil Shock and the World Economy Matthew R. Simmons May Conventional oil peaks @ 74.3 MBD June Oil Shockwave: oil crisis simulation Aug/Sep Katrina/Rita Three Possible Peak Oil Outcomes 1. Production at maximum capacity No new oil fields can be found 2. Production at/near maximum capacity Large, easily accessible fields will be brought onstream 3. Large new oil field discoveries -Not easily accessed -Difficult to extract OECD vs Non-OECD Oil Demand Growth 2009: China world’s largest energy consumer -US held title for 100 years 2009: China world’s largest car market -13.6 million sales Developing world demand soon surpass OECD demand; driving force determining energy demand Debunking Peak Demand Per Capita Crude Oil Consumption GDP Annual Growth Percent per Year Selected OECD Countries 1980–2010 2000–2008 (real); projections to 2010 Data source: EIA, IMF; chart from “Debunking Peak Demand,” Data source: IMF; chart from “The Oil Crunch,” UK ITPOES, Petroleum Review, June 2010, p 40, figure 1 p 36, fibure 6.2 Europe/Japan demand @ $70 oil US demand @ $75 oil Oil field service capacity: deepwater tight China entering own period of rapid motorization Japan 5x, South Korea 4x No sign demand tapering prior to recession Demand in OECD fell because of price China will simply “bid away” oil currently consumed by advanced economies Oil Production Is Different + Existing production + New additions - Depletion --------------------------------- = Current production rate Source: Roger Bezdek,Robert L Hirsch, & Robert Wendling, “Peaking of World Oil Production: Impacts, Mitigation & Risk Management,” 2005, p 3 Petroleum Review: Mega Projects Annual gross new Year of project OPEC projects Non-OPEC projects Total projects capacity to be Annual net new capacity to completion completed completed completed brought on stream be brought on stream 2009 26 24 50 8.2 Mb/d 2.2 Mb/d 2010 14 25 39 5.7 Mb/d 2.1 Mb/d 2011 6 17 23 3.2 Mb/d 0.2 Mb/d 2012 24 18 42 3.4Mb/d -0.2 Mb/d 2013 14 25 39 4.4 Mb/d 0.3 Mb/d 2014 15 6 21 4.2 Mb/d 0.2 Mb/d 2015 4 6 10 2.4 Mb/d -1.2 Mb/d Source: Peak Oil Consulting; table in “The Oil Crunch,” UK ITPOES, February 2010, p 19, table 3.1 Oil Discoveries Peaked 1960s Fields Daily Decade Discovered Production Pre-1900s 17 129 Total 1900s 29 1,083 1910s 18 4,343 1920s 49 193,063 1930s 78 135,267 1940s 134 381,963 1950s 349 4,129,034 1960s 519 6,168,579 1970s 743 5,898,110 1980s 856 2,706,643 1990s 510 3,488,182 Total 2000s 65 146,911 Grand Total 3,367 23,253,308 Excludes Russia, Saudi Arabia, Iran, Kuwait, UAE, Iraq Source: ASPO Newsletter No 91, July 2008, p2 The Status of Conventional World Oil Reserves OGJ, Jan 2009 WO-Yearend 2007 IEA WEO 2008 BPSR 2009 Independent authors Existing 1,342 b 1,184 b 1,241 b 1,258 b 903 b estimates Amended 882 b 892 b 830 b 903 b 872 b estimates "The Status of Conventional World Oil Reserves— Hype or Cause for Concern?” The Smith School of Enterprise and the Environment (Oxford University) March 2010 The Rate of Production Are We at the Peak? Global Oil Production 1920–2008 IEA Liquid Fuel Production 2009 85.9 Mb/d Crude/condensate 73.0 Mb/d (85%) Nat gas liquids 8.4 Mb/d (10%) Other liquids 2.3 Mb/d (3%) Processing gains 2.2 Mb/d (3%) Source: US DOE, BP Statistical Review of World Energy; chart in “The Oil Crunch,” UK ITPOES, February 2010, p 10, figure 2.2 Top 10 Producing Oil Companies Aggregated Production for the World’s Ten Largest Quoted Oil Companies Crude Oil Production by Company Source: Peak Oil Consulting; chart in “The Oil Crunch,” UK ITPOES, February 1H 2010, p 12, figure 2.5 Company 2003 2004 2005 2006 2007 2008 2009 ExxonMobil 2.51 2.57 2.52 2.68 2.61 2.43 2.38 Shell 2.39 2.25 2.09 2.03 1.82 1.73 1.67 BP 2.12 2.53 2.56 2.47 2.41 2.43 2.53 Chevron 1.81 1.71 1.67 1.73 1.76 1.65 1.87 ConocoPhillips 1.02 0.90 0.91 1.13 1.03 0.94 0.86 Total 9.85 9.96 9.75 10.04 9.63 9.18 9.31 In millions of barrels/day. Source: Congressional Research Service; table from “The Rise of the NOC Continues,” Petroleum Review, July 2010, p 37, table 4 Cost of Extraction For a Range of Sources, Comparison of Extraction Costs ($/b) ME: Middle East countries. Source: Peak Oil Consulting; chart in “The Oil Crunch,”UK ITPOES, p 12, figure 2.4 The Rise of the National Oil Company 1972 1995 2000 2006 Exxon Corp Saudi Arabian Oil Saudi Aramco Saudi Aramco Nat’l Iranian Oil Co British Petroleum NIOC NIOC (NIOC) Petróleos de Venezuela Royal Dutch/Shell Pemex Pemex (PDV) Texaco China National Petroleum PDV PDV Petróleos Mexicanos Chevron KPC Iraq Nat’l Oil Co (Pemex) Gulf Oil Royal Dutch/Shell BP ExxonMobil Kuwait Petroleum Corp Mobil Corp.
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