Donald Coxe, chairman of Harris Investment Management in Chicago and author of an investment newsletter called Basic Points, is one of those rare advisors who actually follows the markets. He's been saying for four years that commodities and industrial materials companies were the place to be, a view that was treated with great skepticism by all but the most perceptive readers. (He claims his readership reached its lowest point when he suggested that the NASDAQ was a sell at 5,000.)
Coxe has turned out to be spectacularly on the money, and so it's worth paying attention to somebody who actually pays careful attention to the markets instead of the noise coming out of other investment analysts' mouths. In his latest newsletter he conveys shocking, but not entirely unexpected news:
...the combination of the news that there's no new Saudi Light coming on stream for the next seven years plus the 27% projected decline from existing fields means Hubbert's Peak has arrived in Saudi Arabia. The Kingdom's decline rate will be among the world's fastest as this decade wanes. Most importantly, Hubbert's Peak must have arrived for Ghawar, the world's biggest oilfield, and Wall Street's most-cited reason for assuring us month after month that oil prices would plunge because there were so many billions of barrels of readily-available crude overhanging the market.Houston energy investment banker Matt Simmons has been pounding the table saying that if Saudi Arabia has peaked, then the world has peaked. Coxe doesn't claim that the world has peaked, but then he doesn't predict smooth sailing either.
The Street's perception was a tad outdated: OPEC had 15 million b/d of excess capacity in 1986 when the Saudis decided to rein in OPEC cheaters and head off further development of major projects abroad, including the North Sea and the Alberta oil sands. By 2002, OPEC's unused capacity was down to the one million b/d range, which is, effectively, too tiny to give the cartel the power to set prices.
The grim news from Ghawar has been replicated in the world's #2 field, Mexico's Canterell. Its production entered decline last year, and the Pemex people say there's nothing much they can do to halt its decline. The North Sea had a bad year, with significant production declines for both Norway and the UK. Declines from existing fields will be temporarily offset as a few new fields, such as Buzzard, come on stream later in this decade, but the pattern is clear: North Sea wells age faster than the hardy Scots whose prosperity is so dependent on them.
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