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It’s hard to find the contrarian view in the oil patch these days but some of our contrarian observations are:

  1. A barrel of oil is worth far more in the U.S. than in other parts of the world. The U.S .is the most stable place in the world with large proved reserves. Most discovered deposits of oil are in politically unstable countries or in hard to reach locations with undeveloped infrastructure like the Arctic or ocean floor
  1. Large oil and gas exploration companies like Exxon, BP, Royal Dutch, etc. plan capital budgets for decades out. If the price of WTI crude oil drops from $100 to $80, there is no doubt that earnings estimates will come down but the value of proved reserves in the ground 10 years out may be unaffected. The premier US oil and gas shale plays will still have plenty of value regardless of short term price volatility.
  2. There is no viable alternative for petroleum-based energy products in spite of renewable energy advances.
  3. There is a limited supply of fossil based fuels and it’s a self-depleting resource.
  4. Emerging markets like China and India will have increasing hydrocarbon requirements. Proved reserves will increase in value as demand outstrips supply longer term.
  5. Shale oil companies will likely cut back on their capital spending plans due to the drop in oil prices and temporary supply demand imbalances are self-correcting.

If this contrarian view is correct, then the market is providing long term investors a rare opportunity to pick up premier companies like Continental Resources, Anadarko, EOG, Apache, Occidental, and Chesapeake.

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