How can investors get exposure to the hottest new oil and gas plays without getting burned by conflict premiums abroad or regulatory hurdles in North America? Fresh off three months of travelling the globe, S&A Resource Report Editor Matt Badiali shares his insights with The Energy Report readers on how to go where no one else wants to be and make a lot of money doing it.
The Energy Report: You spent the last three months traveling and logging your discoveries with your S&A Resource Report. What are the major fundamental shifts that have caused the current downturn in natural resources?
Matt Badiali: Oil prices are up and have been staying relatively high, higher than I thought they would, honestly. But there has just been destruction in precious metals, base metals, coal and uranium. There are two factors impacting the prices. The global economy is still in shambles. That hurts demand for natural resources.
And there has been a cooling of China's growth. It is still growing like crazy; it's just not growing at the rate we have seen in the past. That's a function, in part, of the size of that economy. It is just enormous. It can't sustain a double-figure growth rate. So we still see demand there, just not as great as it was.
That reality has pushed down the prices of commodities, which in turn have made the commodity companies less profitable, and in some cases in the gold space, borderline money losers. Investors have pulled out of that market.
We also have a bull market in the Standard & Poor's 500. Investors are fickle. They want to go where they're going to make money. Right now, a lot of the money has moved into the big blue chips.
TER: Let's focus on the bright spot, oil and gas. You visited the Kurdistan region of Iraq. Can you describe to me what it was like to travel there? How were you treated? Did you feel safe?
MB: This was one of the most highly anticipated trips I have ever taken. I woke up in the middle of the night a few times in preparation for this trip. The Western media makes Iraq sound like a live fire zone and that wasn't the case at all. Kurdistan is the northern region of Iraq. It touches Iran, Syria and Turkey. It's an independent, autonomous region within the country run by the Kurds. I flew in to the capital city, Erbil, or "Arbil," through Germany and I flew out through Dubai.
I was shocked. It's the Middle East. I expected desert, camels and burkas, but it's not like that. It's high desert; it reminded me a lot of Colorado and Nevada. I saw lots of wheat fields. The people were wonderful. The women wore traditional or Western-style clothes.
Prior to my arrival, Kurdistan had not had a bombing six years. About three weeks before I went, the city was the victim of a bomb attack against its security apparatus. That put the whole country on alert. There were a lot of checkpoints in and outside the city.
Just to get into my hotel, guards checked the car inside and out and underneath with a mirror. Inside the gate they passed my bags through an airport scanner. To go into the actual hotel, I had to go through a metal detector and a pat down. Then I was in this wonderful, Western-style hotel. I had wireless Internet, all the modern conveniences, excellent food. I was surprised.
The money that has poured into Kurdistan because of oil and gas is astonishing. They call it Little Dubai. Everywhere we looked, we saw massive infrastructure projects. Major companies are building there.Exxon Mobil Corp. (XOM:NYSE) is building a multi-story headquarters there. Marriott had a gigantic new hotel project there. Hilton has two properties going in. All the oil service companies are there. I visited the Family Mall and short of the metal detector to get inside, you might as well be in Cincinnati. I felt like I could have been in the US.