Things have been getting a little warmer in Iraq recently and
those tremors have been felt in world
. Will violence in Iraq threaten US oil supplies? Will Barack
Obama respond in an effective manner? Is this the beginning of a
I suppose I should let the politicians struggle to solve the
political problems focusing on some areas I know more about -like
oil. When oil goes up, gas prices will rise across the country.
Oil is traded on the global market, and gas quickly follows. Gas
is very important to people so small disruptions in supply do
result in higher oil prices.
America is much less dependent on foreign oil that it used to be.
In 2005, America imported 60% of it oil. In 2013 America imported
about 32% of its oil. That is right oil imports fell from 12.5
million barrels a day down to 7.5 million barrel a day as we
struck oil with a new process called fracking. Oil imports are
still falling and it is likely just a matter of time before we
become a major oil exporter. Before that time comes we are also
much less dependent on oil from unfriendly violent foreign
countries. In fact, about one third of the oil we import comes
from Canada, a stable, friendly neighbor.
Oil prices will still rise and fall with what happens in the
Middle East, but with vast secure domestic supplies, life in the
U.S. is much more likely to continue on without disruption.
Conflicts can be very bad and if we can keep relative peace it
may be worth the cost, however if the whole Middle East does go
up in a vast war, oil will not be cut off in America. We have
mostly stable domestic supplies.
One of the companies that has been developing these supplies
is EOG. It is one of the largest independent oil exploration and
production companies in the world. It is a major onshore oil
driller, and has been striking black gold. In 2013 the company
produced over 500,000 barrels a day including about 142,000
barrels of oil daily from the Eagle Ford, 61,000 barrels a day
from Bakken, and 23,000 barrels from Permian. While EOG has
infrastructure in Canada, China, Trinidad, the UK and other
select regions, it is only a small portion of its resources and
those are all pretty stable areas.
EOG has seen its annual revenues rise from $4.7 billion in
2009 to $13.4 billion in 2013. Earnings per share over that
period have risen from $1.09 to $4.02 per share. In 2014 analysts
expect the company to earn of $5.42 a share. The stock has risen
from the $40 to $117 a share with a big part of that swing over
the last year.
EOG has struck oil repeatedly and the company has a lot of
leased land which should allow the rapid development of oil
properties to continue. The company is very focused on the cost
effectiveness of each unit of oil it pulls out and making sure
that shareholders get a high rate of return on their
We all know that oil is cyclical and companies that make money
when oil is priced at a $100 a barrel can lose a lot of money
when oil falls to below that level. While war is possible in the
Middle East, peace is also possible. Changes in technology and
demand are very real. While unrest in the Middle East is likely
to keep prices high going forward, a recession in China and peace
in the Middle East could be a one two punch to bring prices
With EOG at $116.02 the August 115 call has a bid of $5.20.
That gives the covered call a 3.8% return over the next 51 days
with 4.5% of downside protection. If you annualize the returns
(for comparison purposes only) that is a 27% return. EOG has a
small dividend yield of 0.5%; the next payout is in July so we
could add a little to the investment that way too.