Fisher Investments on Energy

The first offering from the Fisher Investments On investing series is a comprehensive guide to the Energy sector. The book can benefit both new and seasoned investors, covering everything from Energy sector basics to specific industry insights to practical investing tactics, including common pitfalls to avoid. Azelton and Teufel demonstrate a method for uncovering performance and risk-management opportunities—and show the readers how they can do it, too. Filled with detailed graphs and tables, unique insight, and practical advice, Fisher Investments on Energy can provide readers with a solid foundation in this sector.

For more information visit www.energy.fisherinvestments.com

Foreword ix

Preface xi

Acknowledgments xv

Part 1: Getting Started in Energy 1

Chapter 1: Energy Basics 3

Oil & Gas Industry 4

Energy Equipment & Services Industry 14

Chapter 2: What Makes Energy Burn: Key Drivers of

the Energy Sector 19

Oil Demand Drivers 20

Oil Supply Drivers 30

Natural Gas Demand Drivers 40

Natural Gas Supply Drivers 45

Additional Drivers 52

Part 2: Next Steps: Energy Details 61

Chapter 3: Energy Sector Breakdown 63

Global Industry Classification Standard (GICS) 64

Global Energy Benchmarks 65

Oil, Gas, & Consumable Fuels Industry 70

Energy Equipment & Services Industry 82

Sub-Industry Drivers 88

Chapter 4: Why We’ll Never Run Dry 103

The World Will Never Run Out of Oil 104

The Tipping Point? 109

Peak Oil and You 116

Peak Oil Reading 118

Chapter 5: Staying Current: Tracking Industry

Fundamentals 121

Crude Oil Market Fundamentals 121

Natural Gas Market Fundamentals 131

Refining Margin Fundamentals 136

Energy Equipment & Services Fundamentals 144

Chapter 6: Alternative Energy 151

What Is Alternative Energy? 152

Alternative Energy Drivers 167

Alternative Energy Investment Universe 170

Part 3: Thinking Like a Portfolio Manager 175

Chapter 7: The Top-Down Method 177

Investing Is a Science 177

Einstein’s Brain and the Stock Market 178

The Top-Down Method 180

Top-Down Deconstructed 185

Managing Against an Energy Benchmark 193

Chapter 8: Security Analysis 197

Make Your Selection 198

A Five-Step Process 199

Important Questions to Ask 207

Chapter 9: Energize Your Portfolio 217

Strategy 1: Commoditize 218

Strategy 2: Playing Sub-Industries 219

Strategy 3: Company Bets 228

More Sub-Industry Tips 228

Appendix: Energy Sector Resources 233

Notes 236

Glossary 243

About the Authors 249

Index 250

Aaron M. Azelton (San Francisco, California) is an equity research analyst covering the Energy sector at Fisher Investments. He graduated from the University of California at Berkeley with a B.A. in Economics. He has been with Fisher Investments since 2002. Aaron grew up in Santa Monica, California, and is currently living in San Francisco.

Andrew S. Teufel (San Francisco, California) has been a member of Fisher Investments research staff since 1995 and is currently Co-President and Director of Research. Prior to joining the firm, he worked at Bear Stearns as a corporate finance analyst. He is a graduate of the University of California at Berkeley, and has lectured at the Haas School of Business on topics in investment management. Andrew has conducted hundreds of investment seminars and educational workshops throughout the US and the United Kingdom. He also serves as Editor-in-Chief of MarketMinder.com.

• An in-depth look at the global Energy sector investment universe including oil, natural gas, alternative energy, and more
• Tips and tools for security analysis and portfolio management
• A useful guide for investing in any market condition

The Fisher Investments on ENERGY

The Fisher Investments on series is designed to provide individual investors, aspiring investment professionals, and students the tools necessary to understand and analyze investment opportunities—primarily for investing in global stocks. Each guide is an easily accessible primer to economic sectors, regions, or other components of the global stock market. While this guide specifically focuses on Energy, the basic investment methodology is applicable for analyzing any global sector, regardless of the current macroeconomic environment.

Following a top-down approach to investing, Fisher Investments on Energy can help you make more informed decisions within the Energy sector. It skillfully addresses how to approach your portfolio's Energy allocation, how to determine which Energy sub-industries have the potential to perform well, and how individual stocks can benefit in various environments. The global Energy sector is complex, covering multiple sub-industries and countries—each with unique characteristics. Using the framework found here, you can discover how to identify these differences, spot opportunities, and avoid major pitfalls.

Divided into three comprehensive parts—Getting Started, Energy Details, and Thinking Like a Portfolio Manager— Fisher Investments on Energy:

• Discusses Energy's drivers, including all the supply and demand components of its main drivers— oil and natural gas prices
• Takes you through the seven sub-industries within the global Energy sector and reveals how they operate
• Addresses the challenges of today's Energy sector, including peak oil and alternative energy
• Delves into top-down investment methodology as well as individual security analysis
• Outlines a five-step process to help differentiate firms in this field—designed to help you identify ones with the greatest probability of outperforming
• Provides investment strategies for a variety of market environments

Filled with in-depth insights and expert advice, Fisher Investments on Energy provides a framework for understanding this sector and its industries, to help you make better investment decisions—now and in the future. With this book as your guide, you'll gain a global perspective of the Energy sector in your quest to achieve consistent success in it.