How to Profit from the Coming Oil Crisis

Rating:
Summary: Very informative read for long term individual investors
Review: For anybody who has ever anticipated that oil/natural gas prices must go up, or for anybody who is seriously interested in diversifying their investment portfolio with the oil/gas asset class, this book is a great primer. With oil currently at $40/barrel, and the year-long run-up in oil/gas company stock prices, I wish I would have read this book years ago (or at least, before the Iraq invasion)

As an investor, the author is a classic value investor (ala Graham and Dodd). He makes extensive use of a so-called McDep ratio which is similar in concept to price/book ratio. He is also a big fan of using proven reserves as the true measuring stick and is less interested in refiners and large diversified oil companies.

The specific information contatined in the book is not directly useful today because it contains data from 1988 (when the book was published), but as an educational tool, the book really serves to open your eyes to the possibilities and methods that may be applicable today. In fact, I would argue that, given the fact that we now can have 20/20 hindsight, this book is even more valuable because we can determine how well the author's theses have panned out.

My only wish is that the author had provided a method usable by an individual for determining the value of the McDep ratio. While the equation is simple and 2 our of 3 variables can be easily obtained, the most difficult is the estimate of the "book" value. For a pure play natural gas provider, for example, it's easy to determine today's price/unit volume, but it's not obvious to me how to determine what their proven reserves are today since this depends on operational matters such as how many new wells are being installed, how the current wells are doing, and whether the company is acquiring/divesting properties.

However, overall, I would say this is a must read for the individual investor. The information provided adds significant value to the toolbox.