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A Pipeline to Prosperity for Colombia
July 28, 2009
Deep in the interior of Colombia is one of the country’s largest construction projects: the pipeline, power plant and processing facilities at the Rubiales oil field deep in the country’s interior.
John Derrick, our director of research, and portfolio manager Evan Smith visited the Rubiales oil field last week to check out this huge infrastructure project. The pipeline is expected to start carrying crude in a couple of weeks.
| Last week, director of research John Derrick and portfolio manager Evan Smith visited the Rubiales oil field in Colombia. The field and its surrounding facilities are one of the largest construction projects in Colombia and will play an important role in whether Colombia can turn around its oil production which has been declining since 1999. In figures released on July 23, the Colombian government reported that the field holds as much as 500 million barrels of oil in reserves, making it the largest oil reserve in Colombia. | |||||
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Located in the eastern province of Meta, the Rubiales field is a city unto itself. More than 3,000 contract workers live on-site and 600 soldiers are stationed there to provide security.
Last week the Colombian government raised its reserves estimate for the Rubiales field to 500 million barrels of oil, a fivefold increase from the previous estimate.
Rubiales is now producing 60,000 to 70,000 barrels a day. The field is expected to increase its production capacity to 115,000 barrels a day this year and 165,000 barrels a day in 2010.
The new production may help Colombia reverse its decade-long trend of declining production. It produced about 600,000 barrels of oil per day in 2008, down from its peak of 830,000 barrels per day in 1999.
The pipeline will replace the current transportation system – 1,400 trucks running 24 hours a day. At $15 per barrel, trucking is an expensive way to get the crude to market. The pipeline will cut transportation costs to $8 per barrel.
Colombia’s government has made a considerable effort to attract foreign investment to boost its oil industry. The Rubiales field is a partnership between Colombia’s national oil company Ecopetrol and Pacific Rubiales Energy Corp., based in Canada.
Contrast this to neighboring Venezuela, where the Chávez government has created an uncertain business environment by seizing and nationalizing the assets of a number of international oil companies.
Similar to Jayant Bhandari’s trip to research gold mining prospects in Northeast Colombia (Read About Jayant’s Trip Here), our team returned with a favorable opinion of the progress taking place in Colombia.
The following securities mentioned in the article were held by one or more of U.S. Global Investors family of funds as of 6/30/09: Pacific Rubiales Energy Corp. 09-510
With Markets Uncertain, Indian Investors Return to Their Roots
October 28, 2008
Special commentary from Jayant Bhandari, a consultant to U.S. Global Investors, based on conversations with his contacts in India
With the Diwali holiday being celebrated today, the fall in gold prices could not have come at a better time for value-seeking Indians.
Before the holiday, a gold wholesaler in Chennai told Reuters that if gold prices fell below 1,200 rupees per gram of gold, pent-up demand would drain available supply. Gold is below that price level, and his predictions seem to be bearing out.
Initial reports suggest that gold sales on Dhanteras, which kicks off the five-day celebration two days before Diwali itself, rose by at least 50 percent over last year.
And gold sales were strong even ahead of the holiday season: A trade federation reports that 50 tonnes of gold were consumed in the first 20 days of October, compared with 80 tonnes in the entire fourth quarter of last year.
While Diwali gold sales are starting out strong, demand during the recent Pushya Nakshatra holiday was mixed. Our contacts in smaller cities tell us that gold demand was extremely strong, but the news from bigger cities was less favorable.
These short-term details are not really so important. Indeed, in the short-term, Indians might have to sell their gold for liquidity needs, as is happening elsewhere. What is interesting to us is the larger picture and the fundamental forces at play, which show a shift that is taking place in the Indian investor’s mind.
It is this shift—a move away from stocks and real estate—that is making gold once again a top investment in India.
India’s stock exchange has lost more than 50 percent of its value since its peak in January 2008, and it is now hovering below the key support levels. And for the first time in anyone’s living memory, Indian property prices are falling.
On top of that, inflation is around 11 percent, and real interest rates are negative. The rupee has fallen more than 20 percent against the U.S. dollar in the past year, making imports more expensive and reducing the possibility of a significant reduction in inflation.
In the long term, India remains a great economy for investors. But in the current uncertain environment, with stocks and property lagging and inflation overpowering interest rates, how should Indians preserve their wealth? They can’t buy dollars, as others are doing, because of currency restrictions.
That leaves gold as the best answer. For many Indians, it’s the only answer they can think of.
Once deleveraging has taken place and India’s credit markets are functioning again, it’s reasonable to expect gold demand to start climbing. Expect India to provide price support during this Diwali season and the forthcoming wedding season.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.
Net Asset Value
as of 11/20/2009
- Global Resources Fund
PSPFX $8.53 -0.06 - Gold and Precious Metals Fund
USERX $16.05 -0.08 - World Precious Minerals Fund
UNWPX $17.97 -0.02 - China Region Fund
USCOX $8.24 No Change - Eastern European Fund
EUROX $8.97 -0.10 - Global Emerging Markets Fund
GEMFX $7.94 -0.02 - Global MegaTrends Fund
MEGAX $7.94 -0.04 - All American Equity Fund
GBTFX $19.21 -0.10 - Holmes Growth Fund
ACBGX $15.12 -0.06 - Tax Free Fund
USUTX $12.24 +0.01 - Near-Term Tax Free Fund
NEARX $2.22 No Change - U.S. Government Securities Savings Fund
UGSXX $1.00 No Change - U.S. Treasury Securities Cash Fund
USTXX $1.00 No Change