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BENJAMIN MARK COLE
In this sky-high gusher market, are there any good investments left on Wall Street?
Look right underneath your feet, advises Joseph DiLillo, chairman of Santa Monica-based Drake Capital Securities Inc.
Southern California is the nation’s capital not only for entertainment but for heavy crude thick, viscous oil, bordering on tar, stuck underground.
Getting the gunk to rise, commercially speaking, has been a task that has flummoxed the generations and things really got sticky in the late 1980s and early 1990s, when oil prices sank.
Stuck with a tar baby, owners of heavy crude fields for the last 20 years have been tinkering with ways to bring the goo up for less money. And just when new techniques began to work (at the prevailing prices of a year ago), oil prices went up anyway, according to DiLillo.
“You have three things going on: In general, oil prices are up $5 a barrel in the last year that represents tremendous leverage for oilfield owners. Then, Congress lifted the ban on selling Alaskan crude to the Far East. Then, you have new technology.”
Allowing Alaskan crude to be sold to Asia descreases the supply to Southern California refineries, thereby raising refiners’ demand for local crude.
(In fact, DiLillo understates the case a bit. In the last year, most grades of oil are up about $7 to $8 a barrel.)
The new way to unstick tar involves “twin horizontal drilling,” according to DiLillo.
In this procedure, holes are drilled down for a little ways, and then tunnel sideways for a long run. A second hole is drilled near the first to send down steam and tar-loosening agents. The strategy has resulted in greater extraction.
(Jeff Wilson, spokesman at the Glendale-based Western States Petroleum Association, confirms that horizontal drilling is expanding output of tar-like and older oil fields.)
The exciting news for Angelenos is that a lot of this sticky black gook is right here. A small Nasdaq bulletin board-listed company, Geo Petroleum Inc., owns an oilfield off of the Bandini offramp from the Golden State (5) Freeway, known as the “Bandini East L.A. field,” as well as some fields up in Oxnard.
Two other companies, both listed on the Big Board Taft, Calif.-based Berry Petroleum Inc. and Houston-based Santa Fe Energy Resources Inc. also own Southern California crude.
DiLillo likes the heavy crude story, and his firm is involved in a pending underwriting for Geo Petroleum, limited to institutional buyers.
Sell! Buy!
One of the daunting things that happens to news reporters is the flood of contradictory information that pours across the desk, particularly regarding investments.
And so this week, we have received a report dated Jan. 7 from PaineWebber advising investors to buy stock in Glendale-based Public Storage Inc., the self-storage and real estate empire.
The company may spin some office buildings off into a REIT (real estate investment trust), and has just inked a deal with Century 21, Coldwell Banker and ERA (the residential real estate franchises) to become the preferred self storage vendor. Homebuyers and sellers using those real estate brokeages will get discounts for Public Storage self-storage units, and literature will be in broker offices.
But over at Donaldson Lufkin & Jenrette, a fresher report (Jan. 10) praised Public Storage’s stock performance (up 63 percent in 1996!) but said the “upside potential is no longer as high as it once was.”
Basically, Public Storage is trading at 15.5 times future earnings, while the rest of the industry is in the 13-to-14 range, said DLJ. It was taken off DLJ’s recommended list.
And that’s the way it is.
Plain English
For nearly 15 years, I have been reading initial public offerings, bond prospectuses, and other SEC-mandated disclosure statements, and for 15 years, I have felt like I had a slippery grasp on what is being said.
This uneasy feeling was only compounded by investment bankers, lawyers and others, who hinted that anyone reading the disclosures and not getting it is a bit slow.
So you can imagine my relief when, last week, SEC Chairman Alan Levitt Jr. said, “I’ve been around our markets for most of my life, and I can’t understand much of what passes for disclosure.”
The SEC has new “plain English” rules for disclosure statements, which are now in a 60-day comment period.
The irony of the obfuscatory verbiage of disclosure statements is that instead of sounding impressive or being technically correct, it probably has only put investors off.
With baby boomers entering the market in a big way, it is past high time to make disclosure statements very accessible. After all, this is a generation that has a problem reading anyway.
Bonded to bonds
After more than six decades of exclusive devotion to the municipal bond market, the brokerage house Stone & Youngberg has opened itself up to corporate and other taxable bonds, said Robert Firreng, principal in the firm’s Sherman Oaks offices.
“We discovered our clients really wanted to buy taxables also,” said Firreng. “They had been buying taxables before, just not through us.”
The firm will not research or recommend stocks, said Firreng. “We can recommend mutual funds, or execute an order for a stock. But we don’t underwrite or research equities,” said Firreng.
Stone & Youngberg remains the leading muncipal underwriter in California, said Firreng. “We underwrote 77 issues in 1996, all but one or two were in-state.”
By the way, there are some clouds on the horizon for municipals. State voters on Nov. 5 passed Proposition 218, which limits local governments’ ability to raise revenues, without a voter say-so. Already, the bond-rating agencies have downgraded the City of San Diego on a bond issued to finance an expansion of Jack Murphy Stadium, noted Firreng.
