Reinvested remaining proceeds from SPC into KS Energy on 29 September 2009

Motivation

Despite the recent oil price correction from above USD $147 last year to current level fluctuating around USD $70, I believe the demand for crude oil for energy needs, and accompanying support services will surge again as the world economy gets back on its footing.

KS Energy

KS Energy operates in the oil & gas industry. It has 2 main core business segments, trading of capital equipment and provider of capital equipment chartering, drilling and rig management services. It is the latter that I see potential.

Business Performance


Ignoring other operating income that normally arose from divestment of investment or interest income, profitablitiy seems to turn the corner since 3Q 2008. With a lower base in 3Q 2008, 3Q 2009 should see a better improvement in earnings.

Reason to be optimistic - leveraging on more economic locomotives

The surge in world demand for resouces in 2007 to 2008 might be only a prelude to a much bigger one in the next decade, 2010-2019. The global economy used to be pulled by one major (US) and several smaller (Eurozone, Japan) locomotives. The next decade will see, for the first time in recent history, several huge locomotives in operation together. These include US (awaiting recovery), China, India and Brazil. Together with the support locomotives from Eurozone and Japan, the pulling force in the next decade could be very powerful.

The consequence is a surge in demand for resources and services the world can ever produce. Unfortunately, the demand cuts both ways. On one hand, asset and security prices will be boosted and the next bubble that dwarf the one that burst in 2008 may well occur. On the other hand, inflation will break through the roof and governments around the world will have a hard time containing it.

Unless there is a concrete switch into alternative sources of energy, demand of oil and gas and its supporting services surge again, on a much larger scale. This is where I believe KS Energy, CH Offshore (that I invested earlier) and many other (currently more expensive) providers will stand to benefit.

Risk

One of my main point of concern for KS Energy is its debt, though it manage to reduce it somewhat via recent fund raising activities. KS Energy's growth and expansion strategy is much more aggressive than CH Offshore and I hope it does not more grow broke. Even though the recent credit crunch is easing, there is still a high chance it can occur again in the near future.

Conclusion

With the investment in KS Energy, my investment in oil & gas industry is more or less completed. I'll turn my attention to food commodities now, for the same reason I go into oil & gas segment.