With all the attention that the fracking revolution has brought to U.S. onshore oil production, it’s easy to overlook an unpleasant fact. Offshore drillers have had a brutal time lately.

Over the last 12 months, while the S&P 500 gained 17.5%, five of the world’s biggest pure-play offshore drillers dropped an average 14.3%, with declines ranging from 8.49% to 31.6%.

What’s wrong with the offshore drilling sector?

The demand for deepwater drill rigs and services is soft. Analysts point to lower utilization rates, increased rig supply and lower demand.

Another problem is the age of most drillers’ fleets. With demand low, drillers are unwilling to spend money to keep unused equipment upgraded with the latest in drilling and seismic technology.

There is one exception, however. That’s Seadrill Ltd. (NYSE: SDRL).

Seadrill is one of the world’s biggest offshore oil and natural gas drillers. It has drillships, jack-ups and semi-submersibles operating in every major offshore basin. And it offers a safe double-digit dividend yield.

Most investors have lumped Seadrill in with all the rest of the offshore drillers. But they’re wrong... and I’m going to show you why.

Focused on the Wrong ThingNaysayers, like David Wilson of energy research firm Howard Weil, remain bearish on Seadrill.

Soft demand for offshore drillers has Wilson nervous about Seadrill’s aggressive approach to upgrading its fleet. Such upgrades cost billions. Wilson and others worry about Seadrill’s long-term debt.

Seadrill is spending all that money on the construction of 21 new tenders, drillships and semi-submersibles. Of Seadrill’s 42 existing assets, 38 are in operation, three are in transit and one is out for repair.

DRILLING DEEPER TO DISCOVER PROFITS | ISSUE 7, AUGUST 2014

OXFORD RESOURCE

DAVID FESSLER

The Oxford Club David Fessler Energy and Infrastructure Strategist

Sean Brodrick Resource Strategist

Alexander Green Chief Investment Strategist

Andrew Snyder Editorial Director

Robert Keaveney Managing Editor

Amanda Heckman Managing Copy Editor

Priyanka Marple Copy Editor

Cory Blische Chief Graphic Designer

Alison Kassimir Graphic Designer

James Boxley Cooke Honorary Chairman Baltimore, Maryland

Julia Guth Executive Director/Publisher

Laura Cadden Associate Publisher

Nathan Hurd Director of VIP Trading Services

Page Carpenter Chairman’s Circle Liaison

The Future of Offshore Drilling Is HereAnd One Big Dividend Payer Is Poised to Take Advantageby David Fessler, Energy and Infrastructure Strategist, The Oxford Club

2energy investing

Yet Seadrill’s aggressive construction program is part of the reason it’s currently undervalued. In addition to (temporarily) adding to its debt load, it skews the utilization rate that analysts use to measure offshore drillers’ performance.

The utilization rate is the most important metric in the industry. It reflects how much of a driller’s asset capacity is actually being used by paying customers.

Under-construction assets are counted as unutilized assets by the data company that reports the rate, even though a ship can’t be used until it’s complete. As a result Seadrill’s “official” utilization rate is under 70%.

But its real utilization rate, not counting under-construction assets, is 95%.

Compare that to one of its biggest competitors, Transocean Ltd. (NYSE: RIG), whose real utilization rate is 74.4%.

Why is Seadrill’s rate so much higher than Transocean’s? Because Transocean, typical of many in the industry, is mothballing 18 of its assets.

Transocean’s logic: It doesn’t want to spend money maintaining and upgrading assets that aren’t in demand.

It figures it can quickly add capacity when market conditions improve.

The plan is to bring unused rigs out of the junkyard and get them quickly into commission with refurbished equipment just as soon as customers come knocking.

That will ultimately backfire.

Here’s why: Deepwater drilling customers are not going to pay $600,000 per day for something that’s operating with refurbished equipment.

They’re going to want one of Seadrill’s Generation 6 ultra-deepwater (UDW) drillships. They can drill wells to final depths of 37,500 feet.

Seadrill has recently completed four UDW ships, and is building eight more.

If you’re worried that Seadrill might spend billions building ships into soft demand, don’t be. It typically has contracts for its new drillships well in advance of their deployment.

And one thing that sets it apart is its ability to garner high day rates for its state-of-the-art equipment.

For example, Seadrill just announced that one of its newest UDW drillships, West Jupiter, is now under contract for the next five years.

Major Offshore Drillers vs. The S&P 500

17.5%12.5%7.5%2.5%-2.5%-7.5%-12.5%-17.5%-22.5%-27.5%-32.5%-37.5%

■ = S&P 500 ■ = Seadrill Ltd. (NYSE: SDRL) ■ = Atwood Oceanics Inc. (NYSE: ATW) ■ = Transocean Ltd. (NYSE: RIG ) = Diamond Offshore Drilling Inc. (NYSE: DO) = ENSCO PLC (NYSE: ESV)

Sep

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“Seadrill’s aggressive construction program

is part of the reason it’s currently undervalued.”

3energy investing

The total value of the primary contract is $1.1 billion. With the addition of this contract, Seadrill’s total backlog is about $20 billion.

West Jupiter’s expected completion date is this month.

Seadrill’s customer, Total S.A. (NYSE: TOT), plans to deploy West Jupiter in UDW projects off the coast of Nigeria.

It will be working in water depths of 10,000 feet and can drill up to 37,500 feet.

This is just one example. The new ships that Seadrill is still building will all likely have similar contracts before they are finished. So much for “unutilized.”

Ships like West Jupiter are what customers want, not some refurbished “hunk-a-junk.”

Seadrill understands this, even if its competitors don’t.

The following graph, from the company’s first quarter earnings presentation, clearly shows why it makes sense to invest in new state-of-the-art equipment.

It’s easy to see the bifurcation of deepwater (DW) drilling.

Since October 2011, the demand for Seadrill’s new UDW drill rigs has more than doubled.

In the same time frame, Seadrill has seen demand for older deepwater rigs cut in half. This is what so many fail to see.

It’s also why customers are coming to Seadrill. UDW is the future of offshore drilling.

As exploration moves to deeper waters and greater depths,

the technology to operate in those conditions has to be there. Seadrill has a huge jump-start on the rest of the industry with its new generation of drillships.

Seadrill’s core fleet is already doing UDW drilling. It has 32 sixth-generation UDW units.

In addition, the company owns two mid-water, harsh-environment semi-submersible rigs. It has 29 high-specification jack-up rigs, three harsh environment jack-up rigs and three tender rigs.

Poised for Growth and IncomeWhile it’s clear that Seadrill is focused on its customers, it’s always been attentive to its shareholders. Its five-year average dividend yield is about 8%. Right now, it’s sporting a yield of 10.06%.

Normally, a 10% dividend yield is an eyebrow-raiser. But its dividend is safe.

The company’s earnings and cash flows are more than adequate to cover its dividend payments.

Seadrill is a well-run company and a solid long-term investment. There are no real threats to its valuation.

For the first quarter of 2014, Seadrill’s net operating income of $890 million was up 56.7% over the fourth quarter of 2013. It also beat revenue expectations with top-line growth of 14.3%.

The big jump was largely due to a gain on the sale of assets worth $440 million. That boosted earnings per share to $6.54 from $0.49 during the fourth quarter 2013.

And the balance sheet that’s worrying some investors? That’s looking better, too.

During the quarter, Seadrill reduced its long-term debt by $1.8 billion. Total long-term debt now stands at $12.4 billion.

With eight new UDW drillships coming on line, Seadrill is the deepwater driller in the catbird seat. None of its competitors are positioned to get the lucrative UDW contracts.

That’s why we’re adding it to the Oxford Resource Explorer’s Core Portfolio. I expect Seadrill to be one of our best growth and income plays in the coming months.

Action to take: Buy Seadrill Ltd. (NYSE: SDRL) at market. With the stock showing increased volatility, we’ll use a 35% trailing stop to protect your principal and your profits. n

14,000

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Contract Backlog

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■ = DW ■ = UDW ■ = Total

4infrastructure investing

The global economy is growing. Maybe not as fast as we’d like, but still, it’s improving. The International Monetary Fund now predicts global growth of 3.6% this year and 3.9% in 2015. That’s up from 3% last year.

The improved outlook can’t come soon enough for global freight shippers.

Average daily earnings for Panamax-sized ships – so-called because they can squeeze through the Panama Canal – slid to one-year lows of around $3,000 a day in recent months.

These ships are capable of carrying 60,000 to 70,000 metric tons of cargo.

Now analysts expect Panamax average earnings to approach $8,000 to $10,000 a day by October. Rates for other sizes of vessels are expected to rise, too.

And this is due to increased volumes. Major shipping hubs in Europe are seeing freight traffic rise 5% year over year. The Los Angeles-Long Beach port complex has seen its traffic jump 10%.

A Big Change Is ComingThe widening of the Panama Canal, which is expected by 2016, could further boost bulk shipping traffic.

That means goods from China that need to get to America’s East Coast won’t have to be unloaded in California and shipped across the continent by rail.

Instead, shipped cargoes will be able to sail all the way to New York. Shipping goods by boat is generally cheaper.

So that could be another shot in the arm for the dry-bulk shipping industry.

Oil Tankers Look Good, TooGlobal oil demand will average 92.8 million barrels per day (bpd) this year, up from 91.4 million bpd in 2013, according to the International Energy Agency. What’s more, the IEA expects oil consumption will rise by 56% between now and 2040, with China and India responsible for half of this increase in consumption.

U.S. law prevents domestic companies from exporting crude oil... for now. However, Uncle Sam has increased total exports of oil products – gasoline, diesel and so on – by more than 300% since 2004, to about 4 million bpd.

And the U.S. policy banning crude oil exports is in flux, with many expecting an eventual repeal. The Department of Commerce recently ruled that Pioneer Natural Resources (NYSE: PXD) and Enterprise Products Partners (NYSE: EPD) could export ultra-light oil from the Eagle Ford region of Texas.

This oil has been put through a stabilization process to make it safe for transportation and storage. So it’s not quite the export of crude oil that many claim.

But it’s the tip of the iceberg.

Recently a document emerged from secret trade negotiations between the European Union and the U.S. This document shows that the EU is pressing the U.S. to lift its long-standing ban on crude exports. What’s more, the EU wants the U.S. to make a “legally binding commitment” to export its oil and gas.

Why is the EU doing this? Because it’s scared to death of Russia. Vladimir Putin is getting more belligerent by the minute. Europe buys a third of its oil and more than 38%

Your Ship’s Come In... to Big Discounts and Great Dividend YieldsNow’s the Time to Buy a Tanker Stockby Sean Brodrick, Resource Strategist, The Oxford Club

SEAN BRODRICK

“The U.S. policy banning crude oil exports is in flux,

with many expecting an eventual repeal.”

5infrastructure investing

of its natural gas from Russia, and it’s looking to the U.S. to replace that.

So, we probably will see the U.S. begin allowing crude oil exports soon. That’s not a bad thing. This will boost our balance of trade and our economy.

And all that oil will have to be shipped by tanker.

What’s more, we are seeing a lot of new refinery capacity being built in Asia. That opens up new markets for U.S. crude oil – and it all has to be shipped there, too.

Why will we ship our oil to Asia? Because we don’t have the refineries to process it here.

As U.S. oil production slowed in the 1970s, refiners here spent billions in plant modifications to handle heavy crudes from Saudi Arabia and other producers. They’re not set up for the light, sweet type of crude that flows from U.S. shale formations like the Bakken and the Permian Basin.

Fracking has made it possible to vastly increase production from such formations. And as that continues, the crude that’s produced has to go somewhere.

Some refiners are once again spending money to modify their plants to blend in light, sweet crude with the heavier imported variety. But those moves won’t be enough.

U.S. energy secretary Ernest Moniz recently acknowledged at a press conference that “the nature of the oil we’re producing may not be well matched to our current refinery capacity.”

So is the U.S. going to export crude oil? Bet on it.

And this will add to the rising tide of crude oil being shipped around the world. The time to buy a tanker stock is now.

How We’ll Play ItThat’s why we’re adding Nordic American Tankers (NYSE: NAT) to our Value Portfolio. Despite the fact that earnings per share are expected to grow 114% in the next year, this small cap ($809.9 million market cap) tanker company recently traded at just 0.8 times book value.

What’s more, it recently sported a dividend yield of 10.1%. That dividend is projected to grow 17.9% over the next three years.

Nordic specializes in shipping through the Suez Canal. Only 5% of global tankers are Suezmax but all 22 of Nordic’s vessels are. Between now and 2016, only 30 more Suezmax vessels are expected to enter the global fleet. During the past three years, however, 35 vessels have left the fleet and been scrapped.

If this trend continues, the Suezmax fleet will shrink instead of grow over the next few years while the demand for tankers rises. That could put Nordic American in a good position, especially because Suezmax tankers can serve Iraq, where oil production is growing despite the political menace of the terrorist group ISIS.

And Nordic American’s stock is coiling up as you can see in the chart below...

With the growth potential in international oil shipping, I think the breakout will be higher. In any case, you’ll be paid a hefty dividend to wait.

Action to Take: Buy Nordic American Tankers (NYSE: NAT) at market and add it to the Value Portfolio. And use our customary 25% trailing stop to protect your principal and your profits. n

Nordic American Tanker Shipping Ltd.

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NAT shows real potential, andyou’re buying it on a dip.

The old phrase “strike while the iron is hot” might have to change to “strike while the aluminum is hot.” Prices of the metal recently hit a one-year high.

And it’s not the only base metal on fire. Prices of zinc, lead and copper are also gaining traction.

Many industrial metals were under pressure as supply grew. Aluminum in particular suffered seven hard years. Low prices led to a lack of investment in new mining capacity.

Pressure on aluminum and other base metal prices worsened as fears of a “hard landing” for China’s economy intensified in the first half of this year. China is the world’s largest consumer of aluminum, accounting for 45% of global aluminum consumption in 2013.

Now those fears are receding as China reports better economic numbers. Its manufacturing expanded at a faster pace last month. And Chinese trade figures are showing strong growth in exports and a recovery in imports.

What’s more, China is intensifying easy-money policies. This should boost economic activity as well as demand for industrial metals. And that means increased demand when no money has been spent on new mining capacity. That could lead to explosive price moves.

Morgan Stanley reports that supplies of copper, lead and zinc are unable to keep up with demand this year. And booming global auto sales will continue to drive stainless steel and aluminum demand.

In its second quarter earnings release, Alcoa (NYSE: AA) said it expects higher demand from automakers and the aerospace and defense industries going forward. That sent aluminum to a record high and sent shares of Alcoa to a three-year high.

Alcoa forecasts global aluminum demand will grow 7% this year. And it expects a supply-demand deficit of 930,000 tons – a bigger deficit than previous forecasts. That’s bullish for prices.

And to give you a pretty picture of what’s going on in industrial metals, take a look at the chart of the PowerShares DB Base Metals Fund (NYSE: DBB). This exchange-traded fund tracks a basket of copper, zinc and aluminum.

You can clearly see that the PowerShares is breaking out to the upside – driven by rising prices of aluminum, copper and zinc.

We’re keeping an eye on the major metals producers, including Alcoa, BHP Billiton (NYSE: BHP), Rio Tinto (NYSE: RIO) and Freeport-McMoRan Copper & Gold (NYSE: FCX).

Precious Metals Will Likely Surge AgainPrecious metals showed a lot of strength in the first half of the year. Though they pulled back recently, they have the ingredients to head higher again. There are four important developments.

1. Traders are now buying the dips. That puts a floor under the metal.

2. Gold ETFs are buying physical metal again. For six weeks in a row recently, holdings went up.

3. Gold rallied in June and early July despite news that should have sent it lower. That’s a very bullish signal.

4. Germany gave up on trying to repatriate gold it has stored at U.S. Federal Reserve banks. This leads many in the markets to speculate that those Fed banks don’t have the gold to give back.

This is good for your precious metals positions: Silver Wheaton (NYSE: SLW), Goldcorp (NYSE: GG) and First Majestic Silver (NYSE: AG). All three positions are looking strong, so stay long. n

Aluminum Leads a Base Metal Boomby Sean Brodrick, Resource Strategist, The Oxford Club

METALS CORNER

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PowerShares DB Base Metals Fund

The DBB is breaking out along with base metal prices.

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In my column in the June issue, “The Fuel That Will Soon Change the World,” I told you that a movement away from our petroleum-powered transportation fleet toward one powered by natural gas transportation was not only possible, but likely.

I got plenty of responses. Here are a few from the pile.

Arthur writes, “What are big car companies doing to provide cars [that] run on liquid natural gas (LNG)?”

Bernie wonders, “Why can’t they build dual-fuel vehicles? I have a 1990 Ford pickup that uses gasoline and propane. The propane does not give me the mileage that gasoline does, but I can get more propane for the same amount of money spent on gasoline.”

Neil asks, “What are your thoughts on companies who make natural gas engines and refueling stations?”

All great questions. Let’s dig a little deeper into natural gas as a transportation fuel.

What Is “Big Auto” Doing?Ever since fracking unleashed an American natural gas boom, producers have been pushing automakers to offer vehicles that run on it.

Last year, America’s Natural Gas Alliance, an industry group, showed them how easy it is to create dual-fuel vehicles like the one Bernie owns. It unveiled six vehicle models it modified to run on either fuel.

Total cost? Less than $3,000 per vehicle. There’s no loss of performance. The best part is, when you’re running on compressed natural gas (CNG), you’re saving the equivalent of $1.50 per gallon at today’s gasoline prices.

But few automakers are answering the call... so far.

Ford has an F-150 pickup truck available in a dual-fuel version. Honda’s Civic Natural Gas is the only car that’s made factory-equipped to run on CNG.

Advocates for dual-fuel cars and trucks view them as a bridge from gas and diesel burners of today to tomorrow’s affordable all-electric or hydrogen-powered vehicles.

Who’s Developing Natural Gas-Fueled Engines?Westport Innovations Inc. (Nasdaq: WPRT) is certainly the leader in this growing market. Its first quarter sales shot up 40% from the same quarter a year ago. Westport has joint ventures with Cummins and Weichai, both large diesel engine manufacturers.

In addition, it has a partnership with Tata Motors, the large Indian car manufacturer. The opportunity for Westport’s natural gas-powered engines is superb.

Navigant Research expects natural gas bus and truck markets to grow annually by 6.4% and 12.6%, respectively, through at least 2022. By then, the research firm expects 1.9 million trucks and 1.8 million buses powered by natural gas.

Right now, Westport’s focus is on the large truck engine market. However, it’s only a matter of time before it’s asked to license its technology to a car manufacturer.

For now, Westport is investors’ best opportunity to play the natural gas-powered sector.

Of course, even if we have cars with natural gas engines, we need to refuel them. That’s actually a bigger problem than the engines themselves.

Who Is Building Natural Gas Refueling Stations?If all car companies start offering CNG-powered or dual-fuel vehicles tomorrow, most Americans would be hard-pressed to find filling stations.

There are a number of initiatives underway on this front.

Royal Dutch Shell PLC (NYSE: RDS.A) is already moving ahead with refueling stations. In April 2013, Shell teamed up with TravelCenters of America (NYSE: TA).

The companies announced plans for LNG refueling pumps at no fewer than 100 TravelCenter truck stops. These are all located along major interstate highway truck routes.

Shell is also collaborating with Volvo on LNG-powered

When Will We Drive Natural Gas Cars?by David Fessler, Energy and Infrastructure Strategist, The Oxford Club

ENERGY OUTLOOK

8energy outlook

2015EVENTS

Just Released!

Our 2015 calendar of events is now available! We know from experience that our Members like to mark their calendars early and make their plans for that next unforgettable trip as soon as possible. That’s why we are so excited to announce that the Club’s 2015 Calendar of Events is now available.

It features information on all of our upcoming 2015 seminars and tours... including our inaugural Beyond Wealth Retreat at the elegant Four Seasons Resort at Ka’Upulehu Kailua-Kona, Hawaii... a Private Wealth Seminar in stunning Beaver Creek, Colorado... and even a Natural Resource Expedition and South Africa Safari! Plus much more.

To learn more, simply visit http://oxfordclub.com/events/ and click on the calendar link. We look forward to seeing you soon!

vehicles and refueling stations. However, it’s not just big, multinational oil and natural gas companies involved in the transition.

Integrys Energy Group (NYSE: TEG) is a large energy holding company. Its Trillium CNG division has refueling stations for the trucking market.

Integrys’ “fast fill” refueling stations solve the biggest problem of using CNG: the slow tank refill time.

At this point, however, it’s still not clear whether CNG or LNG will end up being the fuel of choice when it comes to natural gas.

One vote in CNG’s favor is the massive pipeline infrastructure underlying most American cities. LNG requires expensive equipment to liquefy natural gas.

The largest supplier of both LNG and CNG refueling stations is Clean Energy Fuels Corp. (Nasdaq: CLNE).

It supplies municipalities with refueling stations for natural gas-powered buses and trucks.

Clean Energy Fuels is partnering with Pilot-Flying J Travel Centers. Pilot-Flying J is the largest operator of truck stops in the U.S.

The two companies have created what they call “America’s Natural Gas Highway.”

These stations, combined with those of TravelCenters

of America, are a good start for a nationwide natural gas refueling network.

However, there are roughly 167,000 gasoline and diesel refueling stations across the U.S.

Widespread adoption of LNG and CNG by the average consumer means many more refueling stations and plenty of dual-fuel vehicle choices.

We’re not there yet, but we’re off to a good start. n

“Navigant Research expects natural gas bus and truck

markets to grow annually by 6.4% and 12.6%, respectively,

through at least 2022.”

portfolio review

Keep an eye on your inbox each Wednesday for Oxford Resource Explorer’s Weekly Wire, where David and Sean keep you up to date on the latest happenings on the stocks in the portfolios.

Here’s some of what you may have missed in the last month.

First Majestic Silver (NYSE: AG)The big banks smacked gold and silver this week in mid-July like bullies picking on skinny kids in a playground. It’s not fun to watch and even less fun to experience as an investor.

But holding precious metals producers through a short-term correction like this is a smart thing to do if you have an eye on the longer term.

For example, First Majestic Silver’s most recent production numbers were excellent.

First Majestic Silver owns five producing silver mines in Mexico: La Encantada, La Parrilla, San Martin, La Guitarra and Del Toro.

Here’s the run-down...

• First Majestic produced 3.9 million ounces of silver equivalent in the second quarter. That’s up 18% year over year.

• Total silver production for the quarter consisted of almost 3.1 million ounces of silver – up 12%. On top of that, the company produced 2,801 ounces of gold – up 40%. Also, more than 9.13 million pounds of lead was produced – that’s a big jump of 54%. Only zinc production declined, by 9% to 2.64 million pounds.

• At the same time, First Majestic announced higher grades and recovery rates. Silver grades jumped by 6% year over year. That’s why it was able to boost metal production by 18% while throughput at the

mill only rose 5%. This probably means that costs came down, but we won’t know until earnings come out.

First Majestic completed 12,508 meters of diamond drilling in the second quarter, a 74% increase over the previous period.

So, we should see a boost in resources this year, if all goes well.

And remember, production from its five mines is anticipated to be between 14.85 and 15.6 million ounces

of silver equivalent in 2014.

Also during the quarter, the company repurchased 40,000 of its common shares on the Toronto Stock Exchange at an average purchase price of C$9.96 per share (that’s US$9.26 per share).

If that’s where the company is buying, that might serve as support.

On the downside, sure, Mexico recently instituted a 7.5% mining royalty. However, that’s probably priced into the stock.

And there’s more news: At the first of the month, First Majestic spun out its wholly owned subsidiary Minera Terra Plata S.A. to Sundance Minerals, a private exploration company. Terra Plata owns a number of grass roots exploration projects.

That transaction is expected to be completed on or about September 15. We’ll get more details in September.

But this may be a way for First Majestic to leverage some of its exploration properties into a company that will develop them.

But that’s a side deal. The thing to keep in mind is that First Majestic is growing production and potentially cutting costs. It can survive at low silver prices. In fact, First Majestic’s earnings are projected to grow 88% in the next year, and it’s trading at just 15 times forward earnings.

PORTFOLIO REVIEWOxford Resource Explorer:by David Fessler and Sean Brodrick with Bob Keaveney

9

“First Majestic produced 3.9 million ounces of silver

equivalent in the second quarter. That’s up 18% year

over year.”

10portfolio review

A lot depends on the price of silver.

However, I think we’re much closer to the bottom in silver than the top. And if silver gets some momentum, we could see an explosive move in this stock.

Apache Corporation (NYSE: APA)The Permian Basin in Texas has been producing oil for more than 90 years. Annual production peaked at just over 700 million barrels in 1975.

In 2010, production “dwindled” to 270 million barrels. Up until that time, all the wells were vertical. Conventional production seemed to be on a steep decline.

However, new geological studies, combined with the application of horizontal drilling and hydraulic fracking, have resulted in the rebirth of the Permian.

Now more than 100 exploration and production (E&P) companies are drilling in this revived formation. Nearly all of them are employing horizontal drilling techniques.

The second-largest of them is Apache Corporation. Apache controls 3.3 million gross acres in the Permian Basin.

Right now, Apache still gets 38% of its revenue from international production.

However, over the last five years, Apache has been significantly reducing its international exposure. Take a look at the pie charts below, courtesy of Apache.

It’s easy to see that Apache’s making a strategic shift to expand its North American onshore operations. In just five years, it’s nearly doubled its U.S. land-based drilling.

Perhaps even more telling is Apache’s increase in Permian production. In just five years, Apache’s production has nearly tripled from the 11 oil-soaked layers of the Permian Basin.

Apache has 38 drill rigs in operation there. It already has more than 13,500 producing wells in the play.

Its 2014 first quarter production averaged a record 149,564 barrels of oil equivalent per day (Boe/d). That was a 12% increase over the fourth quarter of 2013.

Apache has recently been trading near its 52-week high. But rather than selling it, investors should think about backing up the truck and buying more.

Here’s why: Apache shares remain a compelling value, even at today’s prices. It’s spent a lot of time strengthening its balance sheet.

It’s shed more than $2.6 billion in debt and ended the first quarter of 2014 with $1.6 billion in cash. Now, Apache is returning some of that cash to its shareholders.

A 25% dividend increase this year comes on the heels of an 18% increase in 2013. In addition, Apache has repurchased $2.1 billion of its stock.

In May, Apache increased its share buyback program by 10 million shares. The company has already repurchased

2009 Production Q1 2014 Pro Forma Production

34% N.A.Onshore

62% N.A.Onshore

537 Mboe/d50% Liquids

548 Mboe/d58% Liquids

Centra

l 7%

Permian 10%

Gulf Coast 3%

Canada 14%

Egypt 14%

Gulf of Mexico 2%

Cana

da 1

4%

Gulf

Coas

t 6%

Cent

ral 1

6%

Permian 27%

North Sea 12%

Australia 10%

Egypt 20%

North Sea 11%

Australia 8%

Arge

ntin

a 8%

Gulf

of M

exic

o 19

%

■ = N.A. Onshore ■ = Gulf of Mexico

■ = International

Apache Corp

11portfolio review

24.3 million shares of its existing 30 million share repurchase program.

In the 2014 first quarter, Apache’s 38 rigs completed 196 new wells in its Permian acreage. Its liquids production from the Permian for the first quarter increased 28% year over year.

Since establishing operations in the Permian at the beginning of 2010, its production has grown at a compound annual growth rate of 24%.

It’s no wonder the Permian is turning out to be a “black gold” mine for the company.

One of the most exciting areas of the Permian for Apache is the Wolfcamp Shale. The company estimates that 401,000 acres are good prospects for Wolfcamp wells.

Right now, the company has six rigs focused on drilling 12 upper and eight middle Wolfcamp wells. These horizontal wells will all have lateral lengths of at least 1.5 miles.

Apache is also active in the 510,000 prospective acres it has in the Cline Shale.

The company plans to drill 35 wells in 2014. Many of these will be test wells to maximize the rate of return for this particular layer.

Apache’s largest Permian acreage holdings are in the Central Basin, where it has 850,000 acres. During the first quarter, Apache drilled nine wells total, with six completed and in production.

Apache has about 95,000 acres in the Yeso play. Since the beginning of the year, three drilling rigs have been operating there and have completed a total of 25 wells.

The company plans to drill an additional 95 wells in the Yeso area by the end of 2014.

Finally, Apache has 215,000 acres in the Delaware Basin. It started the year with three rigs turning in its Pecos Bend field.

A total of five wells were drilled. These targeted the second and third Bone Spring layers, as well as the Wolfcamp layers.

It’s clear that Apache has huge opportunities ahead in the Permian Basin. The company’s exploration and production budget for 2014 is $8.5 billion.

It plans to spend 64% of that developing its North American onshore prospects. The Permian Basin is getting the lion’s share.

Fully 31%, or $2.6 billion, is budgeted for Apache’s Permian Basin drilling and well completion activities in 2014. Based on what I’ve seen so far, that will be money well spent.

Now is the perfect time to add the second-biggest Permian powerhouse to your energy portfolio or to add to an existing position.

Cameco (NYSE: CCJ)Cameco is one of the few Oxford Resource Explorer recommendations that hasn’t done well... yet.

This company is packed with potential and we should see good things out of it soon.

Why is Cameco under pressure?

Because Cameco is a vertically integrated uranium producer and the spot price of uranium is at an eight-year low. We thought the price of uranium would pick up by now. It hasn’t.

There had been cause for optimism on uranium prices. There were strong suggestions that Japan would restart its fleet of 50 nuclear reactors that have been shut down since the Fukushima earthquake/tsunami/nuclear leak rocked the world in 2011.

And in fact, the pro-nuclear government of Prime Minister Shinzo Abe has vowed to restart plants that pass tough, post-Fukushima safety checks.

However, we’re still waiting. And it’s this waiting that is weighing on the price of uranium.

Meanwhile, the rest of the world doesn’t stand still. Global nuclear energy output grew by 0.9% in 2013.

This is significant as it was the first increase since Fukushima. The fact is, nuclear now makes up the smallest percentage of global energy production since 1984.

In my view, there’s nowhere for nuclear to go but up. And I’m not the only one who thinks so.

French nuclear group Areva expects uranium prices to rise again, perhaps later this year. In fact, the company says the price rise “could go quite fast.”

Partly as a result of Fukushima, last year the International Atomic Energy Agency cut its long-term outlook for nuclear energy growth for a third year in a row.

portfolio review

Prices as of 7/18/2014.

* Use a 35% trailing stop. Trailing stops are adjusted to reflect dividends collected. † Prices adjusted for stock split. ADR – American Depositary Receipt. MLP – Master Limited Partnership. REIT – Real Estate Investment Trust. mREIT – Mortgage Real Estate Investment Trust.

OXFORD RESOURCE EXPLORER PORTFOLIOS

REC. DATE REC. PRICE CURR. PRICE RATING TRAILING STOP EDITOR

CORE PORTFOLIOCore Laboratories Inc. (NYSE: CLB) Jun-14 $160.55 $165.22 Buy $124.91 FesslerEl Paso Pipeline Partners L.P. (NYSE: EPB) MLP Jan-14 $34.41 $35.71 Buy $27.48 Fessler

Hess Corp. (NYSE: HES) May-14 $87.43 $98.72 Buy $74.95 Brodrick

Seadrill Ltd. (NYSE: SDRL)* Aug-14 New New Buy 35% TS Fessler

Silver Wheaton Corp. (NYSE: SLW) Jan-14 $21.73 $26.64 Buy $20.44 Brodrick

GROWTH PORTFOLIOBaker Hughes Inc. (NYSE: BHI) Jan-14 $52.55 $73.28 Buy $56.51 Brodrick

Chesapeake Energy Corp. (NYSE: CHK) Mar-14 $25.67 $27.00 Buy $22.14 Fessler

Diamondback Energy Inc. (Nasdaq: FANG) Jan-14 $44.43 $86.66 Buy $68.56 Fessler

Magnum Hunter Resources Corp. (NYSE: MHR) Apr-14 $8.64 $7.27 Buy $6.76 Fessler

Sasol (NYSE: SSL) ADR Jun-14 $57.43 $58.72 Buy $45.16 Brodrick

U.S. Silica Holdings Inc. (NYSE: SLCA) Jul-14 $53.87 $58.29 Buy $43.72 Fessler

VALUE PORTFOLIOApache Corporation (NYSE: APA) May-14 $87.28 $98.58 Buy $76.01 Fessler

Cameco (NYSE: CCJ) Feb-14 $22.62 $20.42 Buy $18.56 Brodrick

EOG Resources Inc. (NYSE: EOG) Jan-14 $81.73 $116.04 Buy $88.39 Fessler

First Majestic Silver (NYSE: AG) Apr-14 $10.08 $10.50 Buy $8.20 Brodrick

Goldcorp Inc. (NYSE: GG) Jan-14 $23.10 $27.95 Buy $21.34 Brodrick

Nordic American Tankers (NYSE: NAT) Aug-14 New New Buy 25% TS Brodrick

However, the IAEA also said that nuclear power capacity could still nearly double by 2030 due to expansion in Asia.

Beyond Japan, 72 nuclear reactors are under construction worldwide.

And all this means great potential for Cameco, which produces close to 15% of global uranium supply.

Cameco is the world’s preeminent pure-play uranium miner for a number of reasons.

It has a host of high-quality mines and dominates uranium

mining in Saskatchewan, Canada, the single-best uranium mining jurisdiction in the world.

It carries very little debt.

And Cameco’s profit rose in the first quarter. A company that can do that when uranium prices are in the pits is well-positioned for when the fundamentals of the nuclear sector push the uranium market upwards.

So Cameco is a good one to hold. I think we’ll see uranium price appreciation from here, and when the move comes, as Areva says, it could be big. n

* Use a 25% trailing stop. Trailing stops are adjusted to reflect dividends collected. † Prices adjusted for stock split. ADR – American Depositary Receipt. MLP – Master Limited Partnership. REIT – Real Estate Investment Trust. mREIT – Mortgage Real Estate Investment Trust.

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PublisherEditorEditorEditorial DirectorManaging Editor

Julia GuthSean BrodrickDavid FesslerAndrew SnyderBob Keaveney

Copy EditorCopy EditorEvent DirectorDirector of ResearchChief Graphic DesignerGraphic Designer

Priyanka MarpleAnne MatthewsSteven KingChris MatthaiCory BlischeAlison Kassimir