Bob: OK. Between October 7th of last year and December 26th, and the last week of February and the first week of March, just what I would call very high stress periods in the marketplace, we deployed more capital than at any point in time in the last 25 years.
We only spent about a third of our cash. Somebody would say, "Why not spend more because it was so cheap?" Well, when you are in a new era, a new financial system, in my mind that is speculating with our clients' money.
Secondly, we don't know what the redemption cycle is going to be, so we have to build in. So we have to build in several margins of safety to protect the fund and our shareholders.
But we did sufficient enough in that area and two thirds of it went into energy, both energy service and E&P. We have been writing about it for several years that when energy prices would finally get hit and the stock prices would finally get crushed, we would increase our exposure, which we did.
So in the case of the E&P companies, we were buying companies effectively on a prove reserve, not probable or possible, on a prove reserve basis that was cheaper than where they were by a factor of about 30%-40% of 2002.
I said, "That seems reasonable, " and yet oil prices were effectively 100% higher. Gas prices were still higher. So we did both of those things. The energy service companies; we were buying those at approximately 30%-40% of replacement value.
And unlike prior cycles, these companies had generated so much cash in this last up cycle, they had paid off all their debt, they had excess cash on there, and they had brand new equipment.
So I basically get a piece of equipment out there that is paid that has a free call option over the next several years. Finally, the whole process of hydrocarbons, natural gas, has first year decline rates in the neighborhood of 30%-50%, depending upon field and structure.
Worldwide we have oil production declining at the rate of 9% on various oil fields past peak out there. We are consuming three times as much oil as we are finding on an annual basis.
So it doesn't take much to see how the demand/supply curves can come into play. We have come up with a scenario that within three to five years, even without a US recovery, just languid, that we could see oil prices somewhere in the $100-$150 plus range.
And if we are correct about the treasury debt issuance, I don't think that is going to make the Saudis very happy about all this excess debt creation. And conceivably within three to five years we could see a golf coast council currency unit analogous to a Euro and having oil priced in something like that other than dollars.
That would not be positive. Excuse me. It would be positive for our investments!
[laughter]
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