The debate continues as to whether the glass is half-full-or when it will be half- empty.

But most of the 500 people attending the recent World Oil Conference in Houston think peak oil production could occur as soon as 2011. Sponsored by the Association for the Study of Peak Oil's U.S. chapter (ASPO-USA), the University of Houston and the city of Houston, the gathering was to educate the public about the social, economic and technological ramifications of peak oil and to discuss possible responses from consumers, businesses and government at all levels.

"Global oil output has already peaked at about 85 million barrels a day and high oil prices are a sign of things to come," said commodity investor and former E&P executive T. Boone Pickens, head of BP Capital in Dallas.

"You never run out of oil, but you do run out of incremental flows because new production is fully offset by depletion elsewhere," said Chris Skrebowski, a trustee of the London-based Energy Institute and editor of The Petroleum Review. He said he is no pessimist by nature and is not anti-oil, having worked in the oil industry for years before becoming a journalist.

"I believe in observing what companies do, not what they say...and let the numbers speak for themselves," he said.

Skrebowski's numbers were not positive. In the past 12 quarters, the five supermajors have seen their oil output decline, and production has flat-lined during that period for the world's 24 largest publicly traded oil companies, even as they have hiked E&P spending.

He estimates the peak will arrive in 2011 or 2012 at about 93 million barrels per day, a higher number than Pickens forecasts. Skrebowski has studied some 175 announced mega-projects under way around the world, with estimated dates of first production and other details. He believes net global depletion is now running about 4% annually, or that production is dropping by 3.3 million barrels a day each year, despite the new mega-projects.

He cited data from BP Plc that indicates 25 major producing countries and 40 minor ones are already seeing output decline, and 50 of the 120 largest fields in the world are in decline.



Investing choices

If countries and major companies are having trouble maintaining oil output, what should investors do? Financial planners and other investing pros at the conference suggest focusing in the near term on strong companies that can show oil and gas production growth. A mid-term focus should be on suppliers to alternative-energy companies.

"Peak oil is a powerful concept and potentially crushing...This could bring on a number of related crises, so we have a special responsibility to act on the knowledge we have," said Charles Maxwell, senior energy analyst with Weeden & Co., Greenwich, Connecticut.

Presenters said each of the various alternatives to crude oil, coal and natural gas still have problems to overcome to make them technically and environmentally feasible, economic and scalable enough to replace the roughly 85 million barrels of oil used per day now.

For example, solar or photo-voltaic technology is advancing so rapidly now that "no sooner would you get a good idea going and get the financing for it, then it is wiped out by obsolescence," Maxwell said. Wind power is already dominated by a few firms, and they are not situated to give investors a rush of new equity value, he said.

"I have found three ideas for investing in a peak-oil world: Big oil and medium-size oil (e.g. Apache Corp.); energy service companies, which are uniquely situated and a wonderful story; and energy technology."

By the lattermost, Maxwell means anything that increases fuel efficiency, modifies existing technology, enables conservation or is new.

"Energy technology is going to be hot, hot, hot-like the computer revolution was in the early 1980s. Remember DEC and Burroughs? We'll have a spring of a thousand flowers because the American brain is fantastic. The return on conservation will be maximized."

Maxwell and others panelists said conservation is the most powerful action consumers can take at the moment, if not abstinence. Oil prices will rise to unreasonable price levels until consumers react by cutting back their oil use.

Meanwhile, Maxwell expects non-OPEC oil production to peak in 2009 or 2010. Most of the biggest oil companies' production will peak in 2010 or 2012. By 2020, he foresees $300 oil in money of the day, when world oil has peaked but demand has continued to grow.



A silver age

The idea of peak oil strikes fear in E&P executive suites because it means corporate liquidation or at the least, the end of growth unless they transition to producing fuels other than oil and natural gas. Already they are struggling with ever-rising costs and reporting only small production increases, Maxwell said.

"For them, I see this era not as a golden age of plenty, but a silver age. Instead of making a pile of money, they will make good money-but they will be liquidating. Many of these companies will be taken over and their assets dispersed among smaller companies, or they will transition to another business such as alternative fuels."

At the top of Maxwell's current list of E&P investment ideas are two Calgary producers-EnCana, which is one of North America's largest gas producers and has a huge stake in heavy oil as well; and Suncor, the heavy-oil leader whose output of 360,000 barrels a day from Alberta's oil sands is supposed to rise to 500,000 by 2012.

"Who else will show that kind of growth? Nobody. By the 2020s, Suncor will almost be alone [producing those kinds of numbers]."

He also likes gas-rich Canadian Natural Resources, Lukoil and Brazilian deepwater expert Petrobras. Maxwell notes that Lukoil is within 1% of the size of ExxonMobil in terms of its reserve base, but is showing production growth while ExxonMobil's output is relatively flat.

"Lukoil's capitalization is one-sixth that of Exxon, so there is the value. And Lukoil is moving more abroad where it can grow its business, make more money and escape some Russian taxation."

Investing in other majors, such as Total SA, ENI and ConocoPhillips, are okay, but they may not be around in five or 10 years due to industry consolidation, he forecasts.

In the service and supply sector, Transocean is "easily my first choice," he said, adding that the pending merger with GlobalSantaFe is "a marriage made in heaven." He also likes Diamond Offshore Drilling Inc.

Maxwell likes Halliburton because it has put the Cheney-Iraq controversy behind it with the spin-off of KBR, and it is growing faster than Schlumberger, yet sells at about half the price. "It's not that I don't like Schlumberger, but Halliburton was falling behind and has determined to catch up. It was a really clever decision to move to Dubai. Saudi Arabia is waking up-it's gone from 10 rigs to 95, so there's a lot of work to be done."



Not business as usual

Peak oil and climate change are factors as important to investment choices as any other life problems that affect money, such as working in an industry that threatens layoffs, or having to care for a family member with Alzheimer's disease, said certified financial planner Dick Vodra, head of Spire Investment Partners LLC in McLean, Virginia.

A Harvard-trained geologist, Vodra believes strongly in peak oil. He does not make individual stock recommendations, but speaks about asset allocation and consumer choices, given that "business as usual" will not be possible.

"I think there is going to be a great disruption and discontinuity between now and 2012 and there will be new rules at all levels of society. We don't know what it's going to look like, but you have to have a world view on peak oil and climate change, and on the value of the dollar."

Traditional resources are likely to be much more expensive, less available or less reliable, he said. This will affect both lifestyles and investment strategy.

"I advise my clients to reduce their risk exposure generally, get out of debt, downsize and reduce their energy footprint, and live closer to family and work. We don't all have to drive to Costco-why not carpool? We don't all have to buy our own 10-foot ladder and have one in every garage. Why not band together and buy one, and share it with all the neighbors?

"These are conservative concepts Americans once had, but we've forgotten."

Vodra says peak oil indicates an economic transition is coming, but it is probably too early to identify specific stocks that will be clear-cut winners. Even when an economy is shifting dramatically, those winners may not last.

"I don't recommend individual stocks. If you'd bought all the railroad stocks when that was the breakthrough technology, you'd have lost all your money. Look at the automobile industry, a transforming technology if ever there was one. Every publicly listed car company in 1919 eventually went bankrupt. All the early PC makers of the late 1980s failed except for Apple. If you'd bought all the dot-com stocks in 1998, you'd have lost money."

Vodra believes any investment plan should anticipate rising commodity prices and a weakening dollar.

He recommends a moderate portfolio should be 25% in common stocks that are globally diversified, 20% energy and natural resources, 5% real estate, 10% U.S. cash, 10% non-U.S. cash, 10% TIPS (Treasury Inflation-Protected Securities), 10% non-U.S. bonds and 10% commodities (through an index or direct holdings).

According to independent financial planner Jim Hansen of Seattle, asset allocation is the only viable choice for the best returns. But energy considerations need to be factored into a portfolio now more than ever.

"Is the world at the peak of globalization? If you are investing in a stock with a just-in-time business model [of getting materials], like FedEx or some manufacturer, you are de facto depending on plentiful, cheap energy, and that may be a fundamental flaw.

"The question on every investment you make should be 'What effect might energy-supply constraints have on this?'"