I attended a luncheon Wednesday at the National Press Club with Dr. Manmohan Singh, Prime Minister of India.

The popular press tends to focus on China as the big growth story in Asia. India, like China, has seen some very impressive economic growth over the past decade, but the fact is India enjoys major advantages over its neighbor.

When it comes to the energy markets, India’s importance cannot be overstated. The nation’s one billion inhabitants are increasingly important consumers of oil and natural gas–India will be an important player on the demand side of the global energy equation, competing with the US and Europe for available supplies.

Dr. Singh addressed this issue at the Press Club. I’ve excerpted two quotes from his presentation:

“Our current dependence on hydrocarbons will have to be diversified in favor of a broader energy mix. I discussed with the President prospects for the resumption of our cooperation on civilian nuclear energy…

“We need nuclear energy because if we don’t get adequate energy supplies, we will put pressure on hydrocarbons. And if the world demand for hydrocarbons goes up because of economic activities in countries like India, even the United States will suffer because oil prices rise…So it is in the interest of the rest of the world to help India meet its energy plans; to, among other things, expand nuclear energy.”

The implications of these statements are clear. India, like China, understands that depending solely on natural gas and coal to generate power is impractical in the long term. And while alternative power sources can offer some contributions at the margins in the developed world, they’ll never provide the cheap, base-load power supply the world needs.

Nuclear remains the only cheap, environmentally friendly solution out there. India and China have already scheduled to expand their respective nuclear capacities. With the US likely to follow suit, demand for the world’s uranium will increase. My three favorite plays remain Cameco (NYSE: CCJ), Denison Mines (Toronto: DEN) and our newest addition, Uranium Participation Corp (Toronto: U).

Earning, Earnings, Earnings

The second quarter earnings season is just starting for the energy stocks. Most of the stocks in The Energy Strategist portfolios are due to report over the next few weeks; a couple have already reported.

Here’s a brief review of the latest news on some of my favorites.

Noble Energy (NYSE: NE) slightly missed analysts’ consensus expectations. This was due to higher-then-expected expenses rather than any fundamental problems. The report confirms that Noble is very leveraged to the current strong environment for contract drillers. In the conference call, the management team suggested that it was close to getting a long-term contract for one of its baredeck hulls. Baredeck hulls are rigs that aren’t yet completely built; the company wants to secure a long-term contract at a high day-rate before activating them. Nearly half of Noble’s deepwater rigs do not have contracts for the entirety of 2006. These rigs will likely get rolled over on contracts carrying much higher day-rates than the same rigs received in 2005. Noble’s exposure to the red-hot North Sea market is another plus. The company has a fleet of 8 floater rigs in the region. Day-rates are rising rapidly. Noble remains a buy.

Cooper Cameron (NYSE: CAM) blew out expectations and then guided higher. The subsea business is really starting to perk up, as deepwater
developments are the focus of much of the major exploration work in the world today. Cooper cameron remains a buy.

FMC Technologies (NYSE: FTI) is also a big player in subsea equipment but has not participated as fully in the recent rally due to major cost overruns at an Algerian project. The project includes floating terminals for unloading oil and some subsea pipelines and costs are about $58 million over budget. These costs could mount even more, hitting earnings this quarter and maybe into the third quarter.

Thankfully, the project is nearly complete so the worst of the damage is already done. This is the first major stumble from a company that’s had a fairly flawless record on projects. This overrun is a temporary stumble for the market leader in subsea systems. Cameron’s report also tells me that the underlying business is very strong. New money should consider it as an alternative to Cooper Cameron. FMC Technologies is a buy.

Royal Dutch Shell (NYSE: RD) has been hit recently mainly due to a cost overrun (about $10 billion) at its Sakhalin liquefied natural gas (LNG) project in Russia. In addition, there are some lingering concerns about Shell’s low reserve replacement ratio. What is under appreciated, however, is that Shell is a restructuring play. The company is still recovering from its reserves restatements in 2004 and subsequent management reshuffle. Restructuring efforts take time but can be very rewarding. As outlined in the most recent issue of The Energy Strategist, Shell’s exposure to the LNG market is extremely attractive. The company is developing major LNG projects like Sakhalin, has a large fleet of LNG tankers and a major LNG trading operation. Dips in price should be used as an opportunity to accumulate Shell shares.

TOTAL (NYSE: TOT) is our favorite major integrated oil play right now. As we’ve explained in recent issues, the company has not seen the run the others yet has extremely solid fundamentals. Buy TOTAL.

One Final Note

Be sure to check out the next edition of The Energy Letter that I’ll be publishing later today. I will focus my attention on oil sands, a key source of crude oil for the North American market in the coming years. I will also be featuring an even more detailed look at this market in an upcoming issue of The Energy Strategist.