Matthew Simmons is the chief executive officer of Simmons & Co. International, which is a Houston-based investment bank that specializes in investment in oilfield service and related companies. Mr. Simmons is one of Houston’s most knowledgeable experts on the oil and gas industry, and in this Chronicle interview, challenges the conventional wisdom that the recent spike in oil and gas prices is temporary:

Q: What do the fundamentals [of oil production and consumption] look like? Are supply and demand out of whack?
A: The fundamentals, to me, look scarier than hell. Demand … is having the smell of a runaway train, downhill on a one-way track. The consensus forecast for 2004 fourth-quarter demand is 83.6 million barrels a day, an increase of over 2 million from where we are this summer. And if you look at the consensus for the fourth quarter of 2005, demand is 85.6 million barrels a day, another 2 million increase from the fourth quarter.
Q: What about supplies?
A: There are very few companies that are showing any ability to grow their global oil supplies by more than 1 or 2 percent a year. If you take all the announced projects of any significance, and if they all come on and peak in the first year, they account for ? at best ? 6 to 8 million a day of fresh supply by 2009. And we just talked about needing 4 of that over the next 14 months.
The missing piece of data in this tight equation is the rate of decline of the existing base. Over 70 percent of the current output is coming from fields that were discovered, at their most recent, 30 years ago. If the global decline rate is only 3 percent per annum, then we lose 11 million barrels by 2009 and add 6 to 8. I don’t see how we balance this market, unless we have a stunning depression.

And Mr. Simmons has always been skeptical about Saudi Arabia’s claims that it owns a quarter of the world’s reserves and can simply increase production to meet rising world demand:

Q: Most analysts accept Saudi Arabia’s claims that it holds about a quarter of the world’s oil reserves. You have challenged the Saudis over their reserve estimates?
A: The grim fact about Saudi Arabia today is that, at the Saudis’ own admission, the Ghawar Field, the king of all kings, is still producing about 5 million of their 8 to 9 million barrels a day of oil. That’s all you need to know to be scared.

Here is a more extensive interview with Mr. Simmons. These are well-supported views of a formidable expert in the oil and gas industry. Take note.
Meanwhile, this Wall Street Journal ($) article reports that the prominent energy-stock analysts John S. Herold Inc. has issued a report contending that Exxon Mobil is overvalued when compared with a group of smaller energy companies that collectively mirrors the capitalization of the energy giant. The Herold report lumped the group of smaller energy companies into a single theoretical stock called “Synthetic Exxon Mobil,” or “SXOM.” Designed to resemble Exxon Mobil both in market capitalization and operational scope, SXOM includes six companies that, during the past three years, would have have generated a 31% return on investment. In comparison, an investment in Exxon Mobil would have yielded just 12%. The report tends to support the notion that the recent spike in energy prices is making the less-expensive stocks of more-aggressive energy companies look better than the more established giants.