How to Buy Oil for Only $4.67 a Barrel

Several hundred thousand crude oil contracts trade on the New York Mercantile Exchange (NYMEX) on a typical day.

Look closely at the details of the session's activity and you'll see prices like $68.08, the closing price for October crude on Sept. 1.

You'll probably notice that December 2010 crude settled at $75.07 and that the more time passes, the higher the price goes. For instance, traders have set the price for crude that will be delivered in December 2015 at $85.11.

Those prices all strike me as very high.

Then I realized I was shopping in the wrong store. The place to buy oil isn't at the New York Mercantile Exchange, it's a few blocks away at the New York Stock Exchange (NYSE).

  That's where I found out I could buy a barrel of oil for as little as $4.67.

It's not impossible, unethical or immoral. But it may well be the deal of a lifetime. That price is roughly 7 cents on the dollar for a barrel of crude that will cost nearly $70 just a little way down the street.

Let me show you how I did it.

It would cost $26 billon to buy every single share of Anadarko Petroleum (NYSE: APC). So let's assume I (could) write that check.

What would I get in return?

Well, from the CEO's perspective, I'd own an industry leader in oil and gas exploration.

From the CFO's point of view, I'd have a company with $19.6 billion worth of net assets that typically generates between $3 billion and $6 billion in cash from operations each year.

But from my perspective, the most important thing I would own is Anadarko's 2.37 billion barrels of crude oil reserves.

That oil is worth about $165 billion at today's prices. And it will be worth $237 billion on the day coming soon when I believe oil prices will hit $100.

Bottom line: If I buy Anadarko for $26 billion, I get $165 billion worth of oil.

Don't have $26 billion laying around? Hey, don't feel bad. I don't either. But I can buy a single share of Anadarko's stock for about $53. That share, one of 450.9 million, entitles its owner to a tiny share of the company's assets. That might not seem like much, but it works out to 4.6 barrels of oil. That's $312.80 worth of oil for $53 -- and you get the rest of the company, which also has significant natural gas inventory, for free.

Believe it or not, I found four other companies that offer oil even cheaper than Anadarko.

As you can see from the table, individual investors like you and me can buy oil for a far better price than the hotshot commodity traders.

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Company	Market Cap	Crude Reserves	Barrel Cost
BreitBurn	$483.9M	103.6M	$4.67
Venoco	$441.7M	58.5M	$7.55
Berry Petroleum	$1.0B	125.5M	$8.13
Conoco Phillips	$67.8B	8.1B	$8.39
Anadarko	$26.7B	2.3B	$11.71
Chevron	$142.4B	8.6B	$16.58
Plains Exploration	$3.2B	177.6M	$18.02
Total S.A.	$129.5B	5.7B	$22.72
ExxonMobil	$340.5B	11.2B	$30.46
St. Mary Land	$1.7B	51.4M	$33.07
Marathon	$22.4B	636.0M	$35.17
Shell	$173.9B	2.6B	$66.92
Cimarex Energy	$3.3B	45.2M	$73.67
EOG Resources	$18.4B	225.0M	$81.69
Murphy	$11.2B	124.5M	$89.96
Devon Energy	$27.6B	291.6M	$94.55

The winner in the cheap-oil derby, then, is BreitBurn Energy Partners (Nasdaq: BBEP), a limited partnership based in Los Angeles with 103.6 million barrels of reserves. You can purchase one share of this company on the Nasdaq for less than $10 a share. But in per-share crude reserves alone, that share is worth about $140!

In aggregate, BreitBurn can be bought for $483 million. Its oil is worth $7.4 billion. You can buy BreitBurn's crude for less than the $7.92 it typically costs Big Oil to produce a barrel.

That's a steal. It won't last long, either. Most of these oil companies are trading in the bottom half of their 52-week ranges, even though oil has already rebounded +75% off its lows . As the price of this commodity inches ever closer to $100 a barrel, these oil producers' shares prices could be poised to take off.