A Look at Libya
12/02/2005 12:00 am EST
Yiannis Mostrous has a noted expertise in resources and global investing—and combines both areas of knowledge in uncovering this pair of energy plays. While Libya may not be at the top of every investor buy list, the analyst looks at two firms poised for growth in this region.
"Occidental Petroleum (OXY NYSE) has come a long way from its sorry state of the early 1990s, and now generates among the highest free cash flows within its peer group. Its main business is enhanced oil recovery. By increasing production efficiency, it can prolong the economic life of older fields by as much as 30 years. Although based in the US, the firm's future growth will come mainly the Middle East and North Africa. Its already considerable presence in the Middle East is expanding based on its involvement in big projects in Qatar and Oman.
"Given its strong relationships in the Middle East, we expect the company to continue to increase its presence in the region. Its latest move overseas has been in Libya. In early 2005, Occidental was awarded interests in nine exploration blocks in Libya's first licensing round since US-imposed sanctions were lifted. Given Libya’s resources, the relationship could become a very profitable one for Occidental. A genuine turnaround story with good future potential, OXY is added to the Wildcatters Portfolio; buy under 90."
"One of our long-term favorite energy stocks— which has been a buy for four years and counting—has been Italy’sENI (E NYSE). Given the well-known difficulty that energy companies face in finding new reserves, ENI’s strong position in North Africa and its ability to maintain good relationships with these countries should prove a great asset for the future. Algeria and Libya hold 1% and 3% of the world’s gas reserves, respectively.
"In Algeria’s case, the southwest part of the country hasn’t been explored. And ENI’s involvement in that project will give it a great advantage over latecomers, especially in the liquid natural gas (LNG) area. In addition, Libya’s 39 billion barrels of proven oil reserves and 53 trillion cubic feet of proven gas reserves offer ENI an excellent opportunity to enhance its portfolio. Meanwhile, the stock provides a yield of 3.7%. We continue to rate the stock a buy at prices up to $145 a share."