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Published: September 18, 2009
Crude oil has risen above $72 a barrel, but
cheap oil just got a little cheaper.
Recently, I looked at the value of the world's leading
oil
companies and discovered how investors can buy oil for a
fraction of the commodity's current price.
What I found was surprising.
Instead of loading up on futures contracts, it's possible -- and
likely far more profitable -- to simply buy the crude the oil
giants have already found by buying the oil giants themselves. I
divided each company's market cap by the number of barrels in
proven reserve.
The cheapest oil I found was $4.67 a barrel. (You can see the
results
here.)
In the article detailing that research, I suggested it might be
profitable, for instance, to buy Anadarko (NYSE: APC, $64.70),
which industry insiders know to be one of the leading outfits in
the oil business. The whole company, I noted, could be bought
for $26 billion. But the buyer would get $165 billion worth of
oil.
It was a good deal then.
It's a better deal now.
That's because Anadarko
just hit a new well that totally
changes the math.
The company said Wednesday it had made a major find off the
coast of Africa. The discovery in the deep water near the coast
of Sierra Leone could well contain billions of barrels of crude.
The company's 'Venus'
well, of which it owns 40%, has proven the existence of an
"active petroleum system" off the West African coastline.
The shares rose. Now it would take $31 billion to buy the
company.
Which is curious. It
seems to be undershooting a little for Wall Street
to add $5 billion in market cap to account for what may be $150
billion worth of crude. The company may well have just announced
a find that ultimately will double its crude reserves, and yet
its stock has only risen about +8%.
Now, admittedly, Anadarko will
have to spend some money to get this
oil to the surface. Twenty-five
years ago, it wouldn't have even
been possible. Back then, it took
all the engineering prowess the
industry had to operate wells deeper
than 600 feet.
But the "Venus" well off Sierra
Leone is more than a mile below the
water's surface. The techniques that
will be used to exploit this find
are the industry's cutting edge.
More than the math behind
Anadarko might be
changing.
Between this latest
multibillion-barrel find and a
similarly sized discovery by BP in
the Gulf of Mexico earlier this
month, a long-held theory about oil
production may have been disproved.
The idea, known as Hubert's Peak,
suggests that the world is on the
downhill slope of oil production.
These deep-water finds seems to
suggest that that's not true.
And as the oil giants are having a
harder and harder time accessing new
finds in Russia and the Middle East,
the technology that Anadarko and
others will develop becomes ever
more valuable. Advanced drilling and
production techniques that will be
perfected off the Sierra Leonean
coast may allow dozens of more sites
in West Africa or the
Arctic to be developed.
Not only does buying Anadarko give
investors cheap oil, it also gives
them ownership of the technology
that could bring billions of more
barrels of oil to the surface.
As I noted, Anadarko has 40% of the
Venus well. Its other owners are
also publicly traded. They are
Britain's Tullow Oil (London: TLW,
GBP 1245), which owns 10%,
Spain's Repsol-YPF (Madrid: REP)
which controls 25%;
as does
Australia's Woodside Ltd. (ASX: WPL,
AUS$55).
Investors with international
brokerage accounts should consider
these companies; investors not
equipped to trade in Madrid, London
or Sydney should seek domestically
listed exchange-traded funds that
hold the shares. Failing that, I'd
stick to Anadarko and wait for the
market to realize it's value -- and
to see what's it's going to announce
next.
-- Andy Obermueller
Editor
Government-Driven Investing |
