African Oil Boom Town

Christian DeHaemer

Updated December 5, 2011

Stocks have been slogging through muck for a number of years.

The market has been discounting earnings and rewarding surprise statements from the Fed.

It is the outward sign of a corrupt, inbred kleptocracy. And you’d be right to wonder why you should bother with the markets at all.

Perhaps you’d be better off dumping all the 401k and 509 plans and going long beachfront vacations, jumbo TVs, and new Porsche 911s.

Heck, at least you’d have a good story at the end of the day.

But just when you think you’re ready to cash in, the market surges…

Over the past week, we’ve seen an 800-point move on the Dow 30 based on a coordinated bank action to supply liquidity to the Europeans banks.

There are very few people who know what this means in systematic terms, but to the market it meant Europe wasn’t going to go down in a blazing ball of credit default contagion. And this was good news for the short term.

Cash on the sidelines was put back to work, and just about every stock went up. But much like the bottom in 2009, this didn’t solve the underlying debt problem.

It’s just another case of printing money. And sooner or later, excess money will lead to inflation. It always has in the past.

In the United States, inflation means debt goes down and the price of housing will (eventually) go up.

But in places like Germany — where many investors put their money in insurance programs and the majority of people rent — inflation means savings go down and rent goes up.

Despite the Prevailing View

Wealth Daily provides savvy investors like you — investors who aren’t afraid to take control of their financial future — with actionable wealth-building advice.

You don’t fall for Wall Street hype or depend on government programs to provide financial freedom…

That’s why I can go against the dominant paradigm and say that now is the time to both get in debt and buy assets that will go up with inflation.

As Andrew Mickey wrote on Friday, the fear of inflation is such that investors are willing to take a negative yield on TIPS to insure most of their money will come back to them.

Steve Christ is also bucking the Wall Street mantra. He wrote “8 Reasons to Be Bullish Next Year” on Tuesday, explaining that high dividend-paying blue chips are where you need to make money in 2012.

It should be noted that Steve has been bearish for years.

Brian Hicks on Monday gave us his “Five Rules for Successful Investing.” He pointed out that cash and gold are extremely important… and that when a solid trend arrives, you will have ammunition to buy.

Many believe assets like silver and gold are the best bet in hard times. I like oil, which is now over $100 a barrel for WTC. And the trend I like best is one of the last places where oil is plentiful enough to be exported.

Africa Rising

People laugh about Africa — just as they used to laugh about Japan, China, India, Vietnam, Brazil, Indonesia, and South Korea…

They think that because Africa is a Third World hellhole, it will always be so.

But you might want to consider the Dark Continent if you are looking for a clear trend with a lot of potential.

Last week’s Economist cover story sums it up:

Over the past decade six of the world’s ten fastest-growing countries were African. In eight of the past ten years, Africa has grown faster than East Asia, including Japan.

Even allowing for the knock-on effect of the northern hemisphere’s slowdown, the IMF expects Africa to grow by 6% this year and nearly 6% in 2012, about the same as Asia.

In Kenya, shopping mall company Actis has sold out of its $20m Junction mall, which houses everything from whiskey bars to sushi restaurants in one spot in Nairobi. The company made three times its initial investment.

Actis is planning its third Kenyan real estate project: another mall on the Nairobi road out to Thika.

General growth aside, most of the boom is due to commodities.

A $15 Million Bet

On Friday, Pancontinental Oil & Gas (ASX: PCL) announced it will sell shares to fund seismic programs at its African operations — to the tune of A$15 million. The fields in question are Pancontinental’s Kenyan tenements L10A, L10B and L6, as well as its EL37 tenement in Namibia.

The L8 area offshore Kenya holds the giant Mbawa Prospect, which has the potential for more than 4.9 billion barrels of oil. Pancontinental plans to drill L8 in mid-2012.

Double Gas Find

Earlier in the week, Anadarko’s Mozambique reported that its gas reserves doubled.

The blue chip oil company Anadarko Petroleum (APC) announced it found twice as much gas in East Africa as earlier forecast. This pushed recoverable reserves from 15 trillion cubic feet to 30 trillion cubic feet.

“This could be one of the most important natural gas fields discovered in the last 10 years,” said Anadarko Chairman Jim Hackett.

It is important to note that natural gas isn’t fungible the way crude is.* NG is priced around $4 mmbtu in the United States, but it is more than $8 in East Africa and $20 in Japan.

*The global NG network is being built to take advantage of this arbitrage, but that’s another article.

Stocks Jump

When Anadarko announced its new reserves, the stock went up 14% in three trading days.

A small partner, micro-cap Cove Energy (COV.L), went up 26% on the news. (Full disclosure: I’ve recommended Cove as a buy to my Crisis and Opportunity readers.)

Last month, Italian major Eni (ENI) made the largest gas discovery in its history very close to the Anadarko fields. These newfound gas reserves prove yet again that there are massive amounts of hydrocarbons in East Africa.

This is one of the most undeveloped areas of the world’s seven remaining under-explored regions.

I’ve been to Kenya and seen the plans for drilling and refineries firsthand. Things are heating up…

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Christian DeHaemer
Editor, Wealth Daily

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