I was in Nairobi a few months after the rebellion started in Libya.
I remember a great conversation with a former British special service guy who now worked for International SOS – a company that provides evacuation and medical help for companies whose workers are trapped in a deteriorating political environment or a natural disaster.
He was telling me stories of flying into the Tripoli International Airport and flying out 747s full of oil workers, as well as tense helicopter flights to remote areas, all within the first few hours of the uprising. I couldn’t help but think of the places I’ve been to over the years without any sort of emergency helpline. I must be getting old but I’m sure my demise in some far off hellhole would only sell more newsletters.
But enough about me, you want to know how to profit from the latest geopolitical event.
As you know, the Libyan rebels have taken parts of Tripoli. The elite guard of dictator Moammar Gadhafi have melted into the crowds but fighting still goes on.
The French and Italians lead the charge to bring NATO forces against Gadhafi, and the U.S. paid for the missiles. They did this for one reason: oil. Libya is the only force that can offset the energy importance of Russia. And The Bear has been known to turn off the spigot.
The largest player in the Libyan oil and gas game is the Italian super-major ENI (NYSE: ENI).
As I write this the company with a $68 billion market capitalization has bounced back 7.64%. The company has a trailing p/e of 7.95 and a forward dividend yield of 6.10%. Eni has the most to gain from the new regime.
The fall of Gadhafi will reopen the doors to Africa’s largest oil reserves and give out or reestablish major Italian, French and U.S. oil companies.
Eni has production and exploration operations all over Libya including offshore in the Mediterranean Sea and in the Libyan desert. At the end of 2008, Eni was operating 13 mining permits covering a total area of approximately 36,375 square kilometers. The company has production and development assets in force until 2042 for the production of oil and until 2047 for gas.
In 2009, Eni was the biggest international hydrocarbon operator with production of 522,000 barrels of oil equivalent per day (Eni’s share amounted to 244,000, 44% of which was liquids. The rest went to the Libyan government.).
There are also plans to run a pipeline under the Med to connect Libya to Italy. Russia’s Gazprom (PK: OGZPY) would be a partner. Other traditional players with production like Marathon Oil (NYSE: MRO), OMV Group (PK: OMVKY), France’s Total (NYSE: TOT) and Spain’s Repsol (PK: REPYY), Exxon (NYSE: XOM), BP (NYSE: BP) and Petrobras (NYSE: PBR) have signed deals for exploration but have yet to build out.
There are also about 75 Chinese companies that had operations in Libya before the war.
Winners are losers
The National Transitional Council will reward those companies from countries that backed the rebellion and punish those that kowtowed to the fashionable dictator. (My sources are telling me that Moammar is now in Algiers.)
Abdeljalil Mayouf, a manager at the Libyan oil firm AGOCO, told Reuters:
“We don’t have a problem with Western countries like the Italians, French and UK companies. But we may have some political issues with Russia, China and Brazil.”
Time will tell.
Reuters is reporting that “Italy’s Foreign Minister Franco Frattini said staff from Eni had arrived to look into a restart of oil facilities in the country’s east.”
“The facilities had been made by Italians, by (oilfield services group) Saipem, and therefore it is clear that Eni will play a No. 1 role in the future,” Said Frattini.
Libya is Africa’s largest oil producer at 1.6 million barrels a day with enough reserves to last 80 years. It will take a year to 18 months to return to prewar production levels.
Petrofac (LON: PFC) is a UK-based oil services firm that could get some contracts when the rebuilding starts. They have a $4 billion market cap and a p/e of 7.12.
That said, Eni looks like the best long-term bet on a new Libya pumping oil.
Editor, Wealth Daily