Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Chinese Tech Stocks CCP Paranoia and Best AI Tech Stocks ETF - 26th Oct 21
Food Prices & Farm Inputs Getting Hard to Stomach - 26th Oct 21
Has Zillow’s Collapse Signaled A Warning For The Capital Markets? - 26th Oct 21
Dave Antrobus Welcomes Caribou to Award-Winning Group Inc & Co - 26th Oct 21
Stock Market New Intermediate uptrend - 26th Oct 21
Investing in Crypto Currencies With Both Eyes WIDE OPEN! - 25th Oct 21
Is Bitcoin a Better Inflation Hedge Than Gold? - 25th Oct 21
S&P 500 Stirs the Gold Pot - 25th Oct 21
Stock Market Against Bond Market Odds - 25th Oct 21
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

How to Profit From Russia's New Oil Boom

Companies / Oil Companies Dec 18, 2009 - 07:32 AM GMT

By: Money_Morning

Companies

Best Financial Markets Analysis ArticleKent Moors, Ph.D writes: Sergei Kudryashov likes pizza, poker and American jazz. He's also deputy head of the Russian Ministry of Energy (Minenergo) and former VP at NK Rosneft OAO (LSE: ROSN), the No. 1 state-controlled oil producer.


I've known Sergei for almost two decades now. We compare notes whenever I'm in Moscow. This time, I briefed his team on key developments in the international oil markets. And, as usual, I came away from the meetings with some incredibly valuable information - information the public simply can't get on its own.

So let me share what I've just learned. It's a tremendous opportunity to profit from Russian oil - without investing a dime in the country itself. Indeed, as you'll see in a minute, there are several ways to make money right here at home.

First, here's what's going on.

Russia's Oil Heyday is Ending, and That Means Profits for You

Russia's traditional oil fields are maturing rapidly. Production declines are accelerating. I just witnessed this in my travels to Timan-Pechora, where I met with executives from several major Russian oil companies. For those unfamiliar, this region is the western Siberian center for Russian oil production.
And it's drying up.

Even with substantial secondary recovery programs (water, associated gas, and even carbon dioxide injections), extractable oil volume will continue to drop.
Rosneft and LUKOIL (OTC ADR: LUKOY), Russia's No. 2 producer and largest private oil company, matter-of-factly estimate a decline of up to 7% by 2012.

At current levels, that translates into almost 257 million barrels in lost annual production.

Having less oil to sell will be catastrophic to central planners. That's because taxing oil and gas production and exports comprises more than 65% of the federal budget. So, as I explained last week, Russia needs to move production into new and more expensive locations - north of the Arctic Circle, into eastern Siberia and out onto the continental shelf.

This isn't so easy, though.

All three regions require considerably greater investment commitments, application of updated technology and access to foreign infrastructure and transport systems. Having made a statement last year with new legislation aimed at retaining the larger, more promising fields for Russian-only control, the Kremlin now finds itself between a rock and a hard place.

Under that law, only a handful of companies can run shelf projects - companies that are controlled by the Russian government and have at least five years of offshore experience. That leaves just two - Rosneft and and Gazprom OAO (OTC ADR: OKZPY). Or three, if we consider Gazprom's oil unit, JSC Gazprom Neft (OTC ADR: GZPFY), which is likely to bid separately for projects.

What's more, only Russian companies (state-controlled or private) can be the majority owners of strategic onshore deposits. Majority owners are defined as those having more than 50 million tons (366 million barrels) of crude or 500 billion cubic meters of natural gas.

When the law emerged, of course, oil was racing beyond $120 a barrel. And the government wanted to keep profits at home. But now that it needs foreign help, the Kremlin will be making changes to the law.

There's no way around it.

Major international oil companies simply don't enter a foreign project if it can't book a percentage of field reserves. In other words, if it won't make their stock go up, they won't do it.

I'll let you know as the Kremlin begins to phase in their changes to the law.

In the meantime, there are several ways to profit.

The Four "Profit Routes" to Russia's Oil

  1. Outside companies will benefit as a minority partner in a large Russian producer. ConocoPhillips (NYSE: COP), which owns a 20% position in LUKOIL, is the best current case in point. But others are quickly developing. China National Petroleum Corp. (accessible over the counter via CNPXF [CNPC Hong Kong]), for example, has parlayed $20 billion in bank credit for Russia's East Siberia-Pacific Ocean (ESPO) oil pipeline into a likely position in Rosneft.

  2. Foreign majors will continue to profit as minority partners in specific projects. Despite its acrimonious departure from controlling the Sakhalin II project, Royal Dutch Shell ADR (NYSE ADR: RDS.A, RDS.B) is nonetheless well positioned for solid profits in its minority status in the project. Other majors finding a similar niche are ExxonMobil (NYSE: XOM) in Sakhalin I and Total SA (NYSE ADR: TOT) at Kharyaga.

  3. Majors have signed on to provide services for huge, carefully selected projects. That virtually guarantees discounted volume, Russian market access and the possibility of future involvement. Norwegian StatoilHydro (NYSE ADR: STO). They both provide extensive technology and expertise to the giant Shtokman deposit in the Arctic.

  4. Finally, a number of well-structured and intentionally limited smaller companies are positioning themselves to become field owners below the strategic threshold - those that foreigners can still control outright. Several leading the list trade on the London Stock Exchange (LON: LSE), or the LSE's Alternative Investment Market (AIM) - for instance, Timan Oil & Gas PLC (LSE: TIMAN), Sibir Energy PLC (AIM: SBE), or Swedish Lundin Petroleum (LSE: OGYK).

Unlike they did in the past, these four "profit routes" will benefit from protection under Russian law. And they'll get considerable support from large Russian companies interested in developing joint ventures and sharing technical and infrastructure expertise.

That's great news for these companies... and their stocks.

[Editor's Note: Dr. Kent Moors, now a regular contributor to Money Morning, is the executive managing partner of Risk Management Associates International LLP, a full-service global management consulting and executive training firm. He is an internationally recognized expert in global risk management, oil/natural gas policy and finance, cross-border capital flows, emerging market economic and fiscal development, political, financial and market risk assessment, as well as new techniques in energy risk management.

Dr. Moors has been an advisor to the highest levels of the U.S., Russian, Kazakh, Bahamian, Iraqi and Kurdish governments, to the governors of several U.S. states and the premiers of two Canadian provinces, a consultant to private companies, financial institutions and law firms in 25 countries and has appeared more than 1,400 times as a featured television and radio commentator in North America, Europe and Russia. He has appeared on ABC, BBC, Bloomberg TV, CBS, CNN, NBC, Russian RTV, and regularly on Fox Business Network.]

Source: http://moneymorning.com/2009/12/18/russian-oil-profit-opportunities/

Money Morning/The Money Map Report

©2009 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in