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The Next "Crude Rush" Is Officially Underway

by | published February 12th, 2010

Don't look now, but what happens in a tiny African country is going to make you some big-time bucks.

Lake Albert is located in the northwest corner of Uganda, on the border with its Central African neighbor the Democratic Republic of the Congo (formerly Zaire). As part of the upper Nile River system, Albert is one of the continent's Great Lakes. The most famous of these, Lake Victoria, sits on the other side of this narrow country, close by Uganda's capital, Kampala.

Aside from the swamps to the south, Lake Albert is pretty country. But these days, all eyes are on something other than postcard photos.

Billions of barrels of crude oil and an as yet unknown amount of natural gas have been discovered on its shores. As a result, the economy of the entire region is going to change – fast.

An old-style “crude rush” is underway…

Welcome to the “Wild West” of Oil

Companies are flooding into Uganda, a country with virtually no laws or regulations on the books to deal with the onslaught. A lot of money is going to be made here, as companies jockey for position.

This explains why on February 5th, while the rest of the Mid-Atlantic region was bracing for the mother of all snowstorms, I was in Pittsburgh's Allegheny County Health Department getting yellow fever shots.

Seems our travel schedule just became a bit more intriguing…

In a few weeks, after I bring you along on my upcoming trips to Poland (pipelines and shale gas), London (oil trading) and Frankfurt (oil finance), we are off to Kampala. The U.S. Department of State has asked me to advise the cabinet, parliament, civic organizations and oil companies there, along with holding a couple of press conferences.

During the stay, I will also take a government plane to see the drilling locations for myself.

What everybody needs is an organized response to what can best be described as an African version of the Wild Wild West. This is already becoming a primary focus for global interest. Uganda will shortly explode on the scene as a major worldwide oil producer.

Not bad for a country that had little production only a few years ago.

Before the dust settles, however, you are going to be making some serious money off of these discoveries. Because, while leading oil companies are attempting to get in, several little guys are holding the keys.

And their stocks are about to take off…

How to Profit from Uganda's “Crude Rush”

Hardman Resources (delisted, Australia) made the initial wildcat finds and then merged with Tullow Oil (LSE:TLW). That left the London-traded minnow with a strategic position in prime fields and first rights of refusal on adjoining areas. These include the earlier discovered Mputa field and the much larger deposits, Waraga 1 and Waraga 2 – all part of an even bigger object on everybody's radar.

This is “Block 2,” covering the northern part of Lake Albert and situated completely inside Uganda. The new deposits appear to have three separate oil-producing strata. That means the volume will be both localized and significant. Simply put, these wells should produce a considerable amount of oil at low cost.

Tullow is your first investment play, but hardly the only small-cap target. The company currently owns one of its fields outright and others at parity with Canada's Heritage Oil (TSE:HOC). If Heritage leaves, Tullow has first rights. Heritage either raises capital to say in or sells out. Either way, its stock will be heading north.

Two other small fries are also in the mix: Tower Resources (LSE:TRP) and Dominion Petroleum (LSE:DPL). They also have development tracts in Block 2.

Little guys usually need to give up some of their holdings to attract working capital. That's beginning here, providing some larger company investment opportunities. While Italian major Eni (NYSE:E) has bowed out for the moment in the race to acquire current drilling locations, French giant Total (NYSE:TOT) is rumored ready to ally with Tullow to develop the small company's existing fields.

When the official announcement is made, which you can expect to happen any day now, the stocks of both companies will benefit.

CNOOC (NYSE:CEO), an affiliate of China National Petroleum Corp. [played via CNPC Hong Kong Ltd., (OTC:CNPXF)], also is moving in fast on Tullow, with a likely pickup of a holding. The Ugandan government wants both Total and CNOOC in the development mix to balance wider political considerations. And Tullow is the most available vehicle to make that happen.

But the small fries will continue to experience the biggest upside move. After all, they have further to go.

Remember, the little guys get a price pop whether they develop deposits on their own or sell all or a portion of their field assets to larger operators. And other big-time shakers are on their way.

Exxon Mobil (NYSE:XOM) and LUKOIL (OTC:LUKOY), Russia's largest privately owned oil company, want in. Word is, the Russians made an investment pitch to Ugandan President Yoweri Museveni at just about the same time I was getting my yellow fever injections.

The personal pitches to the president and officials create some transparency problems, hardly unknown in such situations. Such activities have also resulted in a lawsuit filed by a leading Ugandan nongovernmental organization (NGO) against the whole process. The State Department has already advised that dealing with the transparency problem will be part of my brief.

Well, nobody said this was going to be just a walk by the lake.

Kent

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