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Irish Independent: Good addresses, interesting gamble

Irish Independent: Good addresses, interesting gamble

“When the oil price goes up the value of their reserves goes up, the share price goes up… and vice versa. However, Shell’s recent performance – where its reserves had to be written down and the oil giant was fined – turned that market truism on its head.”

Aug 26, 2004

THERE’S just no satisfying some investors/speculators. Undeterred by the collapse of the dotcom bubble, some risk-aware investors have been rediscovering oil companies in general and the exploration and production sector of the oil industry in particular.

Traditionally, the oil majors have been a pretty safe bet. When the oil price goes up the value of their reserves goes up, the share price goes up . . . and vice versa. However, Shell’s recent performance – where its reserves had to be written down and the oil giant was fined – turned that market truism on its head.

Exploration and production companies (E&Ps) have always been a higher-risk bet. Buying an E&P company’s shares means ‘investing’ in the hope that the company’s licence acreage will be converted by successful drilling and development into valuable reserves.

As one analyst points out, people buying into E&P stocks are hoping that the X price they paid will be X plus a significant Y later.

Since the last quarter of 2003 and the beginning of 2004, E&P stocks in London and elsewhere have performed very well, with Scottish company Cluff Oil, for example, providing a bonanza for shareholders.

Irish company Petroceltic has also been faring very well. Dolmen Securities says Petroceltic’s share price has risen 229pc since they recommended the shares on January 23 last.

Petroceltic has $15m in cash on its balance sheet, has picked up significant gas interests in Algeria and is embarking on a drilling programme for oil in southern Tunisia.

As Davy Stockbrokers resource analyst Job Langbroek puts it: “Petroceltic has high value targets with very good addresses.” Northern Africa is considered good E&P territory.

“The Sidi Toui (Tunisia) prospect has the potential to contain over 400m barrels of recoverable light crude oil within a large fault block structure,” Stuart Draper, analyst with Dolmen Securities, points out.

With the proviso that no investor scared of losing money should touch an E&P company – and even those who do should keep their investment at around 5pc of their total ‘portfolio’ – Petroceltic is an interesting gamble.

Jim Aughney

royaldutchshellplc.com and its sister websites royaldutchshellgroup.com, shellenergy.website, shellnazihistory.com, royaldutchshell.website, johndonovan.website, shellnews.net and shell2004.com are all owned by John Donovan. There is also a Wikipedia article.

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