Our old pal, Diggers & Drillers editor Dr. Alex Cowie, is spending the first part of this week in Kalgoorlie.
He assures us it’s not a leisure trip…he’s there for the Diggers & Dealers annual mining bash…along with thousands of other delegates, and hundreds of companies.
With any luck he’ll come back with hot-off-the-press news and inside info that you can use to invest in the resources market over the next 12 months.
However, we wonder if the Doc could have gone a bit further west. Rather than getting off in Kalgoorlie, he could have kept going for another 5,300 kms.
Because in our view, that’s where the real action is taking place in the resources story…
Of course, the Doc knows that. He’s clocked up goodness knows how many frequent flyer points over the past two years flying to Morocco, South Africa, and Botswana.
And this month he’s put Africa back on the buy list, tipping a stock that’s in the driving seat as the African energy sector gets set to boom.
It’s a story we’ve backed too, getting in on the act last December. And the one area of most interest is the East African coastline. To be precise, the activity in the oil and gas sector.
East Africa is a genuine frontier exploration area. For instance, you can count on two hands the number of exploratory drill holes sunk off the Kenyan coast.
But as usually happens, after small companies led the charge into frontier exploration, the big companies are now finally getting involved.
Bidding War for East African Assets
UK-listed Cove Energy was the target of a bidding war between Europe’s biggest energy company, Royal Dutch Shell, and Thailand’s biggest energy company, PTT Exploration and Production.
PTT ended up winning. The bidding war now values Cove Energy at GBP1.22 billion…or 206% more than it was in November last year.
But that’s not the only action on the East African coast. Miffed at missing out on Cove, Royal Dutch Shell has now set its sights further down the East African coast. This time, on the Mozambique assets of US energy giant, Anadarko Petroleum.
Insiders suggest Anadarko’s Mozambique assets could be worth up to USD$8 billion. It gives you an idea of just how hot this market is right now.
Last month, BusinessWeek reported:
‘Apache Corp. (APA) will drill Kenya’s first deepwater oil well next month, a prospect that could add a $70 billion crude find to the record natural-gas discoveries along East Africa’s coast.‘Apache and partners including Tullow Oil Plc (TLW) said the Mbawa well is likely to strike oil based on seismic data and slicks seen on the Indian Ocean’s surface. The drilling is targeting as much as 700 million barrels, a resource valued at twice Kenya’s annual economic output at today’s oil prices.’
But it’s not just the big Western oil companies throwing their weight about in Africa. Take this from the Australian today. Legal analysts at King Wood Mallesons told the paper:
‘We have a lot of competition for Chinese investment dollars from jurisdictions that the Chinese think are more friendly towards them in Canada and Africa. It comes down to whether we are a country that’s easy to do business with. Canada and much of Africa are being very proactive.’
It’s not surprising Kenya is proactive. The potential oil resource in just one oil field could be valued at twice the country’s annual GDP.
Profits in Africa
Naturally, the positive attitude to the resources sector won’t last forever. Remember, Aussie governments used to love the resources industry too.
That was until governments figured out that all the hard work and investment by entrepreneurs and investors, resulted in something central planners hate – profits.
So, they’re trying to rip away these hard-earned profits and use them to fund wasteful government follies…and increase the size of the unaffordable Welfare State.
But for now, the East African coast is still a frontier opportunity. And African countries need the investment of foreign capital. That’s great for the frontier explorers.
Especially for the firms that got in early, when governments were giving away permits at rock-bottom prices. Today, it’s not so easy to get a permit on the cheap.
But things are changing fast.
The East African frontier has moved from an area that few cared about to an area that now attracts multibillion dollar price-tags.
It’s still not too late to profit from what could be the last major frontier for energy exploration, but the window of opportunity is closing.
The next 12 months will be the key to finding out just how lucrative this frontier opportunity is.
Cheers,
Kris
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