Dems Got You Running from U.S. Oil Majors? Think Global
By Matt Badiali
December 1, 2006
I know they’re running scared…
I know some of the most die-hard oil bulls have sold their oil stocks, and they’re scared to death of American oil companies now that the Democrats hold the House and Senate. In fact, a common question for me at the New Orleans Investment Conference was:
“Do you still like oil majors now?”
My answer? “Absolutely.”
Don’t get me wrong… I think both parties are capable of hamstringing American oil producers, but there are great values to be had in this group. I’m holding onto my American majors.
You just can’t do better over the next five years than a giant oil company paying a fat dividend… While I agree that Nancy Pelosi can make any oil bull nervous, the fact remains, we need oil. Renewable energy on a national scale is uneconomical and just a twinkle in Al Gore’s eye.
However, for those of you just itching to dump American oil shares like ExxonMobil (XOM) and ConocoPhillips (COP), I have an alternative. Think global. Think… Italy?
The Italian government actually owns 30% of its major, Eni (E).
That puts the government squarely in the corner of the oil company. Rather than attack the company for doing its job with windfall taxes, the Italians are quietly supporting Eni.
Founded by maverick oilman Enrico Mattei, Eni continues to cultivate partnerships in places that are off-limits to the U.S.
Along with its successful integrated oil business, Eni is focused on becoming a major supplier of natural gas to Europe. In light of recent supply restrictions from Russia, Europe is committed to seeking new sources of natural gas. Eni is building infrastructure to meet that demand.
The company’s Blue Stream pipeline is a 24-inch diameter line that carries natural gas from Beregovaya, Russia to Samsun, Turkey. Blue Stream is one of the most advanced ultra-deepwater engineering projects ever completed. The pipeline goes through the Black Sea at depths of up to 7,000 feet! The flow of natural gas will gradually reach 16 billion cubic meters in 2007.
Greenstream is Eni’s latest venture. It’s a 335-mile pipeline the company plans to use to bring 282 billion cubic meters of natural gas per year out of western Libya and into Europe.
Eni also has a promising liquefied natural gas (LNG) business. Its Damietta LNG plant, located on the Mediterranean coast of Egypt, was the country’s first LNG plant. It produces 5 million tons of LNG per year, a record for single-train LNG plants. Eni uses these huge pipelines and the LNG plant to transport and sell natural gas. The company began to move into Europe in 2000, and currently sells over 96 billion cubic meters of natural gas there per year.
I think last year’s natural gas debacle with Russia pushed Europeans to embrace a European energy supply. That’s why I like the idea of a European company bolstered by a (relatively) stable government. Eni’s plans to supply natural gas to Europe are good for the long term.
Speaking of long-term, check out Eni’s valuation metrics against some of its global peers. Owning Eni at these levels is the stuff long-term wealth is made of.
Company |
Market Cap |
Price to Earnings |
Dividend Yield |
Eni |
$48.4 Billion |
4.30 |
4.1% |
ConocoPhillips |
$109 Billion |
6.40 |
2.2% |
Chevron Corp. |
$154 Billion |
8.98 |
3.0% |
BP |
$224 Billion |
10.46 |
3.5% |
|
If you’re really scared off by the Dems in Congress, but still want a portion of your money in Big Oil… start thinking overseas.
Good investing,
Matt Badiali
