A Company With 10 Times More Oil Than Exxon
By Matt Badiali, editor, S&A Oil Report
May 17, 2008
In 1914, Winston Churchill created a new type of corporate monster.
Twelve years earlier, a wealthy Englishman named William Knox D'Arcy had founded what would become the Anglo-Persian Oil Company. His drillers fought small pox, bandits, and scorching heat while looking for oil in Iran. After years of failure, the company made its first large oilfield discovery in the Middle East.
Anglo-Persian sold shares to the public in a speculation-charged atmosphere. People lined up to buy stock. Ownership of the company was heavily tilted to the Anglo side.
By then, Churchill had moved the Royal Navy toward burning oil for fuel instead of coal... and he needed Anglo-Persian's interest aligned with the state's fuel needs. The British government bought a 51% stake in the business... and the first state-owned oil company was born.
Six weeks later, Germany invaded France, kicking off World War I. Fighting wars requires lots of oil... and Anglo-Persian grew into one of Britain's biggest suppliers.
Nowadays, government-backed oil companies are the most dominant companies on the planet... and some of the best investments.
You think ExxonMobil, the world's largest public company, has a lot of oil? Saudi Arabia's government oil company, Saudi Aramco, has 10 times Exxon's reserves.
Exxon doesn't even place in the top 10 companies by reserves. The government-backed oil companies of Russia, Iran, Iraq, Algeria, Venezuela, and Mexico dominate the list.
Yet most politicians want to tax Exxon and its peers to death... all the while calling for cheap gasoline. Meanwhile, state-owned oil companies receive the most promising exploration licenses on their home turf. And they have government backing in trade negotiations.
Brazil and its state-owned oil company, Petrobras, demonstrated this power after the discovery of the enormous offshore Tupi field. After the oil giant made the discovery last year, Brazil pulled choice exploration blocks off the market. They'll go straight to Petrobras.
Trouble is, you can't invest in most government-backed oil companies. They're not for public investors.
Even if you could, you wouldn't want to touch some of them. Venezuela and Mexico are pictures of government bungling. Both countries are blessed with incredible oil resources. Both depend on outdated technology and have stifling bureaucracies. And both produce less oil than they did five years ago.
However, there is a short list of great government-backed oil companies out there with public shares...
If you're adventurous, you can own shares of Russian natural gas giant Gazprom. S&A Oil Report readers have gained 180% on our Petrobras shares. We're also up big in Norway-backed StatoilHydro.
Like Petrobras, StatoilHydro's ability to find offshore oil is legendary. It cut its drilling teeth in the brutal conditions of the North Sea.
It's nearly twice as large as the next-largest offshore operator – Shell. It has operations in 40 countries... And it's a leader in cutting-edge offshore technology and innovation. Its profit per barrel of oil sold is staggering... in part because it doesn't have to pay huge royalties and taxes.
As the "No Easy Barrels Left" story plays out, offshore masters like StatoilHydro and Petrobras will produce the biggest returns. They've got the expertise, they've got the money, and they've got the backing to usher in the new age of the national supermajor.
Good investing,
Matt
