Places like the Congo are still pretty dangerous when it comes to political violence. Theft of oil — called “Bunkering” — is also a huge concern for many oil stocks operating in Africa. Royal Dutch Shell (RDS.A) estimates it loses about 60,000 barrels per day from its operations in Nigeria. The number of incidents involving the theft of oil tankers via pirates has also grown in recent years.
However, the longer-term picture is still positive for oil stocks operating in Africa.
Two Oil Stocks To Buy
While many of the larger integrated oil stocks — like Total (TOT) and Chevron (CVX) — have exposure to African energy, there are a few direct ways to participate in its future growth. And they don’t involve buying into some penny stock scam.
One of the best could be United Kingdom-based Tullow Oil (TUWOY). It’s less popular than other oil stocks, but the company has had huge success in exploiting both Ghana and Uganda acreage. TUWOY stock actually operates the largest field in Ghana. More recently, Tullow Oil has begun picking up fields in Equatorial Guinea, Gabon, and the Congo.
However, the real story for TUWOY stock could be it exposure in Kenya. It’s one of the first oil stocks to tap the prolific Somalian Plate shale field. Tullow’s latest drilling program in the region has allowed it to double its Kenyan resource estimates to more than 600 million barrels. That will help Kenya become a net oil exporter by 2016.
TUWOY stock isn’t necessarily cheap — currently trading at a P/E of 33. But, that premium is justified as the firm is Africa’s top oil & gas explorer. Competitors like Kosmos Energy (KOS) and CAMAC Energy (CAK) aren’t even profitable yet.
Another potential play could be beaten-down Cobalt Energy (CIE). While CIE stock does hold interests in offshore wells in the Gulf of Mexico, Cobalt’s growth prospects lie in offshore Africa — namely, Angola and Gabon.
Recently, CIE stock found huge volumes of natural gas from several of its offshore finds in Angola. However, due to political issues within the nation (related to royalty rates), the vastness of the find is going under-appreciated by the market. Especially when Angola is looking to change its current rules to begin exporting LNG. ConocoPhillips (COP) is already looking at building new LNG facilities in the nation.
CIE stock isn’t profitable yet, but the recent finds in Angola are consider world class and could propel the stock higher as government changes its tune and begins exporting the natural gas.
For investors, shares of TUWOY stock and CIE stock are the best oil stocks out there to play the rise of African oil production.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.