Investors looking for the “next big thing”, should glance over toward African stocks. Featuring many of the same attributes as other emerging market superstars, Africa has all the hallmarks of becoming the next China or Brazil. While it may be a risky play, the rewards of investing in African stocks could be great.
And one of the main attributes propelling Africa forward is its vast resource wealth — specifically its abundance of oil & natural gas. The country is only now getting around to exploiting that abundance.
With nations like Tanzania, Mozambique, and Uganda beginning to tap their energy potential, investors willing to take the plunge on the continent could be handsomely rewarded. And gaining access may be easier than the average investor thinks. Taking a ride in African energy stocks could be as easy as buying shares in your local energy stocks.
Huge Potential In African Stocks
For most investors, the general perception of the African continent is one of strife, disease, famine and corruption. However, today’s Africa is quickly becoming a hotbed of hope and prosperity, with the region’s energy industry leading the way towards modernization.
The untouched continent features a vast amount of shale and offshore energy deposits — in some instances they even rival U.S. deposits. Nations like Nigeria, Libya and Algeria have always been the major sources of reserves and production, but new finds in Ghana, Kenya and Uganda are rewriting African history. According to BP’s (BP) 2012 Statistical Energy Survey, Africa had proven oil reserves of 132 billion barrels at the end of 2011 and nearly 513 trillion cubic feet (Tcf) of natural gas. That’s about 42 years’ worth of supply at current production and roughly 8% of the world’s total reserves.
However, these reserves do not take into account the vast unconventional opportunities that the continent has. Some of the most recent and biggest “elephant” finds in the oil and gas sector have come from offshore deposits in West Africa, while fracking and horizontal drilling have unearthed huge deposits in the Sub-Saharan African nations like Kenya and South Africa. Adding those in to Africa’s bounty, we get nearly 13% of the world’s reserves.
But with so much of Africa having little to no seismic work done, the potential for the continent is almost limitless. It’s truly the new frontier of oil investing.
The beauty is that so many African nations are eager to spur development of their own economies. That makes accessing this bounty progressively easier and easier for many energy stocks. Many foreign state-owned oil companies like China’s PetroChina (PTR) have been working in Africa — building new refineries in Chad and Niger — while public energy firms like Exxon (XOM) have plowed ahead into a variety of African nations and locales.
Oil investing in Africa isn’t a slam dunk, however.
Despite reforms, the region is still risky. Military coups and insurgent uprisings do occur. Additionally, the lack of infrastructure and rising oil thefts are a huge problems on the continent. “Bunkering” or tapping into existing oil pipelines to steal crude has cost Africa and its oil firms about $100 billion dollars since 2003. Yet, despite this issues, the reward for investors with long enough timelines is great.