Statoil (STO), the pending partial acquirer of buy-recommended Norsk Hydro (NHY) is buying leases in Alberta thought to contain two billion barrels of bitumen (extra heavy oil), recoverable by steam injection. A dozen of our buy-recommendations have exposure to the upside of Canadian oil sands.
European major ENI (E) is buying the offshore oil and gas assets of utility Dominion Resources (D) for $4.90 a thousand cubic feet (mcf) of proven reserves compared to our estimate of $4.80 an mcf of present value in buy-recommended offshore producer Energy Partners (EPL). A debacle for Bank of Montreal in futures trading following Amaranth last year reinforces our comfort in not trying to outguess the futures market in anticipating short-term natural gas price.
Yet, we believe there is an investment opportunity in buying and holding longer-term natural gas futures as well as in buy-recommended natural gas stocks because the discount to oil looks too wide to us.
Originally published on May 1, 2007