Russian Oil Is Worth the Risk 25 comments
-
Font Size:
-
Print
- TweetThis
Steeper declines in stock prices of buy recommendations Gazprom (OGZPY.PK) and Lukoil (LUKOY.PK) since Russian troops entered Georgia have opened an opportunity for portfolio rebalancing. In other words, buy more shares of the two recommended
Russian stocks to restore their weightings to desired long-term levels. Admittedly that takes courage because political risk is particularly hard to assess and changes in stock price trends are hard to anticipate. We believe some risk is worth taking because there are no other large cap opportunities with so much resource value and such low stock price as measured by McDep Ratios.
Though we do not apologize for the Russian military, the Georgia maneuver looks to us like a reaction to a poorly conceived expansion of U.S.-led NATO, the North Atlantic Treaty Organization. The U.S. overpromised small countries abutting Russia that we would protect them militarily, at the same time we can’t seem to run a mortgage insurer much less police the world. Today, Russia is telling NATO to back off; tomorrow Russia has the opportunity to create capitalist successes in energy that count Gazprom and Lukoil among world leaders.
Reasserting Russian Influence in the Caspian
Meanwhile, the conflict in Georgia coincides with Russia reasserting its influence in the Caspian region that holds the giant fields of oil in Kazakhstan and Azerbaijan and natural gas in Turkmenistan. (Try to pronounce the name of the latter country’s leader, Gurbanguly Berdymukhammedov.) Juxtapose Russia’s comeback with U.S. influence over the Middle East and the two military powers have a lock on the world’s conventional supply of oil for export. As a net exporter, Russia has an interest in higher oil price. As a net importer, the U.S. has generally attempted to keep oil price artificially low.
Well-known oil journalist Jim Norman, in his new book, The Oil Card, argues that the U.S. and Russia have a common interest in high oil price to restrain China’s rapid ascendance to global power.
The Russian factor coincides with a turn up in the oil price trend during the past week. Moving averages on a 200-day or 40-week basis are holding, implying a continuing uptrend. Amid signs of slowing economic activity the trend could be flat for awhile as it was during 2006. In that more cautious case, our estimates of Present Value, the denominator of the McDep Ratio, would be sustained and buy recommendations would continue to be amply attractive.
Originally published on August 26, 2008.
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 25 comments:
> jack
Insofar as a 'recipe' for war is concerned, in the largest peacetime exercise held in post-War Germany, called Apple Harvest, the referees came to the conclusion that the Russian army could only be stopped
using tactical nuclear weapons. I made the calculation for the Brigade I was with - the 35th FA Group. The result from the firing of that one simulated round (from an 8" gun-howitzer) was that the eastern part of Nuremberg was devastated.
As I informed somebody recently, the US gave the world an example of production miracles during WW2, and they can do the same thing today, so what about forgetting the cold-war rhetoric.
Fred
But whoever it was, there's always the issue with any Russian equity of ownership risk. This is particularly a concern with natural resources. We know there's value in there, but we don't know that that value will go to shareholders and not to (a) the government, whether through expropriation or punitive taxes or (b) cronies somewhere.
remember england was buying military goods from us in september 1939 & more under lend lease & in december 1941 we had a warm base & were ready to roll.
> jack
The world needs more resources and Russia has a good part of that. Companies such as Gazprom that control an important part of that resources will continue to perform very well and continue to provide good returns for their shareholders.
All I can conclude from this is that western funds (which also control the media) hopes to recover their investments in China by selling their shares to small time investors who follow media.
While they want to grab all the good opportunities in Russia quietly at good prices by reducing demand from small investors.
Because, I know that Georgian war regardless, the big investors are all still in Moscow.
Kurt Wulff is correct. Listen and gain or it is your lose.
Fred
And it doesn't take large munitions factories to manufacture smart bombs. You can bet that they're not made utilizing any imported parts, either.
As for Georgia, the US is at fault. Ever since the end of the Soviet Union, we have been pushing NATO right up to their doorstep because we want to control their oil and gas and divert pipelines away from Russia. Now were are putting weapons in Poland.
As for Khodorkovsky, he was a thief who bragged openly about his illegal tax minimization schemes. I used to translate his press releases before they were in English. Someone at YUKOS used to send them to me.
I once had a very close friend in Moscow, Joe Adamov. He always said that "the eagle and the bear would make a formidable pair". He was right. If we would cooperate with Russia instead of trying to control them, everyone would benefit.
I'm not selling my Russian shares.
Besides, if they really need something not homegrown, they'll buy the parts and know-how they need but avoid production-sharing agreements and instead keep the large profits to themselves. Just like any independent US producer would do.
the stocks would have dropped by...
lukoy-- aug 27-- $71
now $56
it dropped 7 % just YESTERDAY
and gazprom dropped FIFTEEN percent yesterday
so following your advice would have dropped 32% of your cash into the toilet
thanks dude
Russian petroleum production overall is declining. The easy oil in Western Siberia is already extracted and the money is in Putin's hidden accounts. The Sakhalin energy and Exxon projects on Sakhalin are the worst managed projects I have seen in my 25 years in Finance. There is oil as well in offshore Kamchatka but it would be a logistical and financial nightmare to try to manage these projects - that's why almost no body is there despite the recent $145 oil price. There is alot of Natural Gas, but the Sakhalin Gas has yet to reach market, and it will continue to be delayed as it always has for the last 5 years. And then compare that to sticking a pipe in the ground in the Middle East and selling the oil and gas at a gigantic profit. The Iraqis are piggybacking on American wartime expenditure and hoarding their easy-to-extract-oil. As they have almost no marginal costs they are the new 800 pound gorilla in the oil and gas business, Sakhalin and offshore Kamchatka are completely uncompetitive by comparison. To say nothing of the onerous Russian oil taxes (that even Gazprom and Rosneft complain about). Please, go to Kazakhstan and the Russian Far East and take your lumps in the oil business before you lead people to a certain mauling in the angry bear's claws.....
My first question to America is what kind of contingency plan did you have for protecting Georgia, a country you befriended? Did you impress upon Georgia not to act without your knowledge and anticipate you would rescue them? Even if the South Ossetians fired the first shots as reported by some media, the Georgians would have been better served by complaining to the UN that Russia was subverting the people of the two break away areas with Russian citizenship, was arming local par-military units, and request that UN peace keepers replace Russian peacekeepers who were part of the problem. Long after Georgia has no military to speak of, South Ossetians continue to kill people as they fire the last shots into Georgia.
I enjoyed Russian history for years. In my mind, Peter the Great was the first Russian to try and bring Russia out of the dark ages and into the light of Europe. I even studied the Russian language and when they speak English, I can usually tell they are Russian. The Russians are an interesting bunch; in 1968 until 1970, I lived with them in occupied Berlin. The differences between the US, French, and British forces troop trains to Berlin were telling. I took the US train only once and thereafter, I took the British train. The Russian invasion of Czechoslovakia was going on while I was in Berlin. The US provided intelligence to the Czechs, but we told them we could not come to their aid. Russia had been paranoid for a long time. Czechoslovakia is one of two military land bridges from Europe to Russia and is important to Russia. The other is Poland so now you know why the Russians are not in favor of the missile system and the two joining the West. The Russians usually assumed you were lying to them. Perhaps this was due to them usually lying to you. Thus, if you wanted to make them think you were doing something, you tell them the opposite and provide some disinformation through another back channel and you had a good chance they would take the bait.
Russia used the fact that they had citizens within the boarders of Georgia to invade that country in order to protect their citizens. They created these citizens after the fact and not from whole cloth. Russians use fear to earn respect and we try to use appeasement more often than not. Russia was willing to wage a major war on its break away region of Chechnya but did not allow Georgia to do the same with South Ossetia. Anyone who thinks Russia was only a pawn in the South Ossetia/Georgia war need to read up on how Russia conducts foreign policy. Ask yourself how was Russia able to move so many military units into South Ossetia and further into Georgia in so few hours? Russian was not the pawn, but more likely the queen in this operation. Russia knew it was coming. If Russia were to tell the South Ossetia par-military forces to fire into Georgia, what would you imagine to happen? Currently, the Russian claim we are rearming the Georgians with arms from our naval ships because unlike us, they would not use such a ship to transport humanitarian supplies. Russians judge us by what they would do. Our mistake is we judge Russia by what we would do. Russians are essentially afraid of US armed forces because we can shoot straight, we can hit one house in the middle and miss the two next door.
Europe is funding the Russian increase in oil profits, which allow Russia to upgrade its military armaments. Russian is not using the oil profits to upgrade its infrastructure, to include the infrastructure that produces the oil profits. The current political plan in Russia is to return to the old ways, government controlled press, farms, corporations, and both the upper and lower houses of government are controlled by the state. Our friends and America need to curtail purchasing Russian oil. We need to be energy independent.
An ancient high priest of Israel once stated that there were three primary pillars of life and society. The three pillars that would guide all peoples to a greater society were religion, worship, and humanity. The Russian government has little familiarity with these traits, hope that yours does. Russia has a problem, it only has a birth rate of 1.4 and a 2.1 is required to sustain a population. This means Russia needs to grow its population and that might be a problem for others. Wulff does better at researching energy than Russian foreign policy.
retired 971AH-972A