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Jeff Binkley
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Mr. Binkley is the managing director of Binkley Wealth Management Group LLC, a fee-only, independent Registered Investment Adviser located in Avon, Indiana. Mr. Binkley has been an Investment Adviser Representative since 1993. In 2010, he formed Binkley Wealth Management Group as a wealth... More
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  • A Danger Signal For North African Oil & Gas Producers? 0 comments
    Jan 26, 2013 2:56 PM | about stocks: STO, BP

    News came midday Saturday that the hostage crisis at the natural gas facility outside of Ain Aménas, Algeria came to a bloody close with Algerian Special Forces storming the complex. The assault ended a multi-day standoff where it's known that at least one American from Texas has been killed. Escaped Algerian workers have described seeing workers of many nationalities gunned down by the terrorists.

    Owned in part by BP (NYSE: BP), Statoil ASA (NYSE: STO), and the Algerian State-owned Sonatrach, the gas facility began production in June 2006 and was described as "the largest wet gas joint development project in Algeria."

    What production delays the recent hostage crisis may have caused has not been determined. According to BP's 2006 announcement of the facility coming online, production at the facility was approximately 9 billion cubic meters a year of gas or roughly 25 million cubic meters/870 million cubic feet per day. 50-60,000 barrels per day of liquids were also being produced, according to the statement.

    BP has stated that it is the "the largest foreign investor in Algeria, [delivering] two world class gas developments: In Salah Gas and In Aménas."

    These are huge and complex sites spread out over several hectares. The Ain Aménas site included a housing complex and processing site, approximately a mile apart. With that much area to secure, the Algerians faced a complicated challenge to safety and the breadth of the area to be protected was likely key to the standoff taking so long to resolve. The State-owned Sonatrach, which is partnered with BP and Statoil in running the site, reported that the entire refinery had been mined and that the al-Qaida-linked militants had planned to destroy the complex.

    The Algerian state news agency reported that during this second and final assault, on Thursday an unsuccessful attempt to free the remaining hostages was launched, the remaining band of terrorists killed the hostages before they themselves were killed by Algerian Special Forces commandos. The Saturday assault was reportedly launched in an attempt to prevent a fire started by the militants from spreading and destroying the facility.

    Earlier this past week, market response to the situation was muted. The incident began Wednesday when the militants first took approximately 40 hostages. On Wednesday BP traded down about 1% from Tuesday's close on higher volume of 5.9 million shares. BP closed out the week at $44.04 about 1% lower than before the incident began. With the MLK holiday market closure, the news of today's assault and resolution should have plenty of time for dissemination and analysis before U.S. markets open again on Tuesday.

    Some within the Seeking Alpha community view BP favorably and recommend it as a company to own.

    I believe the argument to own BP remains strong, in spite of the Algerian unpleasantness. My apprehension however, has been elevated for BP and the numerous other companies with large holdings and projects in the ever unpredictable geo-political environment that is North Africa. You can't throw a wrench in North Africa without hitting something owned by an oil company.

    My hope is that this most recent reminder that the world remains a very dangerous place is not lost (nor swept under the rug) during the massive news-oxygen-sucking-event that is the presidential inauguration. There are tough lessons to be learned and re-learned through this incident. I pray they will be.

    Those who would be prudent gas and oil investors should pay attention to how information regarding this matter is broadcast. We should also examine what actions, if any, our political and energy policy decision makers, as well as the companies themselves, take to minimize the chances of this type of tragedy happening again.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: The contributing author, Binkley Wealth Management Group, LLC, and/or its clients may be pursuing the strategies and may or may not hold positions in securities mentioned in this article at the time of publication. The opinions and strategies expressed are not meant to taken as advice to any individual investor. The opinions and strategies discussed are not to be construed as personalized recommendations to buy, sell or hold securities by any individual investor without first consulting with their own personal financial advisor.

    Stocks: STO, BP
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