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Strategies & Market Trends : Value Investing
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To: Jurgis Bekepuris who wrote (55512)6/21/2015 8:55:03 AM
From: Graham Osborn1 Recommendation

Recommended By
Jurgis Bekepuris

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Hey Jurgis,

Yeah the political risk comes with the territory it seems. One of the key determinants for me is breakeven cost and FBOFW this tends to be the Canadian operators with derisked PSCs with European or Middle Eastern NOCs. Pretty much any time you're dealing with NOCs the question of nationalization (or at least national privatization) is more a question of when than if - look at what Iran is demanding of the IOCs. Yet IOCs tolerate this situation because during the times prices are high it's just still so darn profitable.

My strategy is to stick with low cost producers and try to diversify across territories. I have TGA in Egypt, BNKJF in Albania (I sold my TGA on an earlier bounce - looking to buy it back on the next correction in Brent). Even with the ever-present risk of national disaster, political destabilization or nationalization, for these experienced operators (10+ year operating history in their regions) to be selling at <2x EBITDA is just crazy.

I look at these as also a bit of a portfolio hedge. Oftentimes Brent is up with the rest of the market is tanking. Not a minor concern when a half tril of Chinese market cap just vaporized.

- Graham
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