Hidden Gem in Sweden
Monday, April 17, 2006
A few years ago I owned some shares in a relatively small
oil and gas company operating all over the globe with some very promising
prospects. It was Lundin Oil, and traded OTC. They owned assets in such areas of
the world as Sudan, Albania, and South Asia with assets in stable areas of the
world in the North Sea and other parts of Europe. Well Lundin Oil was purchased
by Talisman Energy (NYSE:TLM), a company in which we currently own shares in and
are a fan of, in 2000 for all cash. However, Mr Lundin (who owns most of Lundin
Group), wanted to keep the assets in Sudan because he viewed them as “world
class” (this view really applied to Sudan because of his strong belief in the
basin). So each shareholder was given cash by Talisman and then 1 share of
Lundin Petroleum which would hold the Albania and prized Sudan assets and be
traded on the Stockholm junior exchange. The catch was that because the company
also had an option to buy an Iranian concession and took ownership before the
deal closed all their American stockholders were forced to sell because the
company at that time owned over 51% of its operating assets in 'blacklisted'
countries by the US State Department. Unfortunately I was forced out along with
many others and watched in awe (and some jealousy) as the stock subsequently
rose from 10 Kroners (the price I was forced to sell at) all the way to its new
price of 95 Kroners. Quite a run, that I believe all can admire.
Although there have been huge gains here, it is in my
opinion that this stock could still double from its current price. Although they
sold their 40% interest in Block 5a (right next to Talisman's old concession)
they still retain an undeveloped block. Block 5B is further south than any of
the other Blocks in this region, but has fewer risks associated with its
development in regards to infrastructure. There is now a pipeline (built by the
Talisman concession group) that runs to the Port of Sudan, and Lundin would only
have to build a pipeline to connect to the already in place port pipeline and
then pay a royalty to its owners.
Lundin owns 24% in Block 5B and will drill 3 holes in 2006
on their old seismic results and do another 1100Km of 2D seismic testing as soon
as the wet season is over. This will also depend upon the political situation as
there is a Civil War going on, but no one ever seems to know whether the peace
is for real or for a short period of time to please the West. Regardless, Mr.
Lundin believes that this area is going to be huge, and he has stated this
before there were any discovered reserves, those reserves now stand at 1 billion
barrels plus, so I would say he is right on.
This company is no one trick pony. It currently has
projects near or at production in Algeria, France, Indonesia, Ireland,
Netherlands, Nigeria, Norway, Sudan, Tunisia, United Kingdom, and Venezuela.
Their proven and probable reserves stand at 146.1 million barrels of oil
equivalent with a forecast 2006 production at 36,000 boepd (barrels of oil
equivalent per day). The company will experience higher profits in the next year
as some of their hedged contracts(which were a necessity as they sold forward
production in order to finance acquisitions) expire.
The company is traded on the Stockholm Stock Exchange under
the ticker symbol of LUPE, and can be viewed on Yahoo Finance under the ticker
symbol LUPE.ST to get a quote. Our prediction is that the stock has the
potential to double should any positive drilling results be released from the
Sudan project, as well as decent upside potential with the de-hedging of its
production capacity. With Mr. Lundin, who is an experienced oil man with over 30
years at the helm of the Lundin Group as well as his years at Shell where he
helped discover large gas resources in the Persian Gulf, you have man who knows
how to run an oil company and build it from the ground up. He also has ties to
many governments around the world and has friends in high places. He controls
34.2% of the company through 2 family foundations and I suspect that he will
fallow the same blueprint which worked so successfully for Lundin Oil, sell only
when the price is rich enough.
There are a few things that I have learned while investing,
and one of the most important is that you stick with those people who have vast
knowledge and know how to apply that to enriching their shareholders. Mr. Lundin
is one of those people, and one in which holds a considerable stake along with
his shareholders. He only wins when you do, and he is not one to want to lose.
Now added to our portfolio: