Scandinavian Energy Stock Looks To Be Headed North
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.
With foreign markets running rings around the major American indexes, it is not surprising that a growing amount of my reader email is focused on overseas investments.
The global performance figures tell the story: When the Dow hit 13,000, that represented a 4.3% gain from its 2006 close. Yet within the same time frame, some emerging markets have racked up double-digit gains. For example, among several exchange-traded funds, iShares Singapore and iShares Australia both rose 10.4% between January 1 and April 21, and iShares Malaysia jumped 19%.
My latest e-mail on overseas investments comes from Mark Langer, who writes: “My broker is pushing me hard to buy a Norwegian energy stock, Statoil, which he thinks is good for a 25% run over the next 12 months. Could you please bounce that name off the money manager you interviewed about ConocoPhillips and ask him what he thinks of my broker’s recommendation and his price target?” (He adds, “I also thought your case for owning Conoco seemed very compelling, and I want you to know I bought 500 shares, which cost about $35,000.”)
The manager in question is Leonard Mohr, a principal of Los Angeles-based MCR Associates, who has about 17% of his $140 million portfolio in energy stocks. Mr. Mohr agrees with your broker that Statoil, traded on the Big Board, is a desirable stock — in fact, his firm owns a 62,000-share stake in the company. Two years out, he believes, it could trade in the range between $40 and $45 range, equivalent to a roughly 50% gain from its current price of $28.21.
Statoil, a giant oil and gas exploration and production company, operates about 2,000 gas stations in nine northern European countries. It posted 2006 sales of $58 billion. The Norwegian government owns 70% of Statoil, which last December agreed to acquire Norsk Hydro in a $30 billion deal that will be completed in the third quarter. Norsk Hydro is not only Norway’s largest industrial company, it is also the world’s third biggest aluminum producer, and a major energy player.
Standard & Poor’s shares Mr. Mohr’s enthusiasm, characterizing Statoil as one of those “overlooked jewels,” a wallflower that eventually is discovered and is subsequently bid up in price. It figures the stock can reach $38 during the next 12 months, about a 35% gain from current levels. S&P believes the current market is wrongfully discounting Statoil because of the Norsk Hydro merger’s likely dilution of 2007 and 2008 earnings. But the deal will also create the world’s largest offshore oil and gas company, with combined production of 1.9 million barrels a day. Excluding the planned acquisition, Statoil’s earnings this year are projected by S&P at $2.52 a share.
Last year, Statoil replaced only 73% of its reserves, compared with 101% in 2005. However, the addition of Norsk Hydro’s assets should help replace production going forward. All told, the new Statoil will have combined reserves of 6.3 billion barrels of oil equivalent. Further, Norsk Hydro management has stated that it has enough projects in the pipeline to achieve production growth beyond 2010, particularly in the Gulf of Mexico, which Statoil has identified as a future core area.
TAX WOES FOR TRUSTS
Canadian trusts, most paying fat double-digit dividends, and often associated with energy and real estate companies, have attracted a loyal American following among income-oriented investors.
If you’re one of them, watch out: Legislation has been introduced in both the U.S. House and Senate that would end their preferential tax treatment, warns Washington Analysis, Prudential Equity Group’s eyes and ears in the nation’s capital. Tax rates for such trust income could increase to up to 35% from 15%, depending on the legislation. A WA senior policy analyst, Tim VandenBerg, cautions that there could be an exodus of American investors from these shares because of the enactment — or even the consideration — of such a tax proposal. This would put additional pressure on stocks that have already suffered from adverse changes, both pending and proposed, in Canadian taxation.
Among the stocks thought to be at risk are the following names traded on the New York and American Stock Exchanges: Advantage Energy Income; Baytex Energy Trust; Canetic Resources Trust; Enerplus Resources Fund; Harvest Energy; Pengrowth Energy Trust; Penn West Energy Trust; PrimeWest Energy Trust, and Provident Energy Trust.
