Tuesday, May 22, 2012

By Shan Saeed.
Geology has no borders. East Africa is experiencing one of the highest levels of investment in the world right now — but we're only witnessing the beginning of the new energy market." This was reported in — New York Times
Indian Ocean is flooded with Oil: Very oily area
There is a lot of oil in East Africa and just off the coast in the Indian Ocean. A few years ago, the U.S. Geological Survey conducted their own analysis and concluded: Over 71 billion barrels of crude lay untouched in shallow pockets dotting the East Africa region. These deposits, it turns out, are a mirror image of the Middle Eastern fossil fuel super-system. More specifically, they are a southwestern extension of the Marib-Shabwa and Sayun-Masila Basins that created the Saudi Oil Empire — and gave rise to the world's first and only trillionaire family. US and West allies want OIL. The Americans and the French have large numbers of Special Forces soldiers in Djibouti right next to Somalia. On the surface, they are there to halt piracy. But they're really after the extension of Saudi oil fields which run into Africa. Hillary Clinton, David Cameron, and forty other high-level diplomats met to talk about bringing peace to Somalia and destroying the militants group operating in Africa. A few days before the meeting, the UN raised the African Union force that's on the ground in Somalia from 12,000 to 18,000. The summit followed a surprise visit by British Foreign Secretary William Hague to Somalia’s capital, Mogadishu, where he discussed "the beginnings of an opportunity'' to rebuild the country. Britain also appointed an ambassador to the country. Turkey went so far as to set up an embassy.
Earlier this year, I bought my way into a covert meeting of some of the most powerful oil execs in the world. It cost me about $10,000 out of pocket to get there and to make it past security, but I flew commercial. God only knows how many millions the rest of the attendees, many of whom arrived on their private Gulf Streams and Learjets, spent on this week-long meeting.
It happened at the only four-star hotel in Nairobi, Kenya... behind closed doors and away from the prying eyes of the press. And for good reason: This meeting was never supposed to be public information.
However, unbeknownst to the CEOs, COOs, and big-dollar corporate geological consultants who were in attendance in big numbers and I was present there, when the doors of the conference room were shut and latched...
They had intended for that number to be zero, because in the next couple years, the land development deal they were there to finalize will shift the balance of power of the global energy market. But they didn't want anyone to know that just yet. You see, Africa's got a reputation for being a backward, unindustrialized backwater — on a continental scale.
What many don't know, however, is that Western Africa supplies 12% of the world's global annual crude oil demand.  With four OPEC nations inside its borders [Algeria, Angola, Nigeria and Libya] , Africa is second only to the Middle East in terms of membership in this nearly omnipotent cartel. But while North and West Africa crank out almost 6 million barrels of crude per day, East Africa is hardly on the map at all.

All this is about to change forever.. Because not only have major production operations sprung up in the Sudan and the Democratic Republic of Congo in the last five years, effectively moving the oil frontier east. but major natural gas deposits were confirmed off the coasts of Ethiopia, Kenya, and Tanzania just last year in 2011.
And as anybody who's studied fossil fuel geology knows, where there is natural gas, there are also crude oil deposits close by. The most compelling evidence that East Africa is holding some of the world's richest fossil fuel resources goes back long before the natural gas strike and the recent expansions in West African production.
Land which is today occupied by Yemen, the United Arab Emirates, Qatar, and the biggest oil empire of them all, Saudi Arabia.
Discoveries in North and Western Africa began to confirm these suspicions 30 years ago, but it wasn't until last year that Tullow Oil's natural gas strike off the coast of Tanzania finally made it clear to the execs what geologists had known for decades.. East African geology isn't just similar to the geology which gave the Saudi Royal families the legendary Marib-Shabwa and Sayun-Masila Basins. It's the same geology.
Saudi Arabia is quiting Oil Business and moving into SHALE GAS---The game changer in the global energy market.  Saudi Arabia is making huge investment in SHALE GAS (The next revolution in the energy market) amounting to $130 billion which is roughly 3-years Net Income of Exxon Mobil. This investment is coming from the Saudi Royal family. This is absolutely impressive. I really admire the strategic leadership of the Saudi Royal family for analysing this trend and maneuvering in the right direction as the geo/political landscape is changing at a very rapid pace. Most investment banks and hedge funds are placing massive investment in shale gas companies. TIME Magazine has reported on Shale Gas on April 11, 2011 issue and Financial Times reported on May 8, 2011 about the growing importance of Shale Gas globally. 

Now, to the bigwigs at this Nairobi conference, all this news was a mixed blessing. Representing companies that have made some of the biggest discoveries the industry's ever seen over the last thirty years, it's their job to find new oil. And with East Africa, they're about to chalk up another victory — a major one.  However, it will also most likely be the last cheap oil any of them ever find. Because as the world's mainstay oil deposits gradually dry up, the industry has no choice but to start seeking out harder-to-reach pockets of crude. Known oil reserves are declining and IEA has been screaming around the world that Oil is depleting and something must be done.
Evidence of this comes from the vast number of off-shore oil drilling platforms that have popped up in recent years. In fact, while the rest of U.S. production has fallen by 50% since the 1980s, offshore oil production has risen to account for 1/3 of the total national output — double what it was relative to 20 years ago.
On top of that, at an average cost of $100 million, each of these rigs is about 1,000 times the cost of a typical conventional well... and that's before you even factor in the $1 million/day operating overhead. But progress cannot be stopped. And each year, more and more of these platforms are built and positioned.
Leading the charge is the United States, whose own conventional land-based deposits peaked in the 70s. The rest of the oil-producing world isn't far behind. As the easy-to-reach resources are used up, there is simply no alternative but to go farther out to sea, drill deeper, and take more risks. The results of this you and I know personally: rising prices at the pump... rising prices of any goods requiring transportation... rising prices to heat and cool your house.  So a massive, shallow-lying, land-based crude deposit couldn't have come soon enough. And not just for the oil exploration firms — but for all of us who rely on cheap oil.
There is, however, another reason we should consider ourselves all lucky. And it's got nothing to do with geology  and everything to do with the nation hosting the secretive little meeting...
 Investors Are Already Here: Full attendance.
Just to give you an idea of how serious the men at the conference are about setting up shop in Kenya, here's a fact for you:  Kenya is a nation of about 225,000 square miles. Of that, the cartel which took over the Hilton Nairobi will own close to 124,000 square miles. That's more than 55% of the country's total landmass.
Doing that in the United States would require the private leasing and development of all the land west of Omaha, Nebraska. Now remember, this cartel consists of companies as large as 48-billion-dollar Apache...Together, the members are worth well over $150 billion. So if anybody is up for the job, they are.
But here's the really intriguing part:
The Canadian-based oil explorer I've been hinting at this whole time — with a market cap less than 2% of Apache's — has singlehandedly secured over 32,600 square miles of this territory, a full 26% of the total land acquisition — making them the single biggest shareholder in this 124,000 square mile development zone.
Now, I know what you're going to say: So they really don't have exclusive reign over this potentially priceless real estate?  It is  here's where it gets even more interesting.
You see, with a market cap of only $330 million, this exploration company isn't big enough to thoroughly exploit a landmass the size of the state of Indiana.
So to maximize efficiency and profitability, they've partnered with another company that is big enough. Those share values I mentioned don't represent the percentage of the parcel my new pick owns, but rather the royalties they'll be collecting from the production. And as you can see, that figure isn't small.
With rights to as much as 67% of the earnings that come out of this land, this small but brilliantly-run company will literally be sitting back and collecting checks while their partner does all the work.
So who is this mysterious big-name partner? Well, that may actually be the best news of all...Because the company that will developing and managing this massive property on behalf of my new recommendation is none other than $19 billion exploration giant Tullow Oil.
In the world of fossil fuel exploration, sweetheart deals like this come around maybe once in a career...A giant, world-acclaimed outfit doing all the work so that their tiny partner can rake in unheard-of profits. To figure out exactly what kinds of returns you can expect, the math is pretty simple:
At an average royalty rate of 50% on that resource, at today's prices, my company will stand to profit close to $923 billion of this project — almost 3,000 times their current market cap!
But let's do away with any optimism and see what kind of numbers we're dealing with if things don't turn out quite so well:
They overestimated the total deposit by a factor of five. Let's also assume that it will take 30 years for Tullow to produce and refine the resource... Even with 50% royalties, those unrealistically low figures still translate into annual gains equivalent to 20.4 times my company's current total value — or profits of 2,040% each and every year for the next three decades. Sounds incredible, right?
Well, it's not. You see, at the heart of this deal isn't just the land or the incredible partnership with Tullow...It's the management dream team that I've been talkisng about from the start. As I already mentioned to you, they've pulled off record-breaking successes before.
The Lundin Group is averaging returns in excess of 10,600% over a nine-year period! That amounts to annual gains of 1,180% — and it doesn't even account for the shorter hold periods of the three massively-profitable buyouts that this team worked out between 2006 and 2010...
The absolute worst performer of the bunch brought a 1,600% return, while the best made investors $1,173 for every dollar invested! Just imagine... a mere $852 investment in 2002 would be worth $1 million today!  Again, this is not a typo.
So now you know why the $10,000 investment to get into the meeting where I learned this all — before the start of production — was a bargain. Once production begins — and this news hits the covers of the Wall Street Journal and this company's CEO starts getting interviewed by Forbes and Fortune Magazine — the information won't be worth a dime. It's the definition of an explosive opportunity.

Shan Saeed is a financial market economist / commodities expert with 12 years of solid global experience based in Asia Pacific. He has graduated from Uni of Chicago, Booth School of Business, USA and IBA Karachi. He has attended Cambridge Energy group meeting in Houston-March 2010. He can be reached at saeedshan@gmail.com . Blogs at www.economistshan.blogspot.com

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