Oil and gas investors just received a gift.
There's a huge opportunity brewing in European oil and gas
exploration, but a recent announcement from French authorities
raised eyebrows and sent shares of some companies dramatically
The effects are likely to be only temporary because a European
country that isn't exploring for oil and gas is a country at the
mercy of Russia - not exactly an enviable position. When the
political air clears, investors who snap up shares of the right
companies will be sitting pretty.
***Last Wednesday French authorities threw a bucket of cold
water on oil and gas exploration activities in the country. At the
center of the issue are the potential environmental impacts.
"We will hold a meeting as soon as possible with the holders of
oil shale exploration permits,"
said Environment Minister Nathalie Kosciusko-Morizet in an address
to parliament. "
I will prevent all work if the environmental conditions aren't
Exploration companies with concession in France saw their stocks
Toreador Resources (Nasdaq: TRGL)
, a $362 million market cap company which holds exploration
licenses in France's Paris Basin saw shares fall 25 percent.
I have no doubt that France is legitimately concerned about the
environmental impact of drilling activities - and it should be. So
too should any country, and it's important to have controls in
place to prevent an onshore disaster.
But the big picture of energy supply and consumption necessarily
points toward exploration activities, not only in France but in the
rest of Europe.
***The natural gas market has not matured in Europe where
natural gas commands a huge premium - current prices are more than
double the price of natural gas in the United States. Why?
Because there's a new cold war heating up, not over nuclear
weapons but rather natural gas. This time the U.S. gets to watch
from across the pond
Many European countries are at the mercy of Russia, and the
state controlled firm
, for their gas supplies. This single company accounted for 84
percent of Russia's gas production in 2009.
Because of Gazprom's dominance in the natural gas market
Europe's price is largely dependent on Russian border prices.
Natural gas is not easily transported, so these countries can't
simply import supplies from the U.S. to ease the pain.
Pulling 2009 European gas sales from
Gazprom's 2010 Databook
, and gas consumption from the EIA, it's clear why Europe needs to
break its addiction to Russian natural gas.
A sequence of major oil and gas strikes in Europe could break
the big stick that Russia, and Gazprom, wields over Finland,
Bulgaria, Poland, and the rest of Europe.
We want to invest in the companies that will help break this
stick. And that means buying oil and gas exploration companies that
will help break Europe's dependence on Russia, and Gazprom.
Toreador Resources is one way to play the weakness in France.
Vermilion Energy (VET.TO)
which has a market cap of $4.3 billion, is another. The latter was
much less impacted by the most recent news because it also has
exposure to exploration activities in Australia, the Netherlands,
Given the bleak future for any country in Europe that completely
puts the breaks on oil and gas exploration, I expect these stocks
will move higher in the coming months.
***Small Cap Investor PRO
lead research analyst Tyler Laundon and I just published a research
report featuring a micro-cap oil and gas exploration company with
exposure to huge natural gas fields in Europe - and not the ones in
The report is only for paying subscribers, so
you'll want to sign up here.