Saturday, October 15, 2011

How to profit from the US invasion of Uganda

We're in Uganda to save the people from the ravages of the Lord's Resistance Army. Ha ha ha, good one! You can bet the guy who dreamt that one up just got a promotion!

But seriously, I don't think we're there to make a rich Irish accountant richer either. Tullow Oil is the biggest player by far in the nascent Ugandan oil play. It was founded in 1985 by an Irishman named Aidan Heavey. In his haste to grow his company he made deals with the Ugandan government that oil industry veterans consider extremely favorable to Uganda.

To become profitable, the Ugandan oil needs to find a way to export markets. That's going to take more capital investment in pipeline and refinery infrastructure than Tullow can handle. I don't think the American boots are in the country to make it safe for BP or Total to take over Tullow. I'm thinking one of the American majors will have a controlling interest in the near future.

Then we'll pressure the Ugandan government to re-write the royalty agreements. I'm sure they'll comply. After all, they just have to look around and see what happens to people who don't.

Once the new American owners have renegotiated the concessions so they're 80/20 in our favor instead of the other way around, the Tullow properties will be infinitely more valuable. That justifies a huge premium on the current share price for the company.

Buy now. Thank me later.

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