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BP plc (ADR) (BP), Eni SpA (ADR) (E): Don’t Be Fooled By The Market Hype

To improve their overall profitability, oil and gas companies are rapidly expanding in Angola. The country is ranked as the 2ndlargest crude producing country in Africa, and the 8thlargest exporter in the world. It has over 10.47 billion barrels of oil reserves, and produces 1.75 mbpd of high-margin oil annually. To further bolster its economic growth, the Angolan government is aiming to produce 2mbpd by 2015, which leaves a lot of expansion room for oil and gas companies operating in the country.

BP plc (ADR) (NYSE:BP)

Budding Activities in Angola

Chevron Corporation (NYSE:CVX) has been operating in Angola for the last 50 years, and its consistent expansions have propelled it to become the largest hydrocarbon operator in the country. The company launched its LNG plant in Angola last month, which was developed for a total cost of $10 billion. The liquefaction plant has a processing capacity of 5.2 million tonnes per annum, and is expected to play a vital role in supplying LNG to nearby countries.

As of now, Chevron Corporation (NYSE:CVX), Eni SpA (ADR) (NYSE:E) and BP plc (ADR) (NYSE:BP) own 36.4%, 13.6% and 13.6% stakes in the export facility, respectively.

Even Eni SpA (ADR) (NYSE:E) has been active in the Angolan region for the last 30 years. The hydrocarbon behemoth has manufacturing facilities in mainly European and African countries, and recently discovered its 9thoil block in Angola. According to Eni SpA (ADR) (NYSE:E), the newly discovered oil reserves have the potential to produce up to 5,000 barrels of oil per day. This may not be a huge discovery for Eni SpA (ADR) (NYSE:E), but it is definitely a step forward towards expanding its hydrocarbon reserves.

But despite these lucrative discoveries, I believe that BP plc (ADR) (NYSE:BP) offers the most value.

Why BP plc (ADR) (NYSE:BP)

BP plc (ADR) (NYSE:BP) has sold over $50 billion of its non-core assets over the last 2 years, to focus on its core competencies and improve its overall profitability. The oil behemoth is gradually entering areas with high margin oil, to keep up with the rising inflationary pressures and to offset its oil spill related losses. And to do that, BP plc (ADR) (NYSE:BP) has been aggressively expanding in the Angolan region.

According to its management, Angola’s hydrocarbon assets are the most profitable assets in BP plc (ADR) (NYSE:BP)’s entire portfolio. Its PSVM project in the country is currently producing around 100,000 barrels of high margin oil per day, which is expected to swell up to 150,000 bpd by the end of 2013.

Its ground-breaking 4D seismic imaging capabilities are further expected to boost its overall profitability. Its management stated that the new imaging technology can (theoretically) push the profitability of its Clair ridge and Shetland fields to record levels. It is due to this that cash flows from the regions are expected to double by the end of 2013.

As of now, there are very few companies (like Shell) that make use of 4D seismic imaging to bolster margins. Altogether, BP’s asset divestitures may shrink its overall revenues. But with its portfolio restructuring and high margin projects, I believe that BP can boast one of the highest margins in the entire oil and gas industry. But there’s a hindrance.

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