Oil and War:
Why war in the Gulf will spell profits for our Taipan Dragon play on oil!

by Briton L. Ryle

President Bush is getting pretty good at playing the global leader game. On the one hand, he’s taken America back to the good old Cold War days when there was a real enemy we could rally against.

And he’s politicized the battle lines enough so that a country risks getting tagged as part of the Axis of Evil if it protests the recently imposed steel tariffs.

On the other hand, he’s made nice with two of our historic nemeses, Russia and China, in order to shift the balance of petro-power away from OPEC. China’s just agreed to continue letting our genetically engineered soybeans in behind the Red Curtain.

I don’t know why China would agree to this. But I have a feeling it has to do with oil prices. Oil prices are rising because President Bush seems intent on carrying on a tradition from the last two administrations—bombing Iraq.

And US$24-25 a barrel for oil is good for both the U.S. and China. Especially when the net result is that the world buys less oil from the Middle Eastern OPEC countries. Higher oil prices temper the U.S. dollar’s strength, which in turn can help U.S. multinationals’ profit
margins.

US$25 a barrel also helps the bottom line of integrated oil companies like PetroChina (PTR:NYSE). In the U.S., government officials go to great lengths to hide any ties with big oil interests. In China, big oil is the government. PetroChina is state owned and operated.

We recommended you buy PTR:NYSE in the December 2001 Forecast Issue of Taipan. Which means that between then and January 2, you could have picked up the stock between US$17.80 and US$18. Several catalysts are lining up that should send PetroChina toward US$25 a share. Number one is oil prices. At US$25-26 a barrel, PetroChina could match the US$6.7 billion in profits it logged in fiscal 2000 (that’s about half of Exxon-Mobil’s annual net profit, yet Exxon is 86 times more expensive).

Number two, the leading refinery company in China, Sinopec, has agreed to buy more crude from PetroChina. This automatically means less imports from OPEC and growing revenues and profits for PetroChina.

And number three, with the profit picture in place, there’s a much better chance that PetroChina will pay its nearly 10% annual dividend.

I believe the possibility that the dividend might be suspended has been weighing on the stock. PetroChina is still one of the cheapest major integrated oil companies in the world. It pays a huge dividend, and could easily trade at US$25 in the near future. You can consider the dividend check an added tax refund from President Bush.