Which Oil Companies Are Vulnerable in the Wake of Algerian Terrorist Attack?

The Amenas gas facility in Algeria attacked by Islamist terrorists on January 16 could portend additional assaults on African oil and gas interests by Al Qaeda and other affiliated groups, according to U.S. intelligence. Drillers with significant hydrocarbon reserves vulnerable to disruptions in North Africa and sub-Sahara operations include energy majors Eni SpA (E) and Total SA (TOT) and U.S.-based producers Apache Corp. (APA) and Marathon Oil (MRO). A stock chart suggests the oil and has business was tough enough before the Algerian attack.

E Total Return Price Chart

E Total Return Price data by YCharts

Approximately 30% of Italian energy major Eni SpA’s daily output and proved reserves of 7,086 million barrels of oil equivalent (MMboe) is located in North Africa. In particular, Eni is vulnerable in Egypt (Gulf of Suez and the Western Desert) and in Libya (storage and transport facilities less than two hour’s drive from Amenas).

For 2012, management estimates that it will derive 225,000 barrels of oil equivalent per day (BOE/d) from Egyptian assets and 230,000 – 240,000 BOE/d from Libyan resources. Rami El Obeidi, a former intelligence agent for Libya’s Transitional National Council told CNN that the French intervention in Mali has opened a Pandora’s box, and he opined the “oil fields in Libya are at high risk of being attacked” by jihadists. Back in 2011, the company lost 160,000 BOE/d due to the forced shut-down of its Libyan gas facilities resulting from the civil war that paralyzed the country after the overthrow of Colonel Muammar Qaddafi.

Should Islamist militants issue their own fatwa against French targets, Total SA could prove a soft target. The French energy major derives 31% of daily output, or 717,000 BOE/d, from African reserves (mostly in Angola, Libya, Nigeria, and the Republic of Congo). Boko Haram (translation: “western education is sinful”), based in northern Nigeria, could emerge as a potential threat in the oil-rich Niger Delta (southern Nigeria); in resource-rich Congo, a variety of armed resistance groups, such as the M23 rebels, operate freely.

Although Houston-based Apache Corp. has been rapidly developing more stable, domestic energy reserves, operating results remain subject to geopolitical uncertainties in the Middle East. In third-quarter 2012, Egypt accounted for 20% of daily output totaling 771,000 BOE/d. If the government of President Mohamed Morsi and the Muslim Brotherhood decide to go “radical” and confiscate Western assets, such as the Qasr Field in the Western Desert, the company has $1 billion in expropriation risk coverage. Notwithstanding its Egyptian exposure, the company is showing success with its diversification efforts: North American assets account for 69% of the 2,990 MMboe in total proved reserves, up from 42% in 2009.

Marathon Oil is ramping up domestic drill bit activity too: In the third quarter of 2012, domestic hydrocarbon volume totaled 111,000 BOE/d, or 38% of global output of 293,000 BOE/d, up from 70,000 BOE/d (28%) in 2010. Like Eni, the company remains vulnerable in North Africa: Libyan production of 49,000 BOE/d is just now at 2010 levels.

Concentration of production and reserve assets in such unstable markets means operating profitability of these energy companies could be adversely impacted in the event of another jihadist attack. Nonetheless, aside from Eni, cash flow statements suggest that these energy companies have the liquidity to handle periodic shut-down of African operations resulting from geopolitical tensions.

E Cash Flow to Capex Chart

E Cash Flow to Capex data by YCharts

Eni has been freeing up funds, however, by selling non-core exploration and production assets, such as the 2012 sale of its controlling interest in gas grid and storage distributor Snam SpA.

Exxon Mobil (XOM) offers energy investors a twist on diversification: An integrated oil company with both upstream assets – in addition, 55% of the 9.8 billion BOE proved developed reserves (owned by consolidated subsidiaries) are located in North America; only 12% of reserves are in Africa – and downstream assets, from chemicals to refineries. The company just posted $44.8 billion in profits for 2012 (despite a huge bet on natural gas), boosted by gasoline refinery margins – and, the second-highest annual profit in its history, surpassed only by the $45.2 billion recorded in 2008.

XOM Cash Flow to Capex Chart

XOM Cash Flow to Capex data by YCharts

David J. Phillips, a contributing editor at YCharts, is a former equity analyst. His journalism has appeared in Bloomberg BusinessWeek, Forbes, and Kiplinger's Personal Finance. From 2008 to 2011, David was a reporter for CBS News Interactive. He can be reached at editor@ycharts.com.

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