Yes, I know I have a reputation to uphold as the guy with a skeptical eye on the Colombian oil miracle. But credit where it’s due: They said they’d double output to a million barrels a day, and here we are: Here is Colombian President Manuel Santos saying that his country may pass that milestone sometime around today.
There’s also a trading opportunity. Now, I’m no equities analyst, nor a CFA, so take everything here with a big grain of salt, ok? But: Otto has a post up about how Venezuela-exposed companies, and more importantly that country’s bonds, will offer opportunities for fun and profit this year. However, the stocks he mentioned are illiquid. I.e., the three companies mentioned had less than 80,000 shares of volume yesterday — combined. And for regular retail people, it’s a trick to get into the sovereign bond market (trust me, I’ve tried).
But all isn’t lost. Where Venezuela stands out isn’t gold, but oil. This is where the Colombian companies may come in.
I expect some people will speculate on Ecopetrol (EC) and Pacific Rubiales Corp. (PRE.to), the biggest oil producers in Colombia. I don’t know if these companies are planning a triumphant march into the Venezuelan oilfields in the next apertura. But in terms of supplier relationships, language, training, and even personal knowledge of Venezuelan fields, these two companies — especially Pacific Rubiales, with its many ex-PDVSA executives — are obvious candidates to help get Venezuelan oilfields fixed up in a post-Chavez scenario.
That said, my advice is to play these games at your own risk. I don’t think any new president in Venezuela will rush to change the rules for oil companies operating in the country. “Entreguismo,” or a policy of handing natural resources to foreigners, is hated in Venezuela. Yes, a non-Chavez leader can promise to halt expropriations of oil rigs, making it cheaper to drill. But that same person will have a hard time starting a new “apertura” of inviting in foreign companies to work the oilfields, especially if the Chavez’s PSUV party survives his departure and serves as an aggressive opposition.
And there is the question of how cleanly power gets transferred in the unlikely event of a Chavez loss. You might get a win by betting on PRE in the next dip and seeing the shares surge on Oct. 7, election day. But if Venezuela collapses into chaos Oct. 8, so will that bet.
I expect people in New York and Toronto to tout this as a “play” in hopes of playing on public ignorance about Venezuela oil. They are most likely to pitch Pacific Rubiales, because it seems to be taboo in North America to write a skeptical word about that company. So yes, you can probably make some money playing that stock. But just know what you’re getting into: You’re not betting that the Colombians will drill any Venezuelan oilfields within the next couple years. You’re betting that someone else hears the pitch later than you and is willing to bid up the shares.