Date: Sunday 03 Jun 2012
Magnolia Petroleum, whose shares trade on the Alternative Investment Market, is run by Rita Whittington, an expert who has spent more than 30 years in the industry. As a senior director of two private American oil firms, her most recent ventures were immensely profitable. Now Whittington is hoping to generate similar returns for investors in Magnolia. The company buys oil and gas leases in North Dakota and Oklahoma, participates in drilling projects and generates cash when the oil is produced. The key to success lies in buying the leases at the right price and forming partnerships to drill wells at a reasonable cost so the business can expand without constantly asking shareholders for more money. Magnolia shares are 1.98p and can be volatile but the next couple of years should deliver strong growth, says The Financial Mail on Sunday´s Midas column.
My first reaction, on reading yesterday that US Airways and the private equity group TPG were looking at making a joint bid for American Airlines, was why on earth would anyone want to do that? You would think US Airways would know better. Airlines have been among the worst investments over the long term. The graphs show our three quoted companies’ performance over the past five years, and it has not been pretty. And the position for the biggest, International Consolidated Airlines Group, for some reason known by the acronym IAG and the consequence of the 2010 merger of British Airways and Iberia, is actually worse than it looks. The shares are approaching the 125p at which BA was floated in 1987. Douglas McNeill, an analyst at Charles Stanley, says: “There is a great deal of consolidation going on, and that will improve basic returns for equity providers in future.” Investing in the Spanish economy in 2010 does not look the greatest of calls, but only 13% of IAG’s turnover last year came directly from Spain. IAG is also busy consolidating bmi, the budget airline bought from Lufthansa in April. This was a disaster for the German airline, pushing it into a small loss. Some analysts, including Mr McNeill who has a “buy” recommendation on the stock, believe the market is underestimating the gains that could flow if IAG gets right the restructuring of both Iberia, where it wants to focus more on regional flights through the Iberia Express low-cost venture launched in March, and bmi. Other factors worry the market. One is the future of the oneworld global alliance of airlines, to which BA and Iberia belong. The second is the future of the IAG shares owned by the stricken Spanish bank Bankia. This represents about 12% of the company and will have to be sold in due course. Until the company’s future direction is clearer, the shares are for avoiding. But gamblers might note that in the past, as IAG’s shares have approached that flotation price, they have tended to bounce, writes The Sunday Times´ Tempus column.
TomCo Energy is a risky business but the rewards for investors could be immense. It is involved in the oil shale industry, a type of rock with solid organic material embedded in it. This needs to be heated to high temperatures in order to release oil but extraction methods used to date have been costly and cause pollution. Now a US group called Red Leaf has developed a new way to release the oil, taking mined oil shale and encasing it underground in heated clay 'capsules'. TomCo has put its faith in these oil shale capsules and shareholders are being asked to do the same, so this is not a stock for the cautious. But French oil giant Total is willing to take a punt after agreeing to invest 320m US dollars (£210m) to help the company develop the process and, as the shares are 11.5p, individual investors can do likewise, according to The Financial Mail on Sunday´s Midas column.
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