Outlook: Enterprise Oil

HELL MAY be all at sea, but at least it is large and diverse enough to withstand the plummeting oil price. The same cannot be said of Enterprise Oil, a pure exploration and production stock. With Enterprise, the oil price goes straight through to the bottom line, and how, as yesterday's plunge in profits and thinly disguised warning about the final dividend amply demonstrates. For its size, Enterprise has an unmatched record of oil discovery and it is still probably the best exploration play in town.

But if the oil price continues at this level, it won't long remain so. Pierre Jungels, Enterprise's engaging Belgium born chief executive, has long argued that the big virtically integrated oil majors should be demerged, that their down stream activities are completely different businesses from upstream oil production and exploration. He is ofcourse right about this at a theoretical level. Unfortunately, when the oil price hits this sort of level, theory goes out the door, and the argument looks a silly one.

Nobody is suggesting Enterprise should be diversifying into oil marketing and refining to get itself out of its present bind. Small time attempts to immitate the oil majors are no solution, as the now deceased showed. But the low oil price may yet force some mergers the medium sized exploration stocks. Who knows? Enterprise and Lasmo may eventually be driven together afterall.