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Canada's second best analyst Rafi Khouri's scores in oil industry

Raymond James' Rafi Khouri placed second

Chris Bolin Photography Inc./© 2010

Rafi Khouri grew up a globetrotter. His father worked in finance for industrial giant 3M Co., and Mr. Khouri's childhood stretched across a stream of borders, continents and time zones. Born in Lebanon, he has lived in 17 countries and speaks fluent English, French, Arabic and Armenian.

So it's no surprise that when Mr. Khouri became a financial analyst four years ago, he gravitated to Canadian companies with overseas operations.

"It fits the profile," says the oil and gas analyst for investment dealer Raymond James. His savvy market calls last year made him StarMine's second-ranked stock picker in the country.

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"I'm able to speak with the operators on the ground that wouldn't necessarily speak very fluent English. It also helps culturally to have a better knowledge of how to do things, how to behave, how to have meetings. It's different in the Middle East than it would be here."

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But none of those conversations were much help in late 2008, when, in the depths of the economic crisis, Canadian investors fled for comfort - and that tended to be away from companies whose assets lay outside of the country.

"Individuals think they know best what's in their own backyard," Mr. Khouri said. "So they retreated to what I was at the time calling 'perceived safety.'"

The result was disaster for some of the companies Mr. Khouri covers. Between June and December, Pacific Rubiales Energy Corp. fell from $13 to $2. Bankers Petroleum Ltd. dropped from $6.45 to 46 cents, a stunning 93-per-cent loss in share value.

Pacific Rubiales inline chart

In some ways, that made 2009 easy, since the only direction left for stock prices to go was up.

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"Pretty much everyone in the space went up because they had all been crushed," Mr. Khouri said.

Still, a recovery was not completely evident early in the year, and Mr. Khouri's calls raised eyebrows.

"In April and May there were a lot of questions being asked: 'You've got a stock [Pacific Rubiales]trading at $2 or $3 and you're saying strong buy and a $20 target? What are you smoking?'"

Today, Pacific Rubiales is worth more than $22. Bankers has climbed above $7.

But the recovery also made it more difficult to call the losers. Worried that WesternZagros Resources Ltd. was over-promising on its drilling plans, Mr. Khouri recommended investors sell in mid-2009 when the company was trading at about $2. Subsequent corporate releases confirmed problems with two wells; WesternZagros shares have since fallen well below 50 cents.

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Mr. Khouri attributes part of his success in picking stocks to his training as a chemical engineer. (He hastens to add that his wife, a petroleum engineer, has been a useful sounding board.) He spent the first decade of his career working for a subsidiary of Exxon Mobil Corp., Total SA and privately owned Champion Technologies, solving problems like corrosion prevention and the chemical durability of mechanical components.

That work gave him a keen sense of the equipment and costs involved with oil and gas operations, a skill that has allowed him to better evaluate corporate promises - although he admits that "it's half luck."

Ultimately, however, he feels his overseas experience and interest have placed him in a part of the oil patch that is uniquely positioned for growth. Companies with overseas assets often find themselves in less-explored places with substantial potential.

As evidence, Mr. Khouri points to South America, where seven of the 15 companies he covers are focused. In Colombia, for example, years of rebel violence have kept energy operations away from much of the country, and even today the total number of wells drilled yearly - about 450 - is a fraction of the nearly 10,000 drilled in Canada last year.

"To me, Colombia is where Alberta was maybe 30 years ago," Mr. Khouri said. Based on that observation, he believes the number of companies that list in Canada but work overseas will grow.

"In Alberta, we've found all the easy stuff. In Colombia, they're still finding the easy stuff. So for a small oil company, you can double, triple or quadruple your reserves year over year easier than you can here."

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About the Author
Asia Bureau Chief

Nathan VanderKlippe is the Asia correspondent for The Globe and Mail. He was previously a print and television correspondent in Western Canada based in Calgary, Vancouver and Yellowknife, where he covered the energy industry, aboriginal issues and Canada’s north.He is the recipient of a National Magazine Award and a Best in Business award from the Society of American Business Editors and Writers. More

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