Lukas Lundin, investment manager for his billionaire Swedish family, said the oil stock bearing their name should double in value this decade after making its biggest North Sea discovery.
Lundin Petroleum AB, which has almost matched Apple Inc.’s 50-fold gain since it began trading in 2001, may rise to $16 billion in market value from $6.8 billion today, he said in an interview. The family trust’s largest holding is its stake of about 30 percent in Stockholm-based Lundin Petroleum.
Sweden’s largest oil company has become the most expensive European explorer at 61 times trailing earnings, buoyed by its stake in the Johan Sverdrup field, which holds an estimated 3.6 billion barrels of oil under the seabed. It has become a potential takeover candidate, Macquarie Group Ltd. has said.
“I am extremely optimistic about Lundin Petroleum, short-term as well as longer-term,” Lundin, 54, said last week. The company has “proven that they have capability to deliver world-class exploration successes. It is hard not to be bullish.”
The entrepreneur, who has motorcycled in the Paris-Dakar race, hiked Mount Kilimanjaro and participated in extreme skiing according to his resume, is asking investors for patience. The oil company had a lower return on equity last year than the median of the 32 members in the Stoxx 600 Oil & Gas Index, according to data compiled by Bloomberg.
Profit margins may come under further pressure as Norway’s government plans changes to oil and gas taxation. That could undermine development of some Lundin fields, said Charlotte Elliott, an analyst at Credit Suisse Group AG. Fourteen of 27 analysts who cover the company rate it a buy, with 11 giving it a hold rating and two sell, data compiled by Bloomberg show.
Lundin Petroleum gained about 45-fold since its market debut through last month compared with almost 50 times for computer maker Apple. Exxon Mobil Corp. expanded less than threefold in the period. Lundin jumped in Stockholm trading after discovering the Avaldsnes prospect in 2010 and Aldous in 2011, which were later renamed Johan Sverdrup, Norway’s largest field in almost four decades. It found more oil at its Luno II deposit off Norway this year.
“They have had terrific exploration success,” Phil Corbett, a London-based analyst at Deutsche Bank AG who recommends holding the shares, said by telephone. “Based on trends over the past decade, the market may see it as one of the more likely M&A candidates in the sector, given its Norway focus and the production growth that’s coming through.”
Lukas’s younger brother Ian is chairman of Lundin Petroleum and supervises the trust, which also benefits their two sisters and mother. The family’s fortune has shifted into oil from mining, with Lundin Group’s investment in petroleum explorers exceeding 50 percent of the total.
The oil company has forecast output jumping to 150,000 barrels a day by 2018 from 35,600 now as it brings wells on line that tap the Johan Sverdrup field.
“We feel that they are bit overvalued versus at least their Norwegian peers,” Christian Yggeseth, an analyst at Arctic Securities ASA, said by phone from Oslo. He has a hold recommendation on the shares. “They are trading at a premium, and this premium is partially justifiable” because of the exploration success and available funding.
Lukas Lundin said he’s not worried about a potential hostile bid. “If someone makes an offer for Lundin Petroleum that does not reflect the full potential of our assets, I am sure the shareholders would reject it.” His personal wealth jumped 40 percent last year to 3.5 billion kronor ($530 million), according to Swedish magazine Veckans Affaerer.
Lukas Lundin has a deeper involvement in global oil exploration and mining than most investors. He helps oversee more than 10 companies in those industries, saying his participation has been key to creating their $25 billion in value, including proceeds from asset sales.
The family’s part-owned mining companies have underperformed its investment in oil explorers this decade. Lundin Mining Corp., the largest mineral company in the group, has traded little changed since 2009 along with Denison Mines Corp., the second-biggest.
When asked for his top pick, Lundin said he tries “to refrain from saying this or that company has the biggest potential,” adding that “Lundin Mining is another one that I strongly believe will perform well in the years to come.”
The mineral explorer’s slump of 15 percent this year through May 24 beat the 22 percent slide in the S&P/TSX Global Mining Index. “There’s been some downward pressure on base-metal prices like copper, but they’re already starting to come back,” he said.
Africa Oil Corp., in which the Lundin family holds about 15 percent, more than doubled in value after discovering Kenya’s first crude last year together with Tullow Oil Plc. Lundin expects its value to extend gains after the partners complete a 10-well exploration campaign in Kenya and Ethiopia.
Lundin climbed 0.6 percent to close at 142.9 kronor in Stockholm today. Africa Oil rose 0.5 percent to 43.3 kronor.
“You are trying to create value the best way possible and today Africa Oil is clearly in the process of doing so,” Lundin said in an interview in Paris in April. “We don’t build these companies to sell them, we build them to create value.”
The family wealth originated with his father, Adolf Lundin, an ex-petroleum engineer at Royal Dutch Shell Plc who started to invest in the commodities business from the early 1970s and was part of the team that discovered the North gas field in Qatar, the world’s largest.
Adolf Lundin’s first major success was in selling International Musto Explorations Ltd., a gold and copper explorer in Argentina, to North Ltd. and Rio Algom Ltd. for about $500 million in 1995. He died in 2006 leaving a group of more than 10 companies.
“We worked a lot together with my father. He was a big character, taking big but calculated risks,” Lukas Lundin said. “We learned how to manage and take risk from him.”
Lundin sees opportunities at a time when larger rivals are selling assets, while smaller peers have difficulties in raising money to fund projects. The group’s miners, Denison, Lucara Diamond Corp. and Lundin Mining, are hunting for assets to expand operations.
“Big majors are now divesting a lot of assets, so it’s a good opportunity for us to look around,” he said. The global mining business has been “quite badly run.”
“We stick to our resource business. We understand oil and gas and mining,” Lundin said.