The U.S. is on the verge of something no one thought could happen -- reclaiming the title of world's largest oil producer, probably in about five years or less, due in part to new technologies and practices enabling drillers to go into ever deeper waters, ever colder climates, and shale formations with the process known as fracking. According to the International Energy Agency, it will be seven years and according to Leonardo Maugeri of Harvard University, it will be 2017. And peak production will surpass the previous peak back in 1970, when gasoline was $.29 a gallon.
Right now, companies serving the next generation of oil and gas production -- shale oil and gas, deep water oil and gas, harsh environment oil and gas -- are the most visible opportunities inside the American energy renaissance. Don't try to discover who has the best oil fields. Play the boom in the sector, and avoid dry wells.
Transocean (RIG): The company is the world leader in building and servicing deep water drilling rigs, and Brazil, Mexico, Russia -- countries looking to expand production -- need RIG. They build and lease rigs and day rates combined with current construction of new platforms show a promising future, short and long term. The stock has dipped, creating an opportunity. The stock has been a bit volatile in past months due to efforts by Carl Icahn to get a special dividend out of the company, and its trading smoke obscures the technology leader in deep water and harsh environments.
Oil States International (OIS): If you read even a short profile of this outfit, you quickly understand they have a wide variety of products and services aligned to take advantage of the drilling boom, from rental accommodations for oil field and rig workers to the repair of wells. The company typically leases out equipment, meaning surging demand enables them to charge more. (The people running the oil business pay top dollar for what they need when they need it.) This company is a favorite long side play of famous short seller David Einhorn.
Core Labs (CLB): This outfit specializes in helping drillers get the most out of their fields -- they call it "reservoir description, production enhancement, and reservoir management," while you and I would call it "getting the most out of your fields." These are highly specialized services that are hard to duplicate by potential competitors. Core has a leadership position in the deepwater drilling marketplace. The stock has moved a up a great deal with the boom, but has plenty of room to run as we are at the beginning of a deepwater boom.
Schlumberger (SLB): There are three giants in the oil filed services arena: Schlumberger, Haliburton (HAL), and Baker Hughes (BHI). I like SLB due to technology leadership and a larger presence in some big markets such as central Asia. SLB does not have the capability to add to its top line as fast as smaller companies, but it has been a consistent success story for several decades. It is an anchor in any portfolio trying to profit from the oil boom.
Martin Midstream Partners (MMLP): When you drill for oil you often get natural gas, and when you drill for or otherwise extract natural gas you get liquids (NGL) and other matter that needs to be cleaned out of the gas. Natural gas also needs to be stored and shipped here and there. MMLP does all of this. The company's facilities are in the Gulf, business is great, the yield is 7.2% -- what's not to like? Capacity in the Gulf is tight and will be for a while, boosting margins, profits, and probably the dividend.