Steady global demand for energy gives companies in the sector the ability to realize unlimited potential, but the sector is extremely competitive and forces energy companies to sink, swim or be eaten. Recent deepening of political differences between the West and Iran present an opportunity to energy companies if relations break down and the West is forced to look for new sources of oil and natural gas. Are any of the following companies in a position to profit over the coming years, or are they destined to fall into oblivion?
Cal Dive International (NYSE:DVR) performs offshore dives to lay and bury pipe and maintain pipelines for offshore natural gas and oil companies. The company maintains a presence in the Gulf of Mexico, Australia, Southeastern Asia and the Middle East and has a far reach. I believe that there are many reasons not to buy this stock, and that it is due to suffer. Its major detractor is that the company has shown diminishing returns over the past few years with a $325 million loss in 2010 that has shaken investors' confidence in the company. 2011 marked the second straight year that the company lost money, with an average loss of $20 million per quarter for the first three quarters of the year.
Penn Virginia (PVA) is an East Coast-based oil and natural gas exploration company that has properties on the East Coast and in the Gulf of Mexico. It maintains a reserve of 3 billion barrels of oil and 350 billion cubic feet of natural gas as well as resources in the coal and lumber industries. Penn Virginia is set to post a loss for its third consecutive year now and its only hope for recovery is an increase in demand for domestic oil rather than the Middle East's cheaper and lighter sweet crude. I don't believe that this is a worthy energy, stock and I would stay away from it.
Exterran Holdings (EXH) has been losing money for four years now, and while it looked to be recovering with reports of lower losses each year from a near $1 billion in 2008, the company was unable to break into the black in 2011 and took another major step back as it posted $215 million in losses for a single quarter and lost more than twice the $101 million it lost the previous year. The company is without a CEO after the resignation of Ernie Danner in October and its future is uncertain as it lacks leadership and profitability. Bradley Childers, the Senior Vice President, is reported to have taken the position of interim CEO until a replacement for Danner is found. Until it can find its way, I believe Exterran is of no use to any investor except the one who shorts it. I don't recommend a position in this stock.
Marathon Oil (NYSE:MRO) is an oil production company with interests in the United States, Norway and Southeast Asia. Of the companies on the list, I believe that Marathon has the brightest future, as it looks toward tapping shale resources in the United States along with its offshore resources both in the United States and abroad. Marathon has posted $7.5 billion in profit from 2008 through 2010 and posted $1.5 billion in profit in the first half of 2011. Its stock reflects this growth, as it has established an upward trend that I believe will continue through 2012.
Ivanhoe Energy (NASDAQ:IVAN) is an independent oil exploration company with assets located in China, Texas and the United States' West Coast. The good news about this company is that it does not have much further it can fall and lost significantly less money in 2011 than it had in 2010. It might break into the black in 2012, but I'm not quite convinced that this company is worthy of investment.
I don't feel that any of these companies are undervalued, with the exception of Marathon, which I believe is on a path to correcting the discrepancy in its perceived and real value, giving investors who get in now the opportunity to profit when the market corrects itself and elevates Marathon's stock to where it ought to be.
Regardless of what anybody has to say about the others, I don't believe that any faith can be placed in a company that consistency fails to show that it can make a profit. With growing concerns over tensions in the Middle East and the impact on energy prices and demand, many energy companies stand to gain. Marathon aside, these companies don't appear to be the ones that will.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.