Oil and gas companies should be part of any well-diversified portfolio. There are many companies in the business and they cover a broad range of risk. The five companies I selected for my research are all facing significant headwinds, such as heavy restrictions from foreign governments, political risks, and stiff competition. Yet, they are also benefiting from a positive outlook for natural gas, experience in blending ethanol, and strong assets for expansion into new markets.
In this article, I will determine whether these five oil and gas stocks could potentially offer solid opportunities for investment. Here is what I found:
Triangle Petroleum (TPLM) has been range bound over the past year between $3 and $10 per share and has been steadily rising from a 52 week low of $3 per share that it reached in October of 2011. The company's two closest competitors are Southwestern Energy Company (SWN) and Whiting Petroleum Corporation (WLL). Southwestern Energy Company has a trailing twelve month earnings per share of $1.80 and Whiting Petroleum Corporation has a trailing twelve month earnings per share of $4.17. Triangle Petroleum Corporation is a much smaller company and has not yet been able to turn a profit. The company's trailing twelve month earnings per share is -$.79. The company operates in the Bakken Shale and Three Forks formations in the Williston Basin of North Dakota and Montana which has been very profitable for other interests in the region but Triangle has less gainful interests elsewhere. Triangle Petroleum Corporation does not enjoy the economies of scale that its rivals posess and the company's projects in Arkansas, Nova Scotia and New Brunswick are not nearly as productive as the Williston Basin project. The company is relatively young, however, and should be considered highly speculative in my opinion.
Southwestern Energy Company (SWN): Southwestern Energy Company is currently bouncing off the 52 week low of $28.37 per share it reached in mid-January. The stock, as of today, is at $35.54 and is carrying a lot of momentum. The company's two closest competitors are Chesapeake Energy (CHK) and Williams Companies (WMB). Chesapeake Energy presently has a five year expected PEG ratio of .76 and Williams Companies presently has a five year expected PEG ratio of .88. Southwestern Energy Company is much more expensive by comparison and in terms of its growth, with a five year expected PEG ratio of 2.38. The company is headquartered in Houston, Texas where it was established in 1929. Southwestern Energy Company is divided into two divisions: Exploration and production in conjunction with its midstream operations. The company's exploration and production division operates in Texas, Oklahoma and Pennsylvania as well as developing an unconventional gas reservoir that is located in Arkansas (Arkoma Basin). The midstream division gathers, transports and markets natural gas in Texas, Arkansas and Pennsylvania. I think the company stands to benefit from both divisions in the near-term but especially in the long-term. It seems that natural gas is finally making its long awaited upturn and this should boost the company's revenues in the near-term.
ENI (E) has been range bound over the past year between $16 and $26 per share and is presently trading in the middle of that range. The company's two closest competitors are Exxon Mobil Corporation (XOM) and Total S.A. (TOT). Exxon Mobil Corporation currently has a PEG ratio of 1.79 and Total S.A. currently has a PEG ratio of 2.49. ENI is more expensive at its present price level and in terms of its growth with a PEG ratio of 3.31. Headquartered in Rome, Italy the company was established in 1953. I think this stock carries more risk and too many restrictions compared to its competitors. The Italian government owns 30% of the company and basically controls all the voting rights. Furthermore, just about any major decisions the company is confronted with has to be cleared through the government, so the company is for all intents and purposes a nationalized entity. The Italian Minister of Economy and Finance has special powers to veto any shareholder resolutions affecting the State's interest and no shareholder is allowed more than 3% of the outstanding shares. Any shareholder that does own more than 3% forfeits his/her voting rights above that percentage. In recent news, the company is splitting off part of its natural gas operations and that may make this segment of the company more open-- but that depends on the terms.
Marathon Oil (MRO): Marathon Oil is coming out of a trough it's been in since October of 2011 when it hit its 52 week low of $19.13 per share. The stock has risen steadily rising to form a short-term trend and is currently at $33.78 per share. In addition to this capital appreciation, the company also pays out a dividend of $.68 per share that brings in a dividend yield of 2.1% at the stock's current price. This dividend is paid out on a consistent basis but was lowered significantly in the third quarter of 2011. The payout ratio on the stock is 19% which is below the industry average of 25% and slightly lower than the company's nearest competitor BP (BP)'s payout ratio of 21%. Marathon Oil is based in Houston, Texas and was established there in 1887. Today the company operates internationally with activities in the United States, Canada, Europe, the Middle East, and Africa. Marathon Oil drills for, refines and sells oil and natural gas but most of the company's revenue comes from the sale of its finished petroleum products such as gasoline, lubricants, heating oil and most notably ethanol-- which is becoming an increasingly attractive gasoline additive. In my opinion, the company's 15 years experience in blending ethanol gives it a strong competitive advantage over its peers. Furthermore, with the ever increasing Federal regulations regarding the product, demand will intensify.
Hess (HES) has also been range bound over the past year between $47 and $87 per share and for the past six months has been fluctuating in the lower quartile of that range. The company pays out a dividend of $.40 per share that brings about a dividend yield of .6% at the stock's current price. This dividend is both paid out and raised on a consistent basis. The payout ratio on the stock is 8% which is much lower than the industry average of 25% but equal to the company's nearest competitor Valero Energy Corp's (VLO) payout ratio of 8%. Hess Corporation is headquartered in New York, New York where it was established in 1920. Today the company operates internationally in Algeria, Australia, Azerbaijan, Brazil, Colombia, Denmark, Egypt, Equatorial Guinea, Gabon, Ghana, Indonesia, Libya, Malaysia, Norway, Peru, Russia, Thailand, the United Kingdom, and the United States. Although the list of countries may look impressive, in my opinion, a number of them carry an added political risk-- most notably Libya and Russia. The company is also taking on additional risk with its planned entrance into the deepwater drilling process. I think this may pay off in the long run but there are no short-term benefits to the project. Hess has benefited in the past mostly through its refineries and there is a shortage of refining capacity in the United States due to environmental regulations that have prevented their construction since 1976.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.