3 Oil Stocks That Should Double In 5 Years, Even If Oil Prices Rise Minimally

Includes: APA, CEO, MRO
by: The Independent Investor

Oil prices are going straight down. While the S&P 500 and its tracking exchange traded fund, SPY (NYSEARCA:SPY), has rallied nearly 20% since the market's low of last year, and stock such as Apple (NASDAQ:AAPL), are up nearly 30% this year, the recent sell-off has been brutal.

While the S&P 500 is only down about 10% in the last two months, leading sectors such as energy, the industrials, and the financials, have sold-off nearly 30% in the last month. Leading oil producer and oil service stocks, such as Exxon-Mobil (NYSE:XOM), Chevron (NYSE:CVX), Schlumberger (NYSE:SLB), and Halliburton (HLB), have also performed poorly of late.

Source: thestreet.com.

While companies such as Exxon-Mobil and Chevron have performed poorly of late, the most beat-up stocks in the energy sector have been oil service stocks and the mid-majors. Foreign energy producers in markets that have sold-off hard over the last year, such as the European and Chinese markets, have also performed very poorly.

Still, while the largest companies in the most heavily invested indexes, such as Exxon-Mobil and Chevron, get most of the attention, Exxon-Mobil recently reported just 1% year-over-year growth in oil production, and Chevron actually reported a 3% drop in the company's oil production, which is where it gets nearly three-fourths of its overall oil production. Oil production numbers are often more important than earnings in the energy sector, since oil prices are often very volatile.

Marathon Oil (NYSE:MRO) is a $17 billion company trading at around 6x an average estimate of next years likely earnings that recently guided to 5-7% annual compound production growth rate over the next 5 years. Most leading oil companies target 1-1.5% production growth each year, and Marathon has consistently grown its production at an industry leading 2-3% a year over the last several years.

Source: thestreet.com.

While Marathon Oil's recent oil production numbers were up only marginally, year-over-year, because of the company's significant exposure to Libya, Libyan oil production is already close to pre-war levels. Marathon Oil also excluded its Libyan operations from its near-term oil production guidance. Marathon Oil is expecting to ramp up production in its deepwater project in Norway near-term, the company is seeing continued strong production growth in the Eagle Ford and Bakken Shale region, and the company is well positioned in West Africa and Latin America as well.

Apache (NYSE:APA) is a $32 billion company trading around 6x average estimates of next years likely earnings that recently reported 14% year-over-year production growth. While Apache's year-over-year oil production growth included increased production from the company's recent acquired properties from BP (NYSE:BP), Apache's oil production numbers were still very impressive. Apache has been an industry leader in maximizing oil production in mature fields, and while many analyst feared the company's heavy exposure to Egypt would hurt the company's operations, Apache's Egyptian operations have not been impacted by the previous political turmoil, and the company recently reported a 3% year-over-year production increase in gas production from new leases in West Egypt.

Source: thestreet.com.

Apache gets around 20% of its total production from Egypt, but the company is very well diversified in Australia, New Zealand, and North America. While Apache has had to deal with political uncertainty in Egypt, it has not impacted the company's operations, and most of Apache's operations are in very stable countries.

CNOOC (NYSE:CEO), as I discussed in my previous article, is one of China's largest producers of oil and natural gas, with a market cap of nearly $80 billion dollar. While the company has also seen by a recent 6% year-over-year drop in oil production largely from the company's operations in a Chinese field in Penglai being suspended, CNOOC also reported major recent oil finds in the Penglai area, as well as other Chinese provinces. CNOOC's recent drop in production came as the company increased capital expenditures by nearly 60% this past year, and the company has made a number of major recent discoveries in China, including a significant new find just a couple week ago off the country's southern Liaodong Bay in Bohai.

Source: thestreet.com.

CNOOC, along with other Chinese oil companies, has the advantage of having exclusive rights to explore the Chinese coast, and oil finds by foreign companies can only be developed if these companies partner with Chinese operators. CNOOC also recently guided to nearly 6-10% annual production growth over the next decade, and the company has raised its divided by nearly 13% on average the last five years.

To conclude, while the largest company's in many industries get the most attention, the best value is often found elsewhere. While oil prices have dropped nearly 30% in the last several months, companies such as GE (NYSE:GE) and Citigroup (NYSE:C) continue to report strong earnings, and the U.S. economy is still expanding at 2-2.5%. With most of the major energy producers in Europe and the U.S. having increasingly difficult maintaining production levels, many smaller oil companies are likely better positioned to grow earnings if oil prices rise only modestly in the coming years. While energy stocks have sold-off hard over the last several months, the best value is often found in the most beat-up sectors.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.