Three Beat Up Oil and Gas Plays Set to Outperform the Market
by David Fessler, Investment U Senior Analyst
Tuesday, October 11, 2011: Issue #1618
When analysts pronounced commodities “overbought,” investors headed for the exits, selling indiscriminately. That’s always a setup for bargain hunters.
I have three energy stocks that are way oversold, and are ripe for participation in a snapback rally. In addition, oil prices have now halted their slide, and seem to be heading back north.
Let’s take a look at a few companies that could benefit from another about-face in oil prices…
Independent Oil Exploration and Production
The first company is Premier Oil PLC, (LSE: PMO.L). Based in London, England, Premier Oil is an independent oil exploration and production company. It’s divided up into three operating units: the North Sea, Asia and the Middle East/Pakistan.
The company’s total reserve and resource base is estimated to be about 488 million barrels of oil equivalent (MMboe). The company estimates it can add as much as 200 MMboe in its three core operating regions.
It plans to make value-adding acquisitions in the nine countries in which it operates. It recently agreed to purchase EnCore Oil, a deal that will significantly expand its presence in the North Sea.
A World Leader in Natural Gas Production
BG Group, (LSE: BG.L), is primarily engaged in the production of natural gas. Also based in the United Kingdom, BG Group has three segments: exploration and production (E&P), liquefied natural gas (LNG), and transmission and distribution (T&D).
The company recently acquired an interest in three offshore blocks off the coast of southern Tanzania. It operates in a total of 13 countries. With a market cap of nearly $69 billion, BG is one of the world’s leading producers of natural gas.
The company recently signed a long-term LNG sales agreement with India. In the last four years, the company has doubled its proven gas reserves, which now stand at just over 16 billion barrels of oil equivalent (Bboe).
Its largest production area is offshore Egypt, where in 2010 it produced 54.1 MMboe. BG is responsible for 35 percent of all the gas produced in Egypt.
Shares are currently trading about 30 percent off their 52-week high, but are rebounding along with the rising price of oil and natural gas.
Since most of its natural gas is sold internationally, the low prices in the United States have no material effect on its ability to sell gas at a handsome profit.
Investors wanting exposure to a growing natural gas company with primarily international customers should consider adding BG to their portfolio.
An Oil Discovery Machine Firing on All Cylinders
The last company I’ll mention isn’t oversold as much as the first two. It’s an oil discovery machine, and lately it’s been firing on all cylinders.
Tullow Oil, (LSE: TLW.L), continues to announce discoveries that just add to its value, and its shares have been responding in kind. Its American traded ADR shares are up just over two percent for the last year, but 16 percent off their 52-week high of $12.35.
With a market capitalization of $18.72 billion, Tullow is an independent oil and gas company with 53 licenses in 15 countries. Its four geographic markets include South America, South Asia, Europe and Africa.
Africa is by far its most active area, and it’s the leading independent oil producer in the region. Tullow is named after the small town near Dublin, Ireland where its Founder and CEO, Aidan Heavey, is from.
Heavey knew nothing about the oil and gas business, but on a tip from a friend, jumped in. He concentrated on small fields in Africa at first, and gradually built the company into one of the largest independent oil and natural gas producers in the world, and the largest in Africa.
In the last four years, he’s nearly tripled the company’s proven reserves to 1.4 billion barrels of oil equivalent. Over the last decade, its London-traded shares have soared 1,530 percent, making it one of the greatest investments in the oil and gas sector over that time period.
It has two major projects currently underway in Uganda and Ghana. Both promise future upside for Tullow shareholders, as additional reserves are added.
Investors wanting exposure to the African oil sector will be hard pressed to find a better play than Tullow Oil.
Good investing,
David Fessler
Article by Investment U
