Oil and Gas Still Dominate the Energy Sector
Phillip is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
If you think that alternative forms of energy will eat away at oil and gas sector profits in the near future, think again. While that would be ideal for society, greener forms of energy are just not ready for widespread use. Here are three of the companies that I think are poised to profit the most from a continued boom in the oil and gas industry.
Murphy will capitalize in Malaysia
Murphy Oil (NYSE: MUR) invests the majority of its upstream business in Malaysia. While that investment hasn't paid off yet, the company is expected to turn a profit in the nation next year. When that happens, it will likely mean a bump in share price. With a recent $1.2 billion additional investment in Malaysia, the firm anticipates 245 million barrels of oil equivalent per year, which is an increase from the current 200.
The company plans to eliminate its burdened downstream business in favor of increased upstream activity. This move will allow Murphy to focus on its top revenue-generating venture. If successful, the company could realize hefty profits.
Analysts believe that transition won't pay off this year, but it should pay off next. In 2013, the company's earnings per share are expected to drop 8%; this number should rise by 15% next year, however. Revenue is set to take a dive in both years, though, with declines of 3.7% and 11.7% expected.
Tesoro looks to capitalize on domestic crude discounts
Tesoro (NYSE: TSO) management has told shareholders that they are committed to improving the company's profitability. This could include spending increases, which would support large-scale projects. One of the more attractive projects in the pipeline is a rail facility, helping the firm capitalize on domestic crude discounts.
Tesoro's earnings potential gets even more promising when you consider that it is invested in several hundred small-scale projects that could increase earnings substantially. While this offers a heap of potential profits, I find the rail initiative to be the most attractive because of its ability to cash in on the crude discounts. Furthermore, the company's operations in California will help it to achieve higher margins due to lower competition in the state. This means that much of the production can be delivered within the state, increasing the profit margin.
Similar to Murphy, analysts don't believe that the initiatives will translate into higher earnings per share this year, but they will next year. In 2013, EPS is set to decrease by 18%, and increase by 37% next year. Curiously, revenue is expected to increase by 2.7% this year and 0.7% next year. The massive increase in earnings per share next year despite low revenue could be a result of cost savings from greater profit margins by delivering within California.
Southwestern is pumped about natural gas
Southwestern Energy (NYSE: SWN) is planning to expand its natural gas fields, which I believe will pay off in the next couple years as people move away from traditional oil. While natural gas isn't considered a green form of energy, it is much less harmful than oil. In a society where cleaner forms of energy are highly touted, Southwestern will be able to meet the expected increase in demand for natural gas.
The firm is also committed to increasing production at its Fayetteville Shale region in Arkansas by spending an additional $900 million this year. This is a smart move. Arkansas is known for having the easiest territory in which to dig for oil. Increasing exposure to this region will likely net the firm a higher profit margin due to lower digging costs.
Analysts are singing the same tune. EPS is set to rise a staggering 44% this year, before tapering off to a 10% increase next year. Revenue is set to rise 17.2% this year and 10.1% next year.
Betting on oil and gas
While it may not be the most ethical sector to invest in, oil and gas stocks will still be among the top earners for at least the next several years. In fact, global oil and gas volume is expected to grow by 24.4% each year until 2015. This increase is the bread and butter of these energy firms, and as fuel is sucked out of the ground the profits at these firms will be filling up.
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Phillip Woolgar has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!