It’s been an interesting year. The world economy is continuing to grow. The bull market in commodities is temporarily slowing down. More and more horrible announcements continue to come from the U.S. banks as they come clean. And oil prices have moved up 46%.
But as oil prices surge, leading oil companies haven’t enjoyed the run-up. Consider this: While oil prices climbed 46% this year, Exxon Mobil’s shareholders have only seen a 20% gain.
Considering Exxon has more than 2 million shareholders, that’s a lot of people that have completely missed the run-up.
But there is plenty of money to be made in the oil markets. Just take a look at what other oil and gas stocks have done in just the past year:
- Fox Petroleum (FXPE:OTC BB) has climbed 220%
- Contango Oil and Gas (MCF:NYSE) is up 160%
- Evolution Petroleum (EVP:AMEX) more than doubled from its lows
Even the $40 billion offshore oil rig-operating behemoth Transocean (RIG:NYSE) has added 80% in value over the past year.
Clearly, there are some big opportunities in oil stocks. But Exxon Mobil, Cevron, BP and the other large oil companies aren’t going to be where you’ll get market-beating returns. You have to go one step further.
Oil Catch-Up Investment #1: With oil hovering around the $90 mark, many different types of oil are extremely valuable. Heavy oil that costs $40 a barrel to produce profitably, oil sands (which could take as much as $60 a barrel to produce on a large scale) and deep-sea oil that is miles underneath the ocean’s surface makes sense economically.
Currently, billions of dollars are being poured into the areas because the oil majors are betting big that these new sources of oil will provide enough oil to offset declining production from more conventional sources.
As a result, anyone that can help these companies get these types of oil out of the ground and to market has years of growth ahead of it. The oil service sector still offers plenty of undervalued opportunities and specialty firms that focus on these areas will be solid investments.
More specifically, in the oil sands region of Canada, the owners of the new pipelines as well as local natural gas producers will play an extremely profitable role in getting this barely economical source of oil to market.
Oil Catch-Up Investment #2:
The other big problem for oil companies is that they simply can’t find much oil. Of course, there are quite a few companies that help oil companies out here, but the most important ones are the seismic data and imaging companies.
With oil prices still near all-time highs, the Peak Oil theorists are back out in force, screaming, “The world is running out of oil! The world is running out of oil!”
It’s not. However, the world is running out of easy-to-find, easy-to-recover oil. And those companies that can keep costs low and help oil exploration companies increase their odds of hitting crude when they drill are highly valuable partners.
Oil Catch-Up Investment #3:
Finally, the potentially most lucrative oil investment that will allow you to get back some of those missed returns is the emerging oil producers. Too many investors consider these small companies in far off places to be highly risky.
However, it’s that misguided attitude that has helped keep these stocks undervalued. After all, a barrel of oil in the United States costs $90 and a barrel of oil in Thailand is worth $90. There’s no difference. Oil companies don’t care. Your house’s heating system doesn’t know the difference. Cars don’t either. Why should you?
There’s no reason to. That’s why when Christian Dehaemer told me about a small oil company that he recently uncovered, I could instantly see the potential. It’s not the type of investment opportunity for everyone, but if you’d like to learn more.
Sticking to these three different subsectors of the oil industry should help keep you enjoying the remainder of the oil boom. The way it’s looking, we could be a couple of years away from the end of the run and, as we’ve explored here before, wind, solar, ethanol… are going to provide the solution.
Good investing,
No comments:
Post a Comment