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5 Oil & Gas Profit Growth Kings

In this article, I will hone in on five oil and gas companies that are taking steps to become more profitable. How? Each company has different plans to make it happen, including construction of new oil rigs, using advanced methods of extraction such as Tertiary Recovery, and reinvesting capital into new acquisitions. I look at catalysts for each company's profit growth in this article to help investors make long term buy decisions. Please use my research to start your own due diligence.

Forest Oil Corporation (FST) was involved in offshore exploration to a great extent in the past, however, since 2003 the company has been selling its offshore and Alaskan operations to better fund its mainland projects. This strategy is finally starting to pay off for the company in my opinion. In the company's latest earnings report, net income came in with a 20% rise over the same period last year. For these reasons, I recommend buying Forest Oil at this time. Two of the company's closest competitors in the industry are Apache (APA) and Chesapeake Energy (CHK). Apache has a five year expected PEG of .89 and Chesapeake Energy currently has a five year expected PEG of .79. In my opinion and in terms of the company's future growth Forest Oil is still expensive with a five year expected PEG of 1.68. Forest Oil Corporation operates in the exploration and production of oil, natural gas, and natural gas liquids. The company has interests in the Texas Panhandle, Eagle Ford Shale in South Texas, the East Texas/North Louisiana area, the Western Canadian Sedimentary Basin in Alberta and British Columbia.

Petrobras (PBR) operates in the exploration, production, and development of oil, natural gas and liquefied natural gas in Brazil. The company has a virtual monopoly in the energy market in this country, in my opinion, and although this may disrupt the management of the company, it does bode well for its bottom line. Whether produced in or imported into Brazil, Petrobras handles all the transportation and trade of these commodities as well as the generation and trade of electric power. I think with the planned construction of 26 new offshore oil rigs, the company (and country) stand a good chance of being a major exporter of oil in the near term. Based on this, I do recommend buying shares of Petrobras at this time. The company also pays out a dividend of $.16 per share that brings dividend yield of .6% at the stock's current price. This dividend is paid out on a consistent basis, but the amount varies from period to period. The payout ratio on the stock is 37% which is in line with both the industry average of 36% and the company's nearest competitor Total (TOT), which has a payout ratio of 37%. In my opinion, the company is close to the level where a dividend raise in the future would disrupt its cash flow.

Noble Energy (NBL) pays out a dividend of $.88 per share which produces a dividend yield of .8% at the stock's current price. This dividend is paid out on a consistent basis and was raised significantly in 2011. The payout ratio on the stock is 31%, which is in line with the industry average of 31%, and much higher than the company's nearest competitor Apache with payout ratio of 5%. In light of these facts, the company is close to the level where a dividend raise in the future would disrupt its cash flow. Noble Energy operates in the acquisition, exploration, production, development, and production of oil, natural gas and liquefied natural gas in the United States locations of the DJ Basin, Marcellus Shale and the Galapagos project in the Gulf of Mexico. Internationally, the company operates offshore operations in the Eastern Mediterranean, Israel, West Africa and Equatorial Guinea. I think Noble Energy is well diversified both geographically as well as through its risk management and this makes the company a relatively safe investment in the sector. Furthermore, the company's past capital expenditures are starting to produce results in a big way. For these reasons, I recommend buying Noble Energy at this time.

Denbury Resources (DNR) is coming out of a trough that has taken the stock from its 52 week low of $10.20 per share in October to around the $20 level it is at today. Two of the company's closest competitors in the industry are Chesapeake Energy and Apache . Chesapeake Energy presently has a five year expected PEG of .79 and Apache currently has a five year expected PEG of .89. In my opinion and in terms of the company's future growth Denbury Resources is cheaper with a five year expected PEG of only .37. Denbury Resources operates in the acquisition, exploration, production, development, and production of oil and natural gas. The company owns properties in Utah, Montana, North Dakota and Wyoming but its primary operations are on the Gulf coast and particularly in Mississippi where it is the leading oil and natural gas producer in the state. In addition to these commodity holdings the company owns the Jackson Dome Carbon dioxide (CO2) source located near Jackson, Mississippi. The source represents 36% of total proved reserves of CO2 which is the product used in tertiary recovery or gas injection. Tertiary recovery is a process that allows oil producers to extract 30% to 60% more oil from the original reservoir (depleted) due to improved viscosity and reservoir expansion. In my opinion, this gives the company a strong competitive advantage over its peers as more and more wells dry out. I recommend buying Denbury Resources at this time.

Pioneer Natural Resources (PXD) is presently hitting new 52 week highs on a daily basis and is around the $120 level. Over and above this capital appreciation the company pays out a dividend of $.08 per share that amounts to a dividend yield of .1% at the stock's present price. This dividend is paid out on a consistent basis but was reduced significantly in 2009. The payout ratio on the stock is only 1% which is much lower than the industry average of 26% and much lower than the company's nearest competitor EOG Resources Inc. (EOG)'s payout ratio of 15%. I think this gives the company plenty of room to raise the dividend in the future. Pioneer Natural Resources operates in the exploration and production of oil, natural gas and liquefied natural gas in the United States. Since 2006 when the company sold most of its deepwater interests the company has been focusing on lower-risk land based operations. The company has used the sales of these assets and the sale of its international assets in Canada, Equatorial Guinea, Nigeria, South Africa and Tunisia to expand its operations in Texas, Colorado and Kansas. In my opinion, the company's future now depends on its ability to effectively reinvestthis capital in its remaining assets and new acquisitions. I will take a wait and see approach on this stock for now.

About the author:

StockCroc
I'm mostly interested in income investing using dividends, preferred stocks and other debt instruments, and pair trading.

I fundamentally analyze every business from the top down.

In my personal life, I have a strong Jewish faith and enjoy playing Scrabble and entrepreneurship.

Visit StockCroc's Website


Rating: 3.6/5 (12 votes)

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