Whatever notions you may have about where oil and gas prices may be headed, I'm willing to wager -- or at least to hope -- that happily ensconced in your portfolio are several members of the energy sector.
Beyond that, it's also likely that you've generally classified the companies along the lines of the majors (or integrateds), the independent producers, and the oilfield services contingent. But as one who's been an energy observer for longer than I care to recall, I tend to maintain a watch on a group of companies that, while not actually part of the energy sector -- indeed, they may technically fall into the transportation or the engineering and construction groups, for instance -- nevertheless typically serve oil and gas companies, and thus their fate is largely in the hands of energy.
Kirby plies Old Man River
As a prime example of what we might call the "near-energy group," let's take a gander at Houston-based Kirby Corp. (NYSE: KEX ) , whose primary trade is the operation of tank barges that transport bulk liquid products throughout the Mississippi River system for the likes of ExxonMobil (NYSE: XOM ) . Those products include petrochemicals, pressurized products, refined petroleum products, agricultural chemicals, and black oil. Kirby has deployed nearly 900 inland tank barges and more than 220 inland tugboats for its transports, making it far and away the industry leader. Its inland journeys often begin on the Gulf Coast, with its abundance of refineries and petrochemical plants, and terminate as far away as Pittsburgh in the East and Minnesota in the Central U.S.
In addition to long-standing inland waterways activities and four oceangoing dry bulk barge-and-tug units that have operated for some time along the U.S. Gulf Coast, Kirby recently expanded its scope meaningfully through the $604 million purchase of K-Sea Transportation Partners and its 58 tank barges and 63 tugboats. K-Sea transports refined petroleum products -- often for customers also served by its new parent -- along the East, West, and Gulf coasts, along with Alaska and Hawaii.
More power from diesel
Along with its shipping operations, Kirby also operates a diesel engine service segment, which in the most recent quarter generated about 40% of the company's revenue, positioning it atop the after-market service contingent for medium- and high-speed diesel engines and related products for marine and land transportation and power generation. As part of this unit, the company manufactures equipment used in oil-field services, including hydraulic fracturing (i.e., fracking) equipment.
As an erstwhile Kirby analyst, I'm compelled to emphasize the importance of management quality in its success -- and in that of any company that outdoes its peers. In Kirby's case, CEO Joseph Pyne has led its solid growth from the 1980s -- it had but 71 barges in 1988 -- through the present.
Kirby's net earnings in the June 30 quarter were $41.77 million, or $0.77 per quarter, 43% above the $29.3 million, or $0.54 for the same quarter a year earlier. The improvement occurred despite an estimated $0.07 per-share effect from flooding this year in the Mississippi River system and a portion of the Gulf Intracoastal Waterway.
Click here to add Kirby to your watchlist.
One valuable Bridge
Significantly different from Kirby, but equally important to fulfilling the world's energy needs, is Chicago Bridge & Iron (NYSE: CBI ) , which, despite its name, is headquartered in The Hague, Netherlands. From offices located worldwide, the company benefits from the experience and expertise of 13,000 employees to provide the full range of engineering, procurement, and construction solutions for the energy and natural resources industries.
With a history that dates to 1889, CB&I cut its proverbial teeth in bridge design and construction, before moving to a concentration on bulk liquid storage in concert with the discovery of oil in the U.S. Southwest and the movement of the railroad industry across the western part of our country. In 1924, the company expanded its operations to South America, followed by Asia in 1926, and the Middle East in 1939. Early in the past decade, a number of acquisitions fostered an expansion across both the upstream and downstream processes, beginning at the wellhead and concluding with product distribution.
In 2007, CB&I completed a significant purchase when it acquired Lummus Global, a key provider of process technologies, from Zurich-based ABB (NYSE: ABB ) . Today, the company consists of three separate sectors: Lummus Technology, a provider of process technologies for the hydrocarbon industry; CB&I Lummus, with its concentration on the engineering, procurement, fabrication, and construction of upstream and downstream facilities for the petroleum industry; and CB&I Steel Plate Structures, which has built upon the company's historic activities in flat-bottom tank, pressure sphere, and nuclear and cryogenic storage and containment.
Is this what's meant by chilling out?
Its cryogenic capacity has fostered CB&I's role as a major player in the world's rapid expansion into liquefied natural gas, where natural gas is cooled to approximately -260 degrees Fahrenheit to facilitate compartmentalized storage and transportation. For instance, earlier in this quarter the company was awarded a $2.3 billion contract by Chevron (NYSE: CVX ) for the mechanical, electrical, and instrumentation aspects of the $37 billion Gorgon LNG project in Western Australia. Chevron has a 47% interest in the massive project, with ExxonMobil and Royal Dutch Shell (NYSE: RDS-B ) each holding a 25% stake.
Later in the quarter, CB&I was awarded another contract for work in Australia when it was named to provide the preparation and specification determinations for an Arrow LNG Plant on Curtis Island, off the coast of Gladstone. The project is being operated by Arrow Energy through a 50/50 joint venture that it shares with Royal Dutch Shell and PetroChina (NYSE: PTR ) .
In its second quarter of 2011, CB&I reported net income of $61.9 million, or $0.62 per share, up 32% year over year on the net income line from the $47.3 million, or $0.47 per share, recorded in the comparable quarter of 2010.
Click here to add CB&I to your watchlist.
The Foolish bottom line
So there you have it: a pair of ultra-solid stocks with powerful ties to energy, but coverage that typically emanates from other sectors (transportation for Kirby and engineering and construction for CB&I). I'll describe other "near-energy stocks" in future articles, but for now I'm convinced that -- even amid worldwide economic softness -- the expansion of energy demand, especially from the developing nations, will propel a bevy of stocks that occupy space beyond their real home in the traditional energy sector.
If you're still looking for more ideas, check out The Motley Fool's free report "The Only Energy Stock You'll Ever Need." In it, Fool analysts detail an energy services company that will benefit from the natural gas boom and pays a dividend. Click here to grab a copy.
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