Fight Back Against High Gas Prices by Buying These 3 Oil Stocks

High oil prices mean pain at the pump for consumers, but Occidental Petroleum, ConocoPhillips, and Marathon Oil will be smiling all the way to the bank.

Apr 8, 2014 at 10:24AM

Oil prices continue to creep higher in the United States. While this means pain at the pump for consumers, it also means a gold rush for publicly traded oil and gas companies engaged in exploration and production. A few of the independent upstream majors, including Occidental Petroleum (NYSE:OXY), ConocoPhillips (NYSE:COP), and Marathon Oil (NYSE:MRO), are winning big from rising oil prices, since their profits are highly sensitive to fluctuations in the price of oil.

Crude oil recently touched $102 per barrel, which should serve as a solid tailwind for each of these three companies over the next couple of quarters. And, if oil prices stay supportive throughout the year, then 2014 could shape up to be a fantastic year for Occidental Petroleum, ConocoPhillips, and Marathon Oil.

High oil prices pay big rewards
It goes without saying that high oil prices are a pain for consumers. At the same time, oil companies stand to do very well. That's particularly true for Occidental, Conoco, and Marathon, because they kept production growing strongly last year. This year, expect more of the same, as their management teams are firmly intent on capitalizing on climbing oil prices.

Occidental Petroleum grew domestic oil production by 4.3% last year to 266,000 barrels per day. The company plans to increase that even further this year, which will turn out to be a wise decision should oil prices continue to move higher. Occidental intends to grow domestic oil production another 9% in 2014, to between 280,000-295,000 barrels per day.

ConocoPhillips increased its adjusted earnings by 6% largely through higher production, specifically in the premier oil-producing fields in the United States. Its fourth-quarter U.S. production at the Eagle Ford, Bakken, and Permian Basin positions rose 31% versus the same period the year prior. Overall, Conoco increased its total production by 2% last year, excluding the effects of its divestments and its Libyan operations.

Going forward, Conoco management maintains a solid long-term growth plan. The company expects long-term production to average between 3%-5% annually over the next several years, including in 2014. This will be made possible by significant resource discovery, including a major deep-water discovery in the Gulf of Mexico late last year which should add to production in the near term.

Meanwhile, Marathon Oil is ramping up production as well. Its profits rose 11% last year, driven by 11% growth in net production, excluding its Libyan division. Like Conoco, Marathon is gearing up in the United States. It's going to expand rig counts at the Eagle Ford and Bakken fields.

Strong production in the future will also be made possible from the fact that the independent majors hold excellent track records on reserve replacement. This is a financial measure that states how much an oil and gas company generates in reserves compared to how much of its previous reserves were produced and sold. Occidental added 156% of reserves last year from its development program. Conoco's reserves replacement ratio stood at 179% last year. Marathon did even better, with a 194% reserves replacement.

No pit stops on the road to growth
A key advantage the independent upstream focused companies are enjoying right now is that they're exclusive exploration and production majors. The integrated giants are being weighed down by evaporating margins on refined products. By contrast, ConocoPhillips, Occidental Petroleum, and Marathon Oil are seeing no such impacts from shrinking refining profitability. They're each performing very well, as their production of oil and gas continues to provide a boost.

Crude oil recently neared $102 per barrel in the United States. After rallying to begin 2014, this bodes well for the independent exploration and production majors like Occidental, Conoco, and Marathon. It's true that high oil prices are painful for consumers at the pump. While there's little that can be done to combat rising gas prices, one way to exact revenge would be to buy stocks in energy companies that benefit from high oil prices. These three oil giants certainly fit the bill, and buying them would be a great way for Fools to fight rising oil prices.

Higher oil prices would benefit OPEC, but this company could hurt it
Imagine a company that rents a very specific and valuable piece of machinery for $41,000… per hour (that’s almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company’s can’t-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we’re calling OPEC’s Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock… and join Buffett in his quest for a veritable LANDSLIDE of profits!

Bob Ciura 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers