You Can Make Your Returns From Oil and Gas Really Jump

One of the toughest aspects of investing in energy involves deciding which group(s) to favor. Many of the independent producers operating solely in the U.S. onshore have done extremely well during the country's current oil and gas boom.

Apr 9, 2014 at 10:30AM

Given the ever-so-fundamental tenet that investing involves buying low and selling high, it's more than a little edifying to look at a history of companies in the energy sector.

As you know well, traditional energy can be divided into several groups, including big integrateds, independent producers, services providers, refiners, midstream companies, etc. For now, let's look at surprising comparisons in share price performances among the integrated majors and the independent producers during the past five years. Regarding the latter, we'll limit our attention to those companies that operate solely in U.S. onshore oil and gas plays.

As for the majors, shares of ExxonMobil Corporation (NYSE:XOM), the biggest of Big Oil, have risen by 40% in the past five years. That's not especially impressive when you know the Standard & Poor's 500 is up about 118% for the same period. Chevron Corporation (NYSE:CVX), the second largest U.S.-based major (and the only other fully integrated oil and gas company left in our country) has seen its shares move about 72% higher since early April of 2009. The clear message in both cases: You'd have been better off with index funds.

An attractive energy Oasis
Or, as an even better alternative, you might have scoured the landscape for successful independent producers, many of which handily topped the S&P's performance. For instance, there's Oasis Petroleum (NYSE:OAS), which, with a five-year share price growth of 168%, beat the S&P by about 42%. Perhaps more importantly, the company is still widely considered a buy.

Oasis Petroleum confines its operations to the Bakken and Three Forks plays.

Oasis was founded in 2007 by Tommy Nusz and Taylor Reid, a pair of experienced oil and gas operators. Today, the Houston-based company's operations occur exclusively in the Williston Basin of North Dakota and Montana.

Don't be overly concerned about any sort of impending slowdown in production you may have seen forecast for the Bakken and Three Forks formations -- both of which are part of the Williston. In fact, respected Wood Mackenzie, which consults worldwide on oil and gas, among other areas, forecast just last week that a boom-and-bust scenario does not appear to be in the offing for the formations. The firm expects a 2014 average daily oil production of 1.1 million barrels there to reach 1.7 million barrels per day by 2020.

Blowing past the S&P
However, if you'd rather run past the index at an even faster pace, you might spend time looking at Whiting Petroleum Corp. (NYSE:WLL). If you'd bought Whiting five years ago, you'd be smiling today over a nearly 340% share price gain, having topped the index by fully 187%. But if you think you've missed that particular high-speed train, the consensus among the analysts is that it still merits a rating slightly better than a 2.0 (buy).

Like Oasis, Whiting is a major player in the Bakken. However, befitting its Denver base, it'll also expose you to its operations in Colorado's expanding DJ Basin and in the North Ward Estes Field of the revitalized Permian Basin.

An even bigger explosion
So, Whiting's gains still aren't good enough for you? In that case, you might closely monitor -- we always recommend that Fools do careful research before pulling the "buy" trigger -- SM Energy Company (NYSE:SM). Also based in Denver, SM, which was founded more than a century ago and was previously called St. Mary Land & Exploration Company, has watched its shares explode by 365% during the past five years. Where I went to school, that was just about 210% stronger than the Standard & Poor's 500 during the same timeframe.

Like its above-discussed brethren, the company also operates in the Bakken and Three Forks. And as with Whiting, it's busy in the Permian Basin. But there's more: It's also in the prolific Eagle Ford play of South Texas. And for even more diversity, it manages assets in the Haynesville shale of Louisiana and Texas, along with the oilier (and fast-emerging) Woodford shale, which covers much of Oklahoma.

Foolish takeaway
There are, of course, other independent domestic producers that have done very nicely by their shareholders since the widespread use of hydraulic fracturing created an oil and gas boom in the U.S. But since it would be silly to assume that the best is past for this contingent, I suggest you get to know this group awfully well.

OPEC is absolutely terrified of this game-changer
Warren Buffett has recently been a major buyer of ExxonMobil. But there's another member of the energy sector on which he's extremely keen. 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!

David Smith has no position in any stocks mentioned. The Motley Fool recommends Chevron. 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