It's no secret that oil prices are on the rise.
Although turmoil in the Middle East adds volatility to the near-term price of oil -- leading Arnaud de Borchgrave, a director at the Center for Strategic & International Studies to speculate oil could rise "quickly to $300 or even $400 a barrel" -- oil's long-term future depends on much more than just this...
As with all commodities, the price of oil boils down to supply and demand.
Global demand for oil is rising. Much of this comes from emerging countries like China. New vehicle sales in China are forecasted to top 20 million in 2013. And that's after overall oil consumption there rose about 4.3% in 2012.
At the same time, global supply is limited. Oil is a finite resource and is becoming increasingly harder to locate and extract.
And it's the intersection of these two trends that will continue to drive the price of oil higher.
Don't just take my word for it...
Even before recent problems in the Middle East resurfaced, billionaire investor Jim Rogers told the BBC, "the price of oil is going to make new highs. It will go over $150 barrel. It will probably go over $200 a barrel."
Even more startling, Professor Paul Stevens of the London-based Chatham House wrote that, "a supply crunch appears likely around 2013... given recent price experience, a spike in excess of $200 per barrel is not infeasible."
Obviously this would be disastrous for the global economy and many stocks. But certain companies actually stand to profit...
In fact, an Oppenheimer analyst writes that certain specialized oil companies, "basically start printing money once oil is above $90 a barrel." Meaning now is clearly the time to buy stocks of companies like this.
Tom Gardner, CEO and co-founder of The Motley Fool, recently rounded up a team of up-and-coming Motley Fool equity analysts bullish on oil and natural gas service companies, and asked them to share their favorite stocks to play the oil boom.
And after you read through these recommendations, you'll find out how to get a look at Tom Gardner's favorite oil company.
Click below to see their first stock recommendation -- a small-cap oil services company that should see a huge increase in free cash as oil continues to rise.
By Jason Moser
GulfMark Offshore [NYSE: GLF] provides offshore marine services throughout the world to companies involved in the exploration and production of oil and natural gas. This $1 billion company owns vessels that transport materials, supplies, and personnel, and position drilling structures.
GulfMark's fleet is one of the youngest in the industry.And although dayrates (the fees drilling contractors receive from oil and gas companies for their services) have increased, utilization rates have gone down slightly because of lower activity. Add in the uncertainty still lingering after the Deepwater Horizon oil spill, and it's no surprise that the market hasn't paid much attention to the stock until very recently.
However, recent drilling success in areas like East Africa, along with increasing activity in other areas like the Black Sea and Falklands give the company reason for optimism.
In fact, the industry anticipates spending close to half a trillion dollars on exploration and production in the coming year. And with companies like ExxonMobil and Chevron leading the way, it's hard to believe this is just a hunch.
This marks a huge shift from the cautious spending of the past few years. What's more, with experts forecasting that the current price of oil is sustainable and set to increase, deepwater drilling should become more profitable.
CEO Bruce Streeter is a busy man, serving as both the company's COO and President. But I'm not concerned.
You see, insiders own nearly 10% of GulfMark's outstanding shares. Even better, the company ties compensation to operating income. Together, these two facts ease my concerns about Streeter's multiple roles.
What's more, stock ownership guidelines require management to own a percentage of shares in the company, meaning they have a strong incentive to make good decisions.
Global oil and small-cap companies present their fair share of risks. At GulfMark, there's a few factors to monitor:
Valuing an oil services company based on cash flows is tricky given the price of oil, sporadic capital expenditures, and unforeseen incidents like last year's BP oil spill.
Nevertheless, GulfMark's capital expenditures should drop significantly going forward, adding a nice boost to cash flows. The stock trades today at roughly 1.1 times its tangible book value, below the 10-year average of 1.7.
Any increase in demand for oil would boost free cash flow, giving us a fair entry point today for a company with significant growth prospects ahead.
Oil and natural gas are sure to be long-term winners. They're finite resources that will serve a vital role in our global economy for many years to come, and GulfMark Offshore is a strong way to play on that outlook.
This, of course, isn't the only way to play energy right now. Next we'd like to share with you a drilling contractor that has a lot of investors nervous -- meaning opportunity abounds.
Click below for my colleague Jim Mueller's top energy stock.
By Jim Mueller
Transocean [NYSE: RIG] is now notorious for being the company that operated the fateful Deepwater Horizon drilling rig for BP.
But it's much more than that.
Transocean is the world's largest offshore drilling contractor with 140 rigs operating around the world. Locations include Africa, the North Sea, South America, Southeast Asia, and of course the Gulf.
It contracts the operation of these rigs to oil companies like BP, ExxonMobil, and Anadark. These companies pay Transocean a dayrate ranging from $50,000 to $650,000 per day, depending on the type of rig. Ultra-deepwater rigs (those that can drill in water up to 40,000 feet) command the most, while standard jackups command the least.
Transocean provides a compelling opportunity to take advantage of some really low market expectations.
The world's demand for oil is not declining despite what happened in the Gulf, and Transocean will continue to play a leading role in extracting it while adapting to new regulations.
Warren Buffett reminds us that we pay a hefty price for a cheery consensus. There is definitely no cheery consensus surrounding Transocean today, but waiting until the risks are resolved will not serve us well.
There's one more energy stock that would make a solid addition to your portfolio today. It's a dominant player in its specialty, and without it, most oil and gas companies wouldn't be able to operate.
Click below for my colleague Bryan White's energy stock.
By Bryan White
Since the financial crisis of 2008, spending on exploration for oil and gas has dried up.
But after two years of lackluster spending, and with oil flirting with $100 a barrel, I expect oil companies to aggressively begin spending on exploration.
Which is where my energy stock, Schlumberger [NYSE: SLB], comes in. It provides the picks and shovels these oil and gas companies need.
But I keep coming back to Schlumberger, despite the run it's been on, as a stock to buy before the next wave of exploration spending begins.
Schlumberger is the clear leader in oilfield services in terms of size, scope, and technology, and it's in a superior position to benefit from a ramp up in oil exploration spending.
The company's size -- which dwarfs its nearest competitors Halliburton, Baker Hughes, and Weatherford -- makes it a key partner for the largest oil companies in the world. And it helps produce the most attractive profit margins when business is booming.
National and major public integrated oil companies will likely be aggressive investors in the next spending cycle, which I expect to occur in international oilfields and deepwater drilling.
This scenario puts Schlumberger in the sweet spot, since it's a one-stop shop with close ties to national oil companies. Schlumberger is one of the few companies with the ability to integrate technology, from seismic all the way to well completion, in one integrated package, which attracts large oil companies.
What's more, the company's focus on international operations is a hidden catalyst as customers ramp up spending. After all, international rig counts recently reached an all-time high.
Schlumberger's geographical reach, which put it at a disadvantage to competitor Halliburton over the past year as spending heated up in North America, should reverse as the exploration focus shifts overseas. With more than 40% of sales coming from exploration and roughly a third of that from international markets, Schlumberger is poised to grow its share of oil services revenue.
Schlumberger's size has also differentiated it from its peers thanks to its clear technological lead -- plus a research and development budget that's larger than that of its three closest competitors combined.
The bulk of service and equipment spending over the past year came from gas shale plays in North America, where independent exploration and production companies spent primarily based on equipment price versus quality.
This should reverse as Schlumberger's major customers beef up spending in harder to reach places like the deep waters off the coasts of West Africa and Brazil.
Oil is not getting any easier to find, and Schlumberger's strong technological lead will be key in the next spending cycle.
Schlumberger should gain market share and expand its profit margins as exploration spending heats up.
Economic growth from emerging markets like China and India should support oil demand, but a major economic meltdown would curb the spending cycle -- or at least shorten the duration. The broader economy is a huge factor here.
Political and operational risk is always high. Iraq is a key region in the Middle East, as it boosts production and is expected to absorb a good deal of capacity. This will be a key component of margin expansion internationally.
Growth overseas may also stall as projects that were put on hold in 2008 take longer than expected to restart.
I expect this to be a solid pick for the next few years.
As a special thank you for reading this report, we'd like to share with you one more oil and gas company -- handpicked by Motley Fool Co-founder Tom Gardner. Simply click below to read more.
The three companies you just read about are all great picks that would make solid additions to your portfolio.
Now we'd like to share with you one more company. It's a company Motley Fool Co-founder and CEO Tom Gardner recommended to subscribers of our Motley Fool Stock Advisor newsletter.
The company isn't an oil producer like BP, and it's not a driller like Transocean.
Instead, after hundreds of mergers spanning more than 100 years, it's the largest equipment maker and distributor to the energy industry.
In fact, it sells and services just about any and every product for oil and natural gas drilling -- complex deepwater drilling rigs, small spare parts, and everything in between.
That's how workers in the field describe this company. This dominance is also why Tom Gardner likes this company. He also likes that its size gives it advantages of scale.
And, as with the other three companies you just read about, higher oil prices will bring more drilling, which will flow through as demand for this company's goods and services.
We can't wait to share with you this company's name and ticker symbol, along with all the important details you need before you invest in it. But out of respect for our members, I have to give you this information in the form of a brand-new research report...
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