According to a senior U.S. official, Iran's nuclear program is becoming increasingly worrisome. The mounting tensions, with concern that supplies from the Middle East will be threatened, are causing a notable rise in oil prices.

Tensions
Iran denies it is working on nuclear weapons, but few believe them. The U.S. and Israel have not denied intentions to take military action against Iran in the event of diplomatic failure. Iran has made it clear it will respond to any attack by firing upon Israel and U.S. interests in the Gulf.

"Iran is violating international obligations and norms. It is becoming a pariah state," Robert Einhorn, the U.S. State Department senior advisor for non-proliferation and arms control, told a news conference in the South Korean capital (via Reuters).

Tightening sanctions against Iran
Iran controls the Strait of Hormuz, through which a third of all seaborne oil shipments pass. If war starts, Iran would likely shut down the strait, causing oil prices to shoot up quickly.

Reuters reports that Western nations significantly tightened sanctions against Iran last week, with the European Union expanding an Iranian blacklist and the U.S. Senate passing a measure that could severely disrupt Iran's oil income.

But this sanction may not be so heavy. Einhorn said the sactions do not include crude oil imports, although they discourage countries from importing "large quantities" of it.

Iran's oil minister Rostam Qasemi said on Monday he was not worried about a potential embargo on Iranian oil by the European Union.

Oil prices
"Crude for January delivery climbed as much as 77 cents, or 0.8 percent, to $101.73 a barrel in electronic trading on the New York Mercantile Exchange... Prices gained 4.3 percent last week, the first increase since the period ended Nov. 11, and are up 14 percent the past year." reports Bloomberg.

If tensions subside, analysts suspect they could be brought down to the low $90s. However, things could still turn ugly. "Iran said crude will surge above $250 a barrel if nations threaten to ban its purchases," according to the Shargh newspaper.

Investing ideas
If supply concerns do subside and U.S. oil companies fall with the price of oil, which stocks might buck the trend?

For ideas, we applied the Graham number to a universe of oil and gas companies. The Graham Number is considered the maximum price that a value investor should pay for a given stock, so a stock trading at a significant discount to its Graham Number may be undervalued.

Do you think these oil companies offer value to investors? (Click here to access free, interactive tools to analyze these ideas.)

1. Atwood Oceanics (NYSE: ATW): Engages in offshore drilling, and the completion of exploratory and developmental oil and gas wells. Market cap of $2.69B. TTM Diluted EPS at $4.15, MRQ Book Value Per Share at $25.44, Graham number at $48.74 (vs. current price at $41.47, implies a potential upside of 17.53%).

2. Breitburn Energy Partners (Nasdaq: BBEP): Engages in the acquisition, exploitation, and development of oil and gas properties in the United States. Market cap of $1.07B. TTM Diluted EPS at $1.15, MRQ Book Value Per Share at $23.52, Graham number at $24.67 (vs. current price at $18.10, implies a potential upside of 36.30%).

3. Diamond Offshore Drilling (NYSE: DO): Operates as an offshore oil and gas drilling contractor worldwide. Market cap of $8.50B. TTM Diluted EPS at $7.31, MRQ Book Value Per Share at $30.65, Graham number at $71.00 (vs. current price at $61.16, implies a potential upside of 16.09%).

4. ECA Marcellus Trust I (NYSE: ECT): ECA Marcellus Trust I holds royalty interests in producing and development horizontal natural gas wells for Energy Corporation of America (ECA). Market cap of $445.89M. TTM Diluted EPS at $2.45, MRQ Book Value Per Share at $17.83, Graham number at $31.35 (vs. current price at $25.32, implies a potential upside of 23.82%).

5. Nabors Industries (NYSE: NBR): Operates as a land drilling contractor worldwide. Market cap of $5.27B. TTM Diluted EPS at $1.38, MRQ Book Value Per Share at $19.59, Graham number at $24.66 (vs. current price at $18.32, implies a potential upside of 34.62%).

6. Patterson-UTI Energy (Nasdaq: PTEN): Provides onshore contract drilling services to oil and natural gas operators. Market cap of $3.32B. TTM Diluted EPS at $1.84, MRQ Book Value Per Share at $15.73, Graham number at $25.52 (vs. current price at $21.35, implies a potential upside of 19.53%).

7. Statoil (NYSE: STO): Engages in the exploration, production, transportation, refining, and marketing of petroleum and petroleum-derived products. Market cap of $82.14B. TTM Diluted EPS at $3.41, MRQ Book Value Per Share at $13.81, Graham number at $32.55 (vs. current price at $25.76, implies a potential upside of 26.36%).

8. Unit Corp. (NYSE: UNT): Engages in onshore contract drilling of oil and gas wells (for its own account as well as for other companies), exploration and production of oil and gas, and the gathering and transportation of natural gas primarily in the U. Market cap of $2.46B. TTM Diluted EPS at $3.93, MRQ Book Value Per Share at $39.68, Graham number at $59.23 (vs. current price at $50.99, implies a potential upside of 16.17%).

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


Kapitall's Rebecca Lipman does not own any of the shares mentioned above. EPS and BVPS data sourced from Yahoo! Finance, all other data sourced from Finviz.