Population growth will drive global demand for natural gas, oil, and nuclear consumption up 32% during the next three decades, according to ExxonMobile (NYSE: XOM). Exxon also noted that environmental restrictions are reducing demand for coal for the first time since the 18th century (via Bloomberg).
Other highlights from Exxon: Gas from shale and other unconventional rock formations will account for 30% of global gas production by 2040. Together, oil, gas, and coal are predicted to contribute 78% of global fuel supplies in 2040. Nuclear will meet about 8% of demand.
Oil will remain the most widely used fuel, even as the expanded use of hybrid and fuel-efficient cars breaks onto the scene.
Exxon reported that India would lead the growth as the country's energy usage is expected to double by 2040. Other increases are expected from Africa, Latin America, and the Middle East. However, "fuel consumption will decline in the U.S. and Europe, according to the forecast."
Market reactions
Energy stocks fell back in the face of lower equities prices and oil futures moving under $100 a barrel (via MarketWatch).
"Goldman Sachs on Thursday said it's resuming coverage of oil service stocks with an attractive rating," reports Marketwatch. "Analysts placed Halliburton (HAL) 0.39% and Helmerich & Payne (HP) on their Americas Conviction Buy list."
Investing ideas
So how will this trend, or at least the trend predictions, affect oil and gas companies?
We wanted to find the companies within the oil and gas industries that may be best positioned for an increase in demand. To do so, we analyzed their profitability.
One of analysts' favorite profitability tools is DuPont analysis -- it's a way to look at changes in return on equity (ROE) profitability [i.e. net income/equity] by attributing those changes to certain sources. Some of the sources are more sustainable than others, thereby giving an analysis of strength in increasing profitability.
All of the companies mentioned below have seen improving DuPont trends -- rising profitability and improving efficiency, all while reducing their leverage (i.e., a falling assets/equity ratio).
Do you think there's more upside to these names? Use this list as a starting point for your own analysis.
List sorted by change in ROE. (Click here to access free, interactive tools to analyze these ideas.)
1. Western Refining (NYSE: WNR): Operates as an independent crude oil refiner and marketer of refined products in Texas, Arizona, New Mexico, Utah, Colorado, and the Mid-Atlantic region. Market cap of $1.13B. MRQ Net Profit Margin increased to 3.54% from 0.34% year-over-year, Sales/Assets increased to 0.79 from 0.77, while Assets/Equity decreased to 3.42 from 3.91.
2. TETRA Technologies (NYSE: TTI): Operates as a diversified oil and gas services company. Market cap of $694.66M. MRQ Net Profit Margin increased to 0.69% from 0.08% year-over-year, Sales/Assets increased to 0.16 from 0.16, while Assets/Equity decreased to 2.25 from 2.26.
3. Tesoro (NYSE: TSO): Engages in refining and marketing petroleum products in the United States. Market cap of $3.02B. MRQ Net Profit Margin increased to 4.26% from 1.05% year-over-year, Sales/Assets increased to 0.82 from 0.63, while Assets/Equity decreased to 2.61 from 2.61.
4. Key Energy Services (NYSE: KEG): Operates as an onshore rig-based well servicing contractor. Market cap of $2.12B. MRQ Net Profit Margin increased to 8.81% from 2.39% year-over-year, Sales/Assets increased to 0.20 from 0.17, while Assets/Equity decreased to 2.16 from 2.35.
5. Plains All American Pipeline (NYSE: PAA): Engages in the transportation, storage, terminalling, and marketing of crude oil, refined products, and liquefied petroleum gas and other natural gas-related petroleum products (LPG) in the United States and Canada. Market cap of $10.35B. MRQ Net Profit Margin increased to 3.18% from 1.26% year-over-year, Sales/Assets increased to 0.61 from 0.50, while Assets/Equity decreased to 2.91 from 3.10.
6. Genesis Energy (NYSE: GEL): Operates in the midstream segment of the oil and gas industry in the Gulf Coast area of the United States. Market cap of $1.87B. MRQ Net Profit Margin increased to 2.30% from 0.88% year-over-year, Sales/Assets increased to 0.49 from 0.49, while Assets/Equity decreased to 2.07 from 2.08.
7. Baker Hughes (NYSE: BHI): Baker Hughes Incorporated supplies wellbore related products, and technology services and systems for drilling, formation evaluation, completion and production, and reservoir technology and consulting to the oil and natural gas industry worldwide. Market cap of $21.39B. MRQ Net Profit Margin increased to 13.63% from 6.25% year-over-year, Sales/Assets increased to 0.21 from 0.18, while Assets/Equity decreased to 1.57 from 1.63.
8. Targa Resources Partners (Nasdaq: NGLS): Oil & Gas Pipelines Industry. Market cap of $3.32B. MRQ Net Profit Margin increased to 2.10% from 1.13% year-over-year, Sales/Assets increased to 0.47 from 0.40, while Assets/Equity decreased to 2.98 from 3.13.
9. CARBO Ceramics (NYSE: CRR): CARBO Ceramics manufactures and supplies ceramic proppants primarily used in the hydraulic fracturing of natural gas and oil wells in the United States and internationally. Market cap of $3.12B. MRQ Net Profit Margin increased to 22.09% from 17.03% year-over-year, Sales/Assets increased to 0.24 from 0.20, while Assets/Equity decreased to 1.16 from 1.17.
10. Complete Production Services (NYSE: CPX): Provides specialized completion and production services and products to develop hydrocarbon reserves for oil and gas companies primarily in North America and southeast Asia. Market cap of $2.67B. MRQ Net Profit Margin increased to 10.03% from 8.05% year-over-year, Sales/Assets increased to 0.28 from 0.24, while Assets/Equity decreased to 2.16 from 2.23.
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. Profitability data sourced from Fidelity.
