The Islamic State of Iraq and Syria (ISIS) is consolidating its power on the Iraq-Syria border. Officials anticipate that ISIS has plans for additional conquests after Iraq.
Turmoil in the Middle East is an age-old problem and unlikely to be resolved anytime soon. The world depends on Middle East oil and the price we pay in the West is currently based primarily on global market prices regardless of the source of the oil. Oil and gas prices at the wholesale and retail levels have already been affected and may rise further, especially if Baghdad falls and ISIS threatens other countries
Global turmoil is not limited to the Middle East either. Nigeria and West Africa are no strangers to turmoil and much of it is driven by the same root causes.
Investors can hedge against disorder
Regardless of the political and military outcome of a region, investors can find chaos-resistant investments in the energy sector. Solid companies with plays in stable locations are good bets to hedge against the disorder in the Middle East. These two companies have good business fundamentals, and each has a stable resource base. Furthermore, each of these companies is well positioned to take advantage of a general reduction in foreign oil imports and the corresponding increase in cheaper West Texas Intermediate (WTI) priced American oil. Check out this article for more details on source and price advantages.
Bonanza Creek Energy (CIVI 6.45%), headquartered in Denver, Colorado, focuses on extraction of oil and natural gas in the United States. With plays in northern Colorado and southern Arkansas, this company's facilities are geopolitically secure from global turmoil. Bonanza Creek's Wattenberg Field holdings produce natural gas and the preferred light crude oil. This gives Bonanza Creek an improving market as refiners reduce foreign imports. BCEI's fundamentals include an estimated earnings growth rate for 2014 of 56% and a 2015 estimate of 27% with solid gross, operating, and profit margins and an estimated EPS of $2.72.
SM Energy (SM 4.17%) also of Denver, Colorado, focuses on oil and gas in North America with plays in multiple states in the south, Gulf Coast, and the Rocky Mountains, making this company geopolitically secure. SM has significant resources in the Bakken/Williston Basin of North Dakota. This region produces the preferred sweet crude, which also gives SM an improving market as refiners reduce foreign imports. SM's fundamentals include an estimated earnings growth rate for 2014 of 53% (2015 estimates are weaker relative to strong 2014 estimates).
Global turmoil is not going away and the energy rich but unstable Middle East seems forever to be in the middle of the chaos. Despite this, secure energy investments do exist in stable regions. These companies offer investment potential with little geopolitical risk.
