Digging deeper for hidden gems
If you drill down a little further into these names, you find out that Marathon Oil Corporation (NYSE:MRO) could be cheap because it spun off its refining operations. That could have caused investors to sell off Marathon Oil Corporation (NYSE:MRO)’s stock to either load up on the refining arm or trade back into an integrated oil and gas company. The true value here is an oil and gas company with proven reserves of about 2 billion barrels of oil equivalents and a plan to grow its production by a compound annual rate 5%-7% through 2017. On the other hand, the company could be cheap because it has assets in Libya, which isn’t the safest place these days. Just like real estate, when investing for value in energy, it’s all about location.
The other name where a further drill-down is warranted is Whiting Petroleum Corp (NYSE:WLL). This oil-focused producer is heavily weighted to the fast-growing Bakken, yet it’s trading a lot lower than its peer group. What interesting is that not only does the company appear to be offering investors value, but it also has an enormous future drilling inventory, which includes more than 4,500 net potential drilling locations. For a company that’s projected to grow production by the mid-teens this year while also boasting of a fairly a strong balance sheet, it’s rather surprising how cheap Whiting is trading these days.
Final Foolish thoughts
A final thing to remember when investing in energy with an eye toward value is that sometimes value can really be hidden in plain sight just waiting to be unlocked. For example, many believe that the market is suppressing the value of Occidental Petroleum Corporation (NYSE:OXY)’s assets by as much as $47 billion. For a company with a market cap of $75 billion, that’s substantial, which is why the company is exploring the possibility of spinning off its international assets to unlock their valuer. Like Marathon Oil Corporation (NYSE:MRO), it has assets in Libya, which are probably weighing down the value of the company. This is where the smart investor can buy these assets at a compelling value and simply wait for a catalyst like a buyout or other strategic initiative to unlock the value.
The article A Guide to Finding Value When Investing in Energy originally appeared on Fool.com and is written by Matt DiLallo.
Fool contributor Matt DiLallo owns shares of SandRidge Energy and also has short September 2013 $5 puts on SandRidge Energy. The Motley Fool has no position in any of the stocks mentioned.
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