Create an Ideal Energy Portfolio With These Stocks: Schlumberger Limited. (SLB), Halliburton Company (HAL)

At 9.5x past earnings and no debt, Exxon is reasonably cheap for its resources. Production has slowed from 1.8 mmboe/d in 2009 to 1.6 mmboe/d in 2011, but new partnerships suggest a turnaround. The partnership with Statoil, for example, in exploring offshore gas near Tanzania looks promising. 9 Tcf of gas has been found thus far and 3 Tcf more is needed to provide commercial viability. The 75% JV interest in exploring offshore resources with Impact Oil & Gas also adds to the upside. As a leader in offshore oil services, Schlumberger can thus complement an investment in Exxon. Since investors are looking for higher returns from Exxon (>5% growth has been disappointing), the company’s desire to drill offshore will likely continue to be aggressive. And this could mean a big boon for Schlumberger even if the upstream producer doesn’t contract with the service provider but rather shows promising returns.

Conclusion

Exxon, Schlumberger, and Halliburton are strong complimentary investments. While the scale of Exxon and Schlumberger provide for consistent streams of cash flow, the undervaluation of Halliburton allows for a strong risk/reward value play. In my view, I would concentrate investments in Halliburton given that the multiples are at around a 50% discount despite the company having a sharp growth curve ahead. Then I would back Exxon based on its shift towards higher reward plays.

The article Create an Ideal Energy Portfolio With These Stocks originally appeared on Fool.com and is written by David Gould.

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