The U.S. energy market is going through a classic boom. High prices have inspired new production, while at the same time decreasing consumption.
No investment is guaranteed, but a good understanding of the macroeconomic situation can help to decrease risk. By investing in energy firms with interests outside of North America, you can benefit from stronger consumer demand.
US Crude Oil Production data by YCharts
Offshore Drilling
Transocean LTD (NYSE:RIG) rents out drill ships to upstream firms at a fixed rate, so that those companies can explore and develop their undersea assets. With ships in the UK’s North Sea, the waters off Angola and Brazil, and in the Gulf of Mexico, the company has its assets strewn throughout the world.
Currently there is a large amount of conflict between Carl Icahn and the board. Activist investors are known for their short-term thinking, and Transocean is fighting Icahn’s calls for a larger dividend.
The company has lost money for the past two years, which helps to explain why it’s trading at a low forward P/E ratio of 11.1. Transocean LTD (NYSE:RIG) is expected to be profitable in 2013 with an estimated earnings per share (EPS) of $4.69. Icahn’s desired dividend of $4.00 would eat up a large portion of earnings, so investors need to watch the firm to make sure it doesn’t sacrifice its precious cash for short term thinking.
General Oil Services
Drilling for oil is not a simple process, and deep-water discoveries in Brazil highlight the strategic opportunity for companies like Halliburton Company (NYSE:HAL). This company provides a number of drilling services, and it’s trying to develop strategic advantages by developing new technologies for older wells. A large portion of the oil in any given formation is left in the ground, so slight improvements in a company’s ability to recover that oil can have a major impact on revenue.
In 2012, 54% of the firm’s revenue comes from outside of North America. Its international revenue growth is also strong. It has already been announced that they will continue to invest in Malaysia.
The company is profitable, with an EBIT margin of 14.5% and a profit margin of 9.3%. It is encouraging to see these numbers as America’s natural gas glut has caused companies to cut back their demand for Halliburton Company (NYSE:HAL)’s drilling services. The company’s total debt-to-equity ratio of 0.31 shows that that the company is not crippled by debt.
The Oil Sands
Suncor Energy Inc. (USA) (NYSE:SU) is not an obvious international oil company. The firm is a major operator in Canada’s oil sands. The oil sands suffer from a lack of midstream capacity, and many operators, including Suncor, have had to write down projects as realized crude prices have fallen.
A look at Suncor’s operations shows that only 4% of its production is tied to the U.S. based WTI prices, while 96% is exposed to global-based prices. This differential helps to ensure the company’s profitability by avoiding the oversupply of oil in the U.S. The company is able to achieve these numbers with a mix of upgraders and refineries. The proposed Northern Gateway Pipeline will carry 525,000 barrels of oil per day from the oil sands for export to the Asian markets and further increase Suncor Energy Inc. (USA) (NYSE:SU)’s access to the international market.
The company has little debt with a total debt to equity ratio of just 0.28. Compared to larger integrated firms like Exxon, Suncor’s EBIT margin of 13.2% and profit margin of 7.2% are respectable. The company is a good hidden way to escape the North American energy glut.
Conclusion
North America’s energy boom continues, even as domestic consumption falls. Profitable companies in the energy field need to have a plan to deal with a potential bust in the North American market. Transocean LTD (NYSE:RIG) is a good company to watch, but it is best to wait until it turns a profit before investing. Halliburton Company (NYSE:HAL) and Suncor are both good investments, but Halliburton is the better choice with its lower valuation.
The article Smart Energy Firms Follow Growth Overseas originally appeared on Fool.com and is written by Joshua Bondy.
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