US Refocus on Domestic Energy Options
The US refocusing its efforts on domestic energy brings to light a number of different options for investors. The problem is that many energy companies are already so diversified, it is difficult to find those that solely benefit from such a policy change.
The first place to look is at US based energy companies that only operate in the US. There are quite a number of these, but due to increases in oil prices the low hanging fruit have already had their run so it is tough to buy companies at or near their 52 week high without some risk.
Take MPC, it is already at its 52 wk high and its current price probably already takes into account its recent expansion of one of its largest refineries that just came back online as well as a recent acceleration of a stock buy back. MPC's current upside lies soley in the potential fruits of the domestic energy push - and if the recent price movement is any indication, it looks like there is still 15-30% upside in the stock (based on average target estimates). In addition, MPC recent acqusition of the domestic refinery in Texas is probably not their last. There is security in the downside risk on this one and yet the potential for a decent return.
Another area to look that doesn't seem as obvious is those companies with large US based reserves. It has been feast of famine for small energy companies in the US these past few years. Interestingly, when push came to shove, those small energy companies with assets were forced to sell in order to keep the lights on. Very few of these companies have been creative enough to make ends meet while the US policy and/or energy pricing swung back in their favor. GSX is an example of a small energy company with some of the best domestic energy reserves, who has found a way to keep operating through a historic gas glut. The company got creative with futures, diversified into oil, pruned their debt, found new inexpensive ways to increase production, and partnered where possible (to share expenses). Now as gas prices are starting to slowly inch their way back and big oil re-examines domestic drilling options, GSX is not only still around, but its likely one of the sharpest knives in a drawr filled with marginal energy companies sitting on key domestic reserves. What I like about GSX is that they are not sitting around on lifesupport waiting for someone to buy them, they are moving ahead with plans to complete the drilling of 12 new wells within the next 12 months. Similar with MPC, their downside risk is small given their current price and the support levels, however unlike MPC, their upside given the domestic energy push is much higher. Big oil will need to secure drilling rights, like those held by GSX (who also holds important permits in many cases), putting them in the drivers seat.
The other area I am particularly interested in is transportation. Living here in Fargo, ND everyday I'm reminded of the importance of transportation when the freight train comes through town carrying tanker car after tanker car of oil from one of the richest oil reserves in the US out in Williston, ND. Companies like BNSF (http://www.bnsf.com) do the heavy lifting for big oil. Cheaper than pipelines, railroads are still the workhorse of the US and will be key for any domestic energy push. Currently, BNSF along with Burlington Northern rails are part of Berkshire Hathaway Inc. So, while they cannot be invested directly, there may be indirect ways.
I'm currently looking at the reserves in the US thanks to this document (http://en.wikipedia.org/wiki/Oil_reserves_in_the_United_States) and seeing what transportation companies operate in these regions. Clearly, rail companies would be #1 choice, after that, pipline companies. I suspect that there are a handfull of smaller railroad companies that should be worthy of investment - but need to look into that more.
In summary, these three areas: refining, reserves, and transportation will be key investments in the coming months that smart money will be looking at as we all try to find ways to profit from the US refocusing on its domestic energy options.