The energy sector is a notoriously dangerous field for investors given many companies in the sector are explorers hoping to make a discovery rather than producers with steady volumes of output. While some investors are happy with the higher risk profile of explorers, there is still plenty of potential growth available amongst the major energy players, plus the added benefits of a diversified stream of earnings and stronger balance sheets.
1) Caltex Australia Limited (ASX: CTX) is Australia’s leading oil refiner and a major player in the distribution and marketing of fuels, lubricants and oils. With convenience operations across Australia, including a joint venture with Woolworths Limited (ASX: WOW), Caltex offers investors a strategic and entrenched position in the domestic retail fuel market.
2) Oil Search Limited (ASX: OSH) is the largest oil and gas producer in Papua New Guinea (PNG), and importantly also holds a 29% interest in the soon to be completed PNG LNG Project. The project is significant and has recently led Oil Search to boost its guidance for output this year by around 17%, thanks to expectations that the project will enter the production phase sooner than expected.
3) Origin Energy Limited (ASX: ORG) offers investors a diversified exposure to the energy sector thanks to its exploration, production, generation, wholesale and retail activities. Importantly – like Oil Search – Santos is expected to soon enter production on its Australia Pacific LNG Project which will significantly boost revenues to the firm.
4) Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) is perhaps a surprising addition to the list as many wouldn’t consider Soul to be an energy company – however Soul’s main operating subsidiary is the New Hope coal mine. New Hope Corporation Limited (ASX: NHC) reported net profit after tax of $125 million for financial year 2013 and contributed $44.2 million to Soul’s group profit result. With a truly diversified business model, an investment in Soul provides exposure to the energy sector but importantly this is balanced by investments in numerous other industries too.
5) Woodside Petroleum Limited (ASX: WPL) is Australia’s largest independent oil and gas company. As such Woodside provides investors with exposure to a company that produces around 900,000 barrels of oil equivalent each day. Woodside also has large projects underway and a history of successful operations making it a core blue chip holding for many energy portfolios.
Of course even buying the right stocks at the wrong price, can make for a lousy investment. Building a portfolio is something which can be done over a factor of years not days. Taking this long-term approach means investors don’t have to accept today’s prices, but rather they can wait patiently for quality stocks to be offered to them at appealing prices.
Where to invest $1,000 right now
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Motley Fool contributor Tim McArthur owns shares in Origin Energy Ltd.
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