Energy resources companies can be a stab in the dark for investors if they chase penny dreadful stocks in hopes of striking it rich. There are a number of well-established companies with actual production and strong balance sheets that may provide decent returns.
Here are two stocks that are moving ahead and could be good additions to your portfolio. In addition, there is one stock that you should know about as its US shale oil story develops.
Mid-tier oil and gas company Drillsearch Energy Limited (ASX: DLS) has made great progress with its Cooper Basin resources, raising production and developing new discoveries in its Western Flank exploration area where it has a 60:40 joint venture with Beach Energy Limited (ASX: BPT).
Recent success has seen production rise to 1.8 million barrels of oil equivalent (mmboe) in the first half of FY2014. This has made the company the third-largest onshore oil producer after Beach Energy and Santos Limited (ASX: STO).
Net underlying profit went from $10 million in 2012 to $54.4 million in 2013. In the last 12 months, the share price is up about 50% to $1.72. Its PE is 7.9.
Next, Beach Energy, the largest onshore producer, had a spike up in half-year revenue, gaining 63% on the previous corresponding period. Net underlying profit for the first half of FY2014 climbed to $158.1 million, up 160% from 1H FY2013.
The share price closed at $1.80, setting an all-time high.
It is developing shale gas with US Chevron Corporation (NYSE: CVX) and Icon Energy Limited (ASX: ICN) in its Nappamerri Trough Natural Gas project. In addition, it is involved in the South Australian Cooper Basin Joint Venture with Santos and Origin Energy Limited (ASX: ORG). Both projects bring in expertise from larger companies and development costs are shared, making it more financially stable for Beach Energy.
Lastly, investors should keep Perth-based Liquefied Natural Gas Limited (ASX: LNG) on their radar. It has been making inroads in the US LNG market with its Magnolia LNG project located in the state of Louisiana, US. It plans to build an LNG facility to process gas for exportation. It is in the process of getting approvals and a final investment decision is expected in mid-2015.
The US shale oil and unconventional gas industry is growing strongly, yet most of the resources are not exported. Changing that will open up the export markets widely, especially energy-hungry Asia.
The share price has gone from $0.28 to $0.65 since late January, setting a new 52-week high of $0.69 last week.
To be on the safe side with your investments, it is better to stick with companies that are producing and have stable earnings and manageable debt. Success in one half-year period can vary to the next, so you need a foundation of proven value to work from.
Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.
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