3 oil drillers to buy now

President Obama is looking to expand drilling in the Gulf of Mexico. Good news for oil drillers.

By Jamie Dlugosch Mar 31, 2010 11:48AM

President Obama announced plans to increase drilling in the Gulf of Mexico further denting arguments that the President is a left wing Socialist with designs of government take-over of the economy.

 

This administration is proving to be dead center and if anything is leaning to the right.

 

First to benefit were the large banks and financial institutions of Wall Street like Citigroup (C) and Goldman Sachs (GS) with a massive government bailout funded by taxpayers.

 

 

Next in line are the health care companies and pharmaceutical companies like United Health Group (UNH) and WellPoint (WLP) that will benefit greatly from the recently passed health care legislation.

 

Now it is time for the oil companies to step up to the feed trough.

 

Shut out of Russian and Middle East oil rich territory the domestic oil industry was in need of a victory with respect to more drilling. It looks like the President will oblige.

 

Reducing our dependence on foreign sources will help provide further stability to the U.S. economy not to mention increasing the profits of American companies.

 

Critics will say that more drilling further delays a move to alternative energy while harming the environment, but notice that the announcement by the administration eliminates plans to drill in Alaska’s Bristol Bay.

 

The President is balancing many issues at play here that will be important in the overall future of our economy.

 

As for the more drilling opportunities in the Gulf of Mexico the move will boost profits for an industry with few new options and oil prices stuck in the $80 range.

 

Here are three companies that will benefit from the move:

 

Transocean Ltd. (RIG)

 

Transocean (RIG) was one of my Top Stocks to buy in 2009 and the company did not disappoint. With oil prices at that time below $50 per barrel, the stock was a bargain. Sure enough after a rough start to the year the economy did indeed find its footing and then some. Oil prices shot higher and so to did shares of RIG. This year the story is a bit different.

 

Oil prices have been in a tighter range for much of the year and RIG has only moved up slightly since the start of the year. With the ability to drill more in the Gulf of Mexico the company does not need higher prices to make more money. Shares trade for 9 times trailing earnings and 8 times forward earnings. That’s cheap given the favorable operating environment for the next year or two.

 

Schlumberger Limited (SLB)

 

Schlumberger Limited (SLB) is a $75 billion market capitalization oil conglomerate with operations around the globe. The benefits of more drilling in the Gulf of Mexico will be smaller on SLB than other companies because of its sheer size. No matter. Any opportunity to make more money will be gladly accepted by company management and its shareholders.

 

The estimate is for SLB to make $2.87 this year and $3.81 in 2011. Those numbers will be slightly higher if activity increases from this plan as expected. You can buy 30% growth for 16 times 2011 estimated earnings. Not a bad price.

 

 

Nabors Industries (NBR)

 

Nabors Industries (NBR) operates 40 offshore platform rigs, 13 jack-up units and 3 barge rigs for drilling under the sea. Clearly more opportunity to drill will benefit the company. Shares of NBR are only up slightly in 2010 as oil prices stayed fairly constant.

 

The company is expected to make $1.11 in 2010 and $1.71 in 2011. That growth will accelerate with the plan for more drilling in the Gulf not to mention the stronger economy. You can own shares for a little more than 11 times 2011 earnings. This is an even more attractive opportunity than BJS given the valuation.

 

The President is taking a measured approach with respect to drilling. As such it is likely that more pronouncements like this will be coming down the road. Like the banks and health care companies, oil companies will stand to benefit.

 

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Tags: oil
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