The Iraqi conflict isn’t good news for those hoping for peace in the Middle East. Nor is it good news for oil and gas companies with operations in the country.
The region has been one of the most volatile parts of the world. Being the second largest oil producer within OPEC, Iraq is key country to watch.
On one hand, the Iraq conflict is good news for those that wish to profit from higher oil prices.
For one, the crisis will have a much greater impact on Brent oil prices than the price of U.S. crude oil, West Texas Intermediate (WTI).
One of the easiest ways to profit from higher oil is the United States Brent Oil (NYSEArca: BNO) ETF. The United States Brent Oil ETF will rise with the price of Brent oil. This is a much better play on the Iraq crisis over United States Oil (NYSEArca: USO), which rises and falls with the price of West Texas Intermediate.
Another great way to profit from higher oil prices is by buying oil companies. But investors shouldn’t buy just any oil company hoping to profit.
Investors should focus companies that price their oil in Brent and not WTI. And when it comes to stocks, investing in oil companies without exposure to Iraq is the best way to profit from the Iraq conflict.
After Saddam Hussein fell from power, many of the major oil companies rushed to tap Iraq’s vast oil supply. Today, all the major oil companies have exposure to Iraq, including Exxon Mobil, Chevron, Hess, Total and Royal Dutch. The likes of Exxon are already pulling workers out of the the country.
One company that is avoiding the Iraq crisis all together is Statoil ASA (NYSE: STO).
The Norwegian oil and gas company had the foresight to get out of Iraq in 2012 by selling its near 20% stake in the West Qurna Phase-2 field in Iraq. Although Statoil didn’t explicitly say why they decided to get out of Iraq, it was speculated that the company wanted to focus on more stable regions.
The sale came shortly after the U.S. military pulled out of Iraq, and the security risks of operating in Iraq appeared to outweigh the reward for Statoil.
Statoil still has operations in all major hydrocarbon-producing regions of the world, with a focus on the Norwegian Continental Shelf. Some of its latest finding are in the fast growing oil producing companies of Russia and Australia.
It is a key supplier of natural gas to Europe, with a stake in the world’s largest offshore pipeline. It also has refining operations and various service stations.
Its first quarter earnings handily beat expectations, thanks to a ramp up in production from the prolific Marcellus and Eagle Ford shale plays. Ultimately, Statoil hopes to be churning out 2.5 million barrels of oil equivalent per day by 2020. Compare that to Chevron, which currently puts out 2.6 million barrels, and the 2.1 million that Statoil currently produces.
The oil and gas company trades at a P/E ratio of 10.4, which puts it as one of the cheapest stocks in the industry. Including the likes of Exxon Mobil, Chevron and BP. Statoil also has a return on investment over the trailing twelve months that’s above all three of those.
For investors that want a broad play on oil prices, the United States Brent Oil ETF the best bet. However, for investors that want to capitalize on the continual rise in oil demand — while also getting a 3.7% dividend yield and avoiding direct contact with Iraq — Statoil is one of the market’s best offerings.
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