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6 Oil Stocks That Could Surge If Iran Blocks Oil Supplies
4 comments | January 5, 2012 | includes: AXAS, KOG, MHR, SSN, STO, WFT
Iran has been adding volatility to the price of oil, with threats to close down the Strait of Hormuz. Comments from one of Iran's highest military leaders were detailed in a recent CNBC article which stated: "Closing the Strait of Hormuz for Iran's armed forces is really easy... or as Iranians say, it will be easier than drinking a glass of water," Habibollah Sayyari told Iran's English language Press TV.

The Strait of Hormuz is the most important shipping lane for global oil production. If blocked, it would cut off critical supplies and raise prices dramatically. The Strait is a fairly narrow passageway and it is the only way for most oil rich countries in the Persian Gulf to export their oil by sea. Iran has recently initiated naval exercises near the Strait of Hormuz, apparently to show they are prepared to act on the threats. The United States 5th Fleet is currently positioned to deal with any attempts to block the roughly 15 million barrels a day that are shipped through the Strait.

Some investors believe that any disruption to the oil supply could create a sudden spike in oil prices of somewhere between about $140 to $200 per barrel. Still, the Iranian threat could just be a ploy to boost oil prices. And even if they were able to block the Strait, it's unlikely they could block the flow of oil for long-- since the formidable 5th Fleet is ready to act.

The best strategic move for Iran is probably to continue with rhetoric that will keep oil prices strong, without ever acting on a threat to really block supplies. However, investors should be prepared for anything. If a blockade occurs, it would likely result in a speculative surge for most oil stocks. Any surge in the price of oil and oil stocks would be a great opportunity to sell into, because the rally will probably be as short-lived as any Iranian blockade would be, after the 5th Fleet has time to act. Here are a number of oil stocks that would likely surge with the price of oil, and therefore create a great rally for investors to sell into.

Weatherford International, Ltd. (WFT) is a leading service and equipment provider to the oil and gas industry. This stock has a book value of about $13.09 per share, and has been bumping along the low end of the 52 week trading range. On bad market days, it has been possible to pick up this stock for about $13 per share. This trading pattern should continue unless the price of oil and the economy really heats up. Weatherford is a relatively low risk buy on dips to $13 or less, and would be worth selling into any rallies on a temporary oil surge.

Here are some key points for WFT:

Current share price: $15.24
The 52 week range is $10.85 to $26.25
Earnings estimates for 2011: 86 cents per share
Earnings estimates for 2012: $1.53 per share
Annual dividend: none

Magnum Hunter Resources Corporation (MHR) is an oil and gas exploration company with projects in West Virginia, North Dakota, Texas, Louisiana and others. Of particular interest are the projects located in the Marcellus and Eagle Ford Shale areas. Magnum shares are volatile, and as a smaller company, these shares could move more dramatically on a big surge in the price of oil. Buying on dips to about $4.25 or less has made sense, so look for pullbacks.

Here are some key points for MHR:

Current share price: $5.44
The 52 week range is $2.33 to $8.66
Earnings estimates for 2011: a loss of 14 cents per share
Earnings estimates for 2012: a profit of 8 cents per share
Annual dividend: none

Statoil SA (STO) is a leading oil and gas exploration and production company, based in Norway. In 2011, Statoil announced a major new discovery in the Barents Sea. The estimates for this find alone have been for up to 500 million barrel of oil. This project could boost growth for this company for many years to come. Plus, the stock pays a generous dividend that yields nearly 4%. Statoil shares are worth buying on dips below $24, and have rally potential when oil prices surge.

Here are some key points for STO:

Current share price: $26.80
The 52 week range is $20.12 to $29.67
Earnings estimates for 2011: $2.79 per share
Earnings estimates for 2012: $2.79 per share
Annual dividend: 94 cents per share which yields 3.7%

Kodiak Oil & Gas Corp. (KOG) is an oil and gas exploration and development company with projects in high-potential Bakken shale areas which include the Williston Basin in Montana and North Dakota. The company also has natural gas projects in Wyoming and Colorado. Analysts expect revenues at Kodiak to surge from about $140 million in 2011 to over $600 million in 2012, as production steps up at a number of wells. This stock has more than doubled off the October lows, but plenty of potential remains. It makes sense to take advantage of the volatility by buying on dips.

Here are some key points for KOG:

Current share price: $9.87
The 52 week range is $2.43 to $9.98
Earnings estimates for 2011: 25 cents per share
Earnings estimates for 2012: 95 cents per share
Annual dividend: none

Abraxas Petroleum Corporation (AXAS) is an independent oil and gas exploration and production company with projects located in Alberta, Canada and the Rocky Mountains, Permian Basin, and Gulf Coast areas. This stock has been in a downtrend, but has started to rebound from the $2.25 levels it hit in October. This stock appears prone to sharp drops when oil and the markets decline, but those drops are good buying opportunities. Abraxas shares are poised to rally in the event of an oil spike.

Here are some key points for AXAS:

Current share price: $3.56
The 52 week range is $1.86 to $6.16
Earnings estimates for 2011: 11 cents per share
Earnings estimates for 2012: 30 cents per share
Annual dividend: none

Samson Oil & Gas (SSN) is an oil and gas company with projects in Williston Basin, North Dakota, New Mexico, Texas, Wyoming and Montana. Samson has a solid balance sheet and the stock is interesting on dips. The company has had a number of disappointments operationally, which has put pressure on the stock recently. I would consider buying on dips to about the $1.70 level, where the stock has found recent support. Samson is the type of speculative stock that could do very well in an oil spike.

Here are some key points for SSN:

Current share price: $2.06
The 52 week range is $1.35 to $4.75
Earnings estimates for 2011: n/a on Yahoo Finance
Earnings estimates for 2012: n/a on Yahoo Finance
Annual dividend: none

Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
This article is tagged with: Long & Short Ideas, Quick Picks & Lists, Basic Materials