There are a significant number of listed energy stocks in Australia. They range from multi-billion-dollar companies like Woodside Petroleum Ltd [ASX:WPL], all the way down to tiny explorers with a part interest in one exploration permit. Energy stocks also include coal miners, as thermal coal is a major source of electricity generation. Uranium stocks are also included in the sector. You can break the companies in the sector down into three parts. They can be producers, developers, or explorers. The larger producers cover the whole spectrum. They usually have a portfolio of producing assets, as well as assets in the development stage and exploration targets.
So what is the energy sector?
All fossil fuel energy assets have a finite life, so it is important for companies to be on the lookout for new reserves to replace production. For this reason, the energy sector is capital intensive. That is, it requires a lot of money to explore for new reserves, and then to develop the resource. For explorers, it can be years between discovery and first production (when the cash flow finally starts).
What are the best energy stock companies?
When it comes to producers or developers, you want to look for assets with a long production life and low costs. That way, if the price of the underlying commodity falls significantly, the company will be able to manage and not go out of business. With explorers, the best bet is to look at the experience of the board and the geologist, and to see whether they have had prior successes. To learn more about investing in renewable energy on the ASX, check out our Clean Energy Investing guide.