Oil and Gas
There are a significant number of listed oil and gas 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. 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.
Oil & Gas Prices
Oil and gas discoveries 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 oil and gas sector is capital intensive. That is, it requires a lot of money to explore for oil and gas, and then to develop the resource. For explorers, it can be years between discovery and first production (when the cash flow finally starts). Daily movements in the international oil price, represented by Brent Crude or West Texas Intermediate, primarily drive the sector. If the oil price has a decent fall or rise, you can bet the oil and gas sector will follow.
Best Oil & Gas 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 oil falls significantly, the company will be able to cope 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. In Australia, most large oil and gas stocks are involved in the production of liquid natural gas (LNG). There has been a huge amount of investment in this sector in recent years. Stocks involved include Woodside, Santos Ltd [ASX:STO], Oil Search Ltd [ASX:OSH], and Origin Energy Ltd [ASX:ORG].