You must invest in America (and Canada) - Oil and Gas

The best companies in the North American oil and gas sector

Dominic here. Well, I don’t know about you, but I have been looking forward to this piece for some time: Dr John’s picks of the North American oil and gas juniors. We both believe that oil and gas should make a core part of your portfolio and I know how closely and intently Dr John monitors this sector. There is a lot of really valuable information here. Use it wisely …

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Today I bring together two themes I have been covering recently: the importance of North America in anyone’s investment portfolio, and oil and gas.

For many investors, I suspect that the hype around large, US-based tech companies has overshadowed the importance of oil and gas in the investing landscape there. We should not forget that the USA is the largest oil and gas producer in the world. Canada is fourth. 

Together with Mexico, North America produces over 18 million barrels a day - about 1/6^th of global total daily oil production. 

Furthermore, unlike the other large producers (Saudi Arabia, Russia, Iraq, China, UAE, Iran), American companies are investable. They are transparent, easy to buy and sell, and there is lots of coverage on them. 

And, right now, they are cheap.

Despite the rhetoric, Americans love their domestic oil and gas industry. I think that no thoughtless US leader could ever get away with what the UK did: changing the tax rate from 40% to 60% and then to 75% in a matter of days. Nor could they impose a 33% “solidarity contribution” on excess profits, as the Europeans did last year, so the Germans could buy coal. 

For the most part, Americans seem realise that, to promote lower prices, one should make it more attractive for  companies to drill for oil, not less.

Apart from BP and Shell, the UK only has a few investable oil and gas companies. Liquidity is also often a problem in smaller listed companies in the UK. So, we need to invest in the countries with the most diverse, liquid, good-value, investable quality oil and gas stocks: the USA and Canada.

What to invest in?

Here, I am going to focus on the upstream companies, that is companies deriving the vast majority of their earnings from drilling oil. Not transporting it, refining it, trading it, or selling it to retail users (that is: not oil pipeline and shipping companies, oil refinery companies, companies with large trading desks like Glencore or Trafigura, and companies with large retail divisions, like Shell or BP).

But the first port of call when thinking about building a portfolio of oil stocks should be …