Action Alerts PLUS
Action MRO WFT BP 11/03/09 - 11:28 AM EST
Jim Cramer Print This Article Email Jim
Adding to Two Energy Stocks
Marathon Oil (MRO:NYSE) reported a stronger-than-expected earnings report, beating both the top and bottom lines (revenue and earnings). The stock isn't rallying on the news, and after you have received this Alert, I'll buy 200 shares at around $32.14. I am also going to add 200 shares to Weatherford (WFT:NYSE) at $17.68 as well.
MRO beat expectations by 4 cents at 61 cents on better revenue of $14.47 billion vs. $13.7 billion expectations. The company grew production at 5% for the quarter, and it is now up 9% year to date, which is at the upper end of the large integrated industry; that's why I like this stock. E&P income was $491 million, down from $869 million last year, due to the lower commodity price realizations, but that was better than plan, and full-year guidance was raised.

Importantly, costs fell 10% in this segment, and this shows management's commitment in turning this division into a first-rate E&P company. Refining and marketing continues to be challenging (for the industry), with lower margins and income for the quarter, but MRO offset the weakness with 9% lower costs, and importantly, it continues to outperform its peers, especially in the domestic market. The call is later this afternoon, and the story remains on track as the company transforms itself into a respectable upstream company with better-than-average production growth while continuing to take share in the refining segment.

Separately, BP (BP:NYSE) and China National Petroleum signed a 20-year contract with Iraq's state-owned South Oil Company to expand production in Iraq's largest oilfield, the Rumaila. This is the only deal reached so far from the licensing auction in June, and it is part of the Iraqi Oil Ministry's plan to raise cash by boosting production in this oil-rich country. Both companies will invest around $15 billion over the life of the deal, with expected output to triple from the current 1.05 million barrels a day.

I highlight this for two reasons -- it shows that BP continues to find hot growth areas around the world to further improve its production profile, and it shows how resource-rich this country is. This is important for WFT, the largest oilfield company in Iraq. With oil prices stabilizing at the $70-$75 level, integrated oil companies will begin to spend more on projects around the world, and that will lead to increased capex programs and further business for the oilfield service companies.

With a two-year lead in Iraq, WFT is well positioned to benefit over the long run. Some estimate that this project could be worth over $1 billion for the company (WFT continues to downplay it – smartly -- with guidance of $200 million to $400 million). Expectations remain low for the company, and the stock is the cheapest in the group. I'll continue to buy on weakness.

When these trades are complete, I will own 2,300 shares of MRO, or 2.58% of the portfolio, and 1,900 shares of WFT, or 1.17%.

Regards,

Jim Cramer

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