NEW YORK (TheStreet) -- About 5,685 miles east of Houston, land of ConocoPhillips (COP) and Halliburton (HAL), is Rome, the headquarters of ENI SPA (E), the largest oil and natural gas company in Italy. While no one will ever confuse Texas with Italy, the government is now moving to allow for ENI SPA and others to produce greater quantities of oil and natural gas in the finest tradition of the "Lone Star State." The potential is tremendous.
For investors, the European energy sector offers publicly traded companies ranging from prominent blue chips such as Holland's Royal Dutch Shell (RDS.A), the second-largest in the world behind ExxonMobil (XOM), to Octagon 88 (OCTX), a small cap operating from Switzerland with promising holdings, and SeaDrills Partners (SDLP), another small cap exploration firm based in London with robust margins.
Oil and natural gas companies pretty much move together based on the price of crude. There are not opportunities to profit from arbitraging an oil company operating around Paris, Texas, as opposed to one based in Paris, France, such as Total SA (TOT). Where investors can gain is from European governments moving to be more of an advocate for oil and gas operations, rather than some presently acting as an adversary.
One example is France's refusal to allow fracking in the country.
That is a loss to the government, its citizens and investors as France, along with Poland, has the second largest supply of recoverable natural gas in Europe, according to the International Energy Agency (headquartered in Paris). The French Government could certainly use the tax revenues. More jobs are needed in the country. With unrest in the Middle East and other oil producing areas, the global investment community needs more politically stable energy operations to finance in Europe to assure a secure supply.
France's loss could soon be Italy's gains, with potential profits for investors around the world.
Italy is moving to double its annual oil production by 2020. That will reduce its oil import bill by about one-quarter and immediately benefit the economy. Italy's annual oil import cost is 62 billion Euros. Every Euro that goes abroad to pay for oil is one that doesn't to stay at home to create employment opportunities for Italians. The Great Recession took the unemployment rate in Italy to record levels (over 12%), so every Euro possible is needed.
The more oil pumped in Italy and the more citizens working, the more tax revenues for Rome and the localities of the country.
For investors, there are income, value and growth opportunities in European energy stocks. ExxonMobil has a dividend yield of 2.65%. For ENI SPA, it is 5.12%. The dividend income from Total SA comes at a 5.58% rate. Both BP and Royal Dutch Shell have dividend yields over 4.5%.
Value and growth investors should look to the small cap sector. Both Octagon 88 (up 74.85%) and SeaDrill Partners (up 18.46%) have also done well over the last year of market action. The analyst community remains bullish on each: SISM Research set a target price of $23.11 for Octagon 88, with Global Hunter Securities LLC expecting SeaDrill Partners LLC to reach $38 from around $31.38, according to Finviz.
Investors should expect European governments to be more supportive of the energy sector.
There is nothing but upside. The immediate result will be more jobs and more tax revenues, both desperately needed. Long term, the economies of European nations will grow as the energy sector increases. Investors in the drillers, producers, explorers and others should do well from the European governments doing the right thing for their constituents, their countries and the global economy.At the time of publication, the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.