Crude oil prices have been paring back earlier losses on Monday and Tuesday after Saudi Oil Minister Prince Abdulaziz bin Salman said the current bear market may require OPEC+ to tighten production because futures prices do not reflect underlying fundamentals of supply and demand.
"Extreme volatility and lack of liquidity in the futures market are moving prices in ways that do not conform to normal supply and demand factors, which may spark OPEC+ to take action,’’ the Saudi oil chief warned. WTI crude was up 2.3% to trade at $92.46/bbl in Tuesday’s intraday session while Brent gained 2.0% to change hands at $98.37/bbl.
Still, oil and gasoline prices are a long way off their mid-June peak, when Brent traded at $129/bbl and gasoline hit an all-time high of $5.02 a gallon. Since those peaks, stocks of companies that are less sensitive to underlying commodity prices have performed better than those more directly dependent on strong prices. Barron’s has screened for energy stocks in the S&P 500 that have risen since June 14 and found that only four have managed to pull off that feat. To wit, Williams Companies (NYSE: WMB) has gained 9.0% since June 14; Oneok Inc. (NYSE: OKE) has climbed 6.5%, Kinder Morgan (NYSE: KMI) has rallied 5.8% while Occidental Petroleum (NYSE: OXY) is up 4.5%.
Those are interesting findings not only due to the fact that all are large-caps but also because a month ago, MKM Chief Market Technician J.C. O'Hara added Williams Companies, Oneok Inc. and Kinder Morgan to a group of 32 energy stocks carrying the greatest downside risk.
"Year to date, Energy is the sole sector in the green ... but concern now is that fact that Bears are coming after winners, thus they may take Energy down. The Energy Sector undercut its rising 50 DMA and now looks lower to the rising 200 DMA, which is currently -9% below last Friday's close. Crude Oil is sitting on its rising 50 DMA and has a stronger technical pattern," MKM Chief Market Technician J.C. O'Hara wrote in a note to clients.
For the energy bulls, however, the good news is that there is no shortage of great bargains in the space. Here are some notable ones.
Ovintiv
Market Cap: $12.7B
P/E Ratio (Fwd): 4.92
YTD Returns: 53.8%
Ovintiv Inc.(NYSE: OVV) is a Denver, Colorado-based energy company that, together with its subsidiaries, engages in the exploration, development, production, and marketing of natural gas, oil, and natural gas liquids.
Look to Ovintin in the Permian basin, along with Anadarko in Oklahoma and Canada’s Montney shale in British Columbia and Alberta. They’ve also got upstream assets in North Dakota’s Bakken and Utah’s Uinta worth watching.
Mizuho has upgraded OVV to $78 from $54 (good for 44.3% upside to current price), citing improving tailwinds.
Civitas Resources
Market Cap: $5.5B
P/E Ratio (Fwd): 4.67
YTD Returns: 36.9%
Another Denver, Colorado E&P company, Civitas Resources, Inc.(NYSE: CIVI) focuses on the acquisition, development, and production of oil and natural gas in the Rocky Mountain region, primarily in the Wattenberg Field of the Denver-Julesburg Basin of Colorado.
As of December 31,2021, it had proved reserves 397.7 MMBoe comprising 143.6 MMbbls of crude oil, 106.0 MMbbls of natural gas liquids, and 888.5 Bcf of natural gas.
Benjamin Halliburton, chief investment officer at Building Benjamins, has recommended buying Civitas saying that the company’s strong balance sheet and increasing free cash flow could propel the shares to $110 next year(60.3% upside), and its annual dividend payout could hit $6 up from $1.63 currently.
Enerplus Corporation
Market Cap: $3.4B
P/E Ratio (Fwd): 4.78
YTD Returns: 44.6%
Enerplus Corporation (NYSE: ERF)(TSX: ERF), together with subsidiaries, engages in the exploration and development of crude oil and natural gas in the United States and Canada. The company’s oil and natural gas properties are located primarily in North Dakota, Colorado, and Pennsylvania; and Alberta, British Columbia, and Saskatchewan.
Related: Canada Studies Direct LNG Exports To Europe
As of December 31, 2021, the company had proved plus probable gross reserves of approximately 8.2 million barrels (MMbbls) of light and medium crude oil; 20.7 MMbbls of heavy crude oil; 299.3 MMbbls of tight oil; 56.2 MMbbls of natural gas liquids; 19.7 billion cubic feet (Bcf) of conventional natural gas; and 1,367.9 Bcf of shale gas.
Jason Bouvier, analyst at Scotiabank, told the Financial Post has picked Enerplus as one of Canada’s energy companies with the lowest capex breakevens (including hedging gains).
Occidental Petroleum
Market Cap: $64.1B
P/E Ratio (Fwd): 6.45
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YTD Returns: 140.4%
Headquartered in Houston, Texas, Occidental Petroleum Corporation (NYSE: OXY) together with its subsidiaries, engages in the acquisition, exploration, and development of oil and gas properties in the United States, the Middle East, Africa, and Latin America. The company also owns a Chemical segment that manufactures and markets basic chemicals, including chlorine, caustic soda, chlorinated organics, potassium chemicals, ethylene dichloride, chlorinated isocyanurates, sodium silicates, and calcium chloride; vinyls comprising vinyl chloride monomer, polyvinyl chloride, and ethylene.
Back in May, Ecopetrol (NYSE: EC) announced an agreement to develop four deepwater blocks off the coast of Colombia with Occidental Petroleum. Ecopetrol revealed that it will take a 40% stake in the blocks while Occidental subsidiary Anadarko Colombia will have a 60% stake and will serve as operator.
Canadian Natural Resources
Market Cap: $61.3B
P/E Ratio (Fwd): 3.67
YTD Returns: 34.7%
Canadian Natural Resources Limited (NYSE: CNQ) acquires, explores for, develops, produces, markets, and sells crude oil, natural gas, and natural gas liquids (NGLs).
As of December 31, 2020, the company had total proved crude oil, bitumen, and NGLs reserves of 10,528 million barrels (MMbbl); total proved plus probable crude oil, bitumen, and NGLs reserves were 13,271 MMbbl; proved SCO reserves were 6,998 MMbbl; total proved plus probable SCO reserves were 7,535 MMbbl; proved natural gas reserves were 12,168 billion cubic feet (Bcf); and total proved plus probable natural gas reserves were 20,249 Bcf.
Canadian oil sands companies are some of the cheapest, and CNQ seems to make the cut.
By Alex Kimani for Oilprice.com
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