Just as the push toward $100/bbl oil seemed to be losing steam, reports on Friday that the United States believes Russia's Vladimir Putin could invade Ukraine "any day now" have lifted crude to as high as $95/bbl for an eighth straight weekly advance. Brent crude (CO1:COM) for April delivery closed +3.3% at $94.44/bbl, the highest finish for a front-month contract since September 2014, while March WTI (Cl1:COM) crude settled +3.6% at $93.10/bbl, also the best level September 2014.
"The oil market was waiting for a major catalyst to justify a move above $100, and it seems the Ukraine situation just took a turn for the worse," Oanda's Ed Moya has told Bloomberg. Moya says any crude supply disruptions could send oil prices another 10% higher.
Oil prices have also been drifting upwards after the International Energy Agency warned that OPEC+ was struggling to meet production quotas, as the alliance produced 900K bbl/day below target in January. The "OPEC 10," countries within OPEC but excluding Venezuela, Libya and Iran, were budgeted to increase production by 254kb/d in January, with the remainder of the 400kb/d quota allocated to Russia and others. Official results released on Thursday indicate that OPEC 10 had increased production only 135kb/d, and now sits a full 748kb/d below self-imposed quota levels.
Also, in a break from recent history, there doesn't appear to be a strong supply response to rising prices and declining inventories. When Chevron (NYSE:CVX) reported Q4 results two weeks ago, the company guided the street to flat YoY production in 2022. Exxon (NYSE:XOM) did the same, as did BP (NYSE:BP) and ConocoPhillips (NYSE:COP). Bakken producer Whiting (NYSE:WLL) announced they plan to increase capex 55% in 2022 and acquire assets to generate only ~3% production growth. Driller Nabors (NYSE:NBR) reported earnings Tuesday and indicated they don't expect to add any rigs outside the US in Q1.
On the bear side of things, diplomats from Iran and world powers have reconvened in Vienna to seek a deal reviving the 2015 nuclear accord, with a fully-fledged return by Iran to the oil markets potentially pushing them into a surplus.
But, overall, the bullish thesis remains intact, with many analysts predicting that oil prices will remain elevated for years as demand continues outstripping supply. In a report provided to clients on Feb. 10, analysts at BCA Research said they believe prices will rise over the next decade thanks to government action that curbs fossil-fuel production as well as "climate activism at the board level at major energy suppliers and in the courtroom."
The energy sector is the best-performing of all the 11 U.S. market sectors in the current year, boasting a 26.9% YTD return vs. -7.2% by the S&P 500. The Energy Select Sector SPDR ETF (NYSEARCA:XLE) has jumped 60% over the past 12 months.
But here's the interesting part: despite the huge rally, energy stocks are some of the cheapest in the market today.
Indeed, energy stocks are currently trading at just 12.3 times earnings estimates--the cheapest S&P 500 sector, and by a comfortable margin. That's less than half the S&P 500's P/E ratio of 25.2.
The BCA analysts favor long-term exposure to oil through ETFs. Here we list the top 5 Wall Street energy picks based on stocks favored by at least 80% of analysts polled by FactSet. You will notice that all five are based on Canada's famous oil Patch--and for good reason. Canada stands out with its expansion of fossil-fuel production, its oil and gas stocks are cheap, and many feature low breakeven points, thus offering a good measure of downside protection if the oil markets head south.
#1. Birchcliff Energy Ltd.
Market Cap: $1.4B
YTD Returns: 27.4%
Implied Upside Potential: 48%
Based in Calgary, Birchcliff Energy Ltd. (OTCPK:BIREF) is an intermediate oil and natural gas company that acquires, explores for, develops, and produces natural gas, light oil, condensate, and natural gas liquids in Western Canada.
The company holds interests in the Montney/Doig resource play, as well as other assets located in the Peace River Arch area of Alberta. As of December 31, 2020, Birchliff had interests in various gas plants, oil batteries, compressors, facilities, and infrastructure; and 198,553.7 net acres of undeveloped land, as well as proved plus probable reserves of 1,040.5 million barrels of oil equivalent.
In its latest earnings report, Birchliff said it generated record annual adjusted funds flow of $539.7 million, or $2.03 per basic common share, an increase of 192% and 194%, respectively, from 2020. Cash flow from operating activities was $515.4 million, a 174% increase from 2020.
#2. Tourmaline Oil Corp.
Market Cap: $12.1B
YTD Returns: 13.3%
Implied Upside Potential: 39%
Another Calgary-based producer, Tourmaline Oil Corp. (OTCPK:TRMLF) acquires, explores for, develops, and produces oil and natural gas properties in the Western Canadian Sedimentary Basin. It holds interests in properties located in the Alberta Deep Basin, Northeast British Columbia Montney, and the Peace River High Triassic oil complex.
Tourmaline shares have sprinted to their highest in more than seven years after announcing an 11% quarterly dividend increase and a special dividend of C$1.25/share. The quarterly dividend was also raised to $0.20/share from $0.18/share in Q1, with the company saying it anticipates paying further special dividends in 2022.
#3. Parex Resources Inc.
Market Cap: $2.6B
YTD Returns: 26.7%
Implied Upside Potential: 37%
Parex Resources Inc. (OTCPK:PARXF) engages in the exploration, development, production, and marketing of oil and natural gas in Colombia. The company holds interests in onshore exploration and production blocks totaling approximately 2,323,941 gross acres. As of December 31, 2020, it had proved plus probable reserves of 194,491 million barrels of oil equivalent.
Parex Resources has announced that the Toronto Stock Exchange has approved the Company commencing a normal course issuer bid that will see Parex purchase up to a maximum of 11,820,533 common shares of the Company.
The Bid will commence on January 4, 2022, and will terminate on January 3, 2023 or such earlier time as the Bid is completed or terminated at the option of Parex. As of the close of business on December 22, 2021, Parex had 120,555,447 common shares issued and outstanding and a public float of 118,205,330.
#4. ARC Resources Ltd
Market Cap: $8.1B
YTD Returns: 28.5%
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Implied Upside Potential: 34%
ARC Resources Ltd. (OTCPK:AETUF) explores, develops, and produces crude oil, natural gas, and natural gas liquids in Canada. The company holds interests in the Montney properties located in northeast British Columbia and northern Alberta; and Pembina Cardium properties in central Alberta. As of December 31, 2020, it had proved plus probable reserves of 929 million barrels of oil equivalent.
ARC Resources has been rallying after reporting better than expected Q4 earnings and saying it will allocate surplus funds generated in 2022 to shareholder returns and debt reduction.Q4 revenues quadrupled Y/Y to C$1.88B from C$405.9M; Q4 net income skyrocketed to C$678M, or C$0.96/share, from C$121M, or C$0.34/share, in the year-earlier quarter.
The company also revealed that it nearly doubled its reserves volumes and tripled its reserves value during the year through high-value liquids additions from the business combination and strong organic additions across the portfolio.
#5. Whitecap Resources Inc.
Market Cap: $4.6B
YTD Returns: 23.6%
Implied Upside Potential: 30%
Whitecap Resources Inc. (OTCPK:SPGYF) is a Calgary-based oil and gas company that acquires and develops petroleum and natural gas properties in Canada. Its principal properties are located in West Central Alberta, Northwest Alberta and British Columbia, Southeast Saskatchewan, West Central Saskatchewan, and Southwest Saskatchewan.
As of February 24, 2021, WhiteCap Resources had a total proved plus probable reserves of 507,287 thousand barrels of oil equivalent. However, the company has just provided a year-end reserve update ahead of market open on Monday, showing a 53% increase in proved developed producing (PDP) reserves.
The company says it replaced 372% of production during the year, and controls 7.3 years of reserves on a PDP basis and 17.6 years on a "proved plus probable" basis. Reserve increases came on the back of several strategic acquisitions in 2021, including three transactions announced in Alberta and Saskatchewan in December of last year.
By Alex Kimani for Oilprice.com
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