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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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Mid-Cap Energy Stocks Are Outperforming Supermajors

  • The run-up in oil prices in recent months has been a boon for the oil and gas sector. 
  • Supermajors have seen their share prices climb consistently.
  • Mid-caps, however, are outperforming, seeing oversized gains despite less analyst coverage. 

When it comes to long-term investing in the oil and gas sector, heavyweights such as ExxonMobil (NYSE:XOM), Chevron Corp. (NYSE:CVX), ConocoPhillips (NYSE:COP), BP Plc (NYSE:BP), and Shell (NYSE:SHEL) tend to hog the limelight.

However, overlooking mid-cap oil and gas stocks (market-caps between $2 billion and $10 billion) can mean leaving plenty of money on the table. Although these smaller companies tend to receive less analyst coverage as compared to large caps, they offer more growth opportunities than large-cap stocks but exhibit less volatility than their small-cap brethren.

Many mid-cap energy stocks have handily outperformed their bigger peers in recent months, with some now garnering Wall Street attention thanks to the energy crisis and Russia's invasion of Ukraine.

To wit, last week, Piper Sandler came out with an exceedingly bullish oil note on the oil sector, upping the bank's oil price forecast to $100+ through 2025. Though several banks have called for $100+ oil in 2022, consensus overwhelmingly expects prices to fall back to double digits in the coming years. Oil prices hitting records for a brief moment before falling back below $100 would be less impactful to oil stocks than sustained, triple-digit prices.

Piper's view is predicated on long-term impacts to supply from the majors exiting Russia as the bank sees the exodus of talent leading to sustained production declines. The bank further believes US shale will take years to "make a dent in the supply deficit." Analyst Mark Lear believes US oil stocks are "priced for $70 oil." That is to say, if oil prices fell ~30% and stayed at $70 forever, his stocks would then be fairly valued. 

Piper Sandler has recommended four mid-and small-cap stocks: Murphy Oil Corp. (NYSE:MUR), Centennial Resource Development, Inc. (NASDAQ:CDEV), Laredo Petroleum (NYSE:LPI), and Berry Corp. (NASDAQ:BRY), raising all from neutral to buy. Murphy Oil and Centennial are true mid-caps with market caps of $6.5B and $2.5B, respectively, while Laredo and  Berry are small-caps with valuations of $1.4B and $977.2M, respectively.

All four stocks have posted impressive returns: MUR is up 144.6% over the past 12 months; while CDEV, LPI and BRY have rallied 102.6%, 129.3%, and 40.4%, respectively.

Here are the best-performing mid-cap oil and gas stocks during the first quarter.

#1. Antero Resources

      Market Cap: $10.9B

      YTD Returns: 99.0%

Denver, Colorado-based Antero Resources Corporation (NYSE:AR)  is an independent oil and natural gas company that acquires, explores for, develops, and produces natural gas, natural gas liquids, and oil properties in the United States. 

As of December 31, 2021, AR had approximately 502,000 net acres in the Appalachian Basin; and 174,000 net acres in the Upper Devonian Shale. The company also owned and operated 494 miles of gas gathering pipelines in the Appalachian Basin; and 21 compressor stations. The company had estimated proved reserves of 17.7 trillion cubic feet of natural gas equivalent, including 10.2 trillion cubic feet of natural gas; 718 million barrels of assumed recovered ethane; 501 million barrels of primarily propane, isobutane, normal butane, and natural gasoline; and 36 million barrels of oil. 

Low inventory levels and an improving long-term demand outlook have been driving henry hub gas prices to their highest seasonal level in over a decade. Morgan Stanley sees decelerating natural gas demand in 2023-2024 as LNG terminal capacity growth slows; however, the recent uptick in political support for the industry could improve LNG export demand on a 3-5yr horizon.

AR stock has gained 272% over the past 12 months.

#2. Range Resources

      Market Cap: $8.6B

      YTD Returns: 76.4%

Range Resources Corporation (NYSE:RRC) operates as an independent natural gas, natural gas liquids (NGLs), and oil company in the United States. The company engages in the exploration, development, and acquisition of natural gas and oil properties. The company was formerly known as Lomak Petroleum, Inc. and changed its name to Range Resources Corporation in 1998. Range Resources Corporation was founded in 1976 and is headquartered in Fort Worth, Texas. As of December 31, 2021, RRC owned and operated 1,350 net producing wells and approximately 794,000 net acres under lease located in the Appalachian region of the northeastern United States.

Related: Permian Could See Production Surge As New Permits Reach All-Time High

RRC actually missed Q4 earnings estimates, though only by a narrow margin. The company guided production effectively flat year on year, on the back of a 14% increase in capex. The dividend remains relatively modest, though the company announced a surprise share repurchase, authorizing a buyback of ~10% of shares outstanding. 

RRC stock is up 240% over the past 12 months.

#3. Vermilion Energy Inc

      Market Cap: $3.5B

      YTD Returns: 67.9%

Calgary, Canada-based Vermilion Energy Inc. (NYSE:VET), together with its subsidiaries, engages in the acquisition, exploration, development, and production of petroleum and natural gas in North America, Europe, and Australia. 

As of December 31, 2021, the company had 401 net producing conventional natural gas wells and 2,132 net producing light and medium crude oil wells in Canada; 167.6 net producing light and medium crude oil wells in the United States; 297.0 net producing light and medium crude oil wells and 3 net producing conventional natural gas wells in France; and 47 net producing natural gas wells in the Netherlands. It also owns a 20% interest in the offshore Corrib natural gas field located on the northwest coast of Ireland; and a 100% working interest in the Wandoo offshore oil field and related production facilities that covers 59,553 acres situated on Western Australia's northwest shelf. 

The Wall Street Journal has reported that the Biden administration is seeking ways to increase Canadian oil imports but does not want to resurrect the Keystone XL pipeline. Short-cycle producers could increase production, including Vermilion, Whitecap (OTCPK:SPGYF), and International Petroleum Corp (OTC:IPCFF) are seen as the most likely beneficiaries of the new energy policy goal.

By Alex Kimani for Oilprice.com

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