Oil and gas companies have emerged as the only bright spot in a deeply bearish U.S. stock market, thanks to soaring commodity prices fuelled by the war in Ukraine. The S&P 500 ended H1 2022 with a 20.6% fall, marking its worst H1 since 1970. A combination of factors caused the slump, including surging COVID-19 cases driven by the Omicron variant at the beginning of the year, followed by Russia's invasion of Ukraine in February, decades-high inflation, and aggressive interest rate hikes from the Federal Reserve.
In sharp contrast, the S&P 500 energy sub-index, comprising 21 big oil and gas groups, jumped 29.2% in the year-to-date and stands out as the only sector in the green so far in the year.
Although the oil price rally appears to have stalled over the past month, thus capping further gains for the energy sector, a cross-section of Wall Street believes that oil prices still have plenty of upside. One such bull is J.P. Morgan Chase, which last week warned that global oil prices could climb to a "stratospheric" $380/bbl if G7 nations succeed in imposing caps on the price of Russian oil and prompt Vladimir Putin to inflict retaliatory production cuts.
According to JPM, Russia's robust fiscal position means that the country can afford to slash crude output by as much as 5M bbl/day without excessively damaging its economy. However, such a drastic reduction would be bad news for oil consumers as it would push Brent crude prices to $380/bbl.
"The most obvious and likely risk with a price cap is that Russia might choose not to participate and instead retaliate by reducing exports. It is likely that the government could retaliate by cutting output as a way to inflict pain on the West. The tightness of the global oil market is on Russia's side," JPM analysts wrote.
With Brent currently trading at $112/bbl, such a massive rise in oil prices would definitely re-ignite the oil price rally. Here's a rundown of some of the best-performing oil and gas stocks so far in the current year.
Source: Seeking Alpha
Source: The Financial Times
BP Prudhoe Bay Royalty Trust
Market Cap: $452.6M
YTD Returns: 389.6%
BP Prudhoe Bay Royalty Trust (NYSE: BPT) is a Texas-based energy company that operates as a grantor trust in the United States. The company holds an overriding royalty interest in the Prudhoe Bay oil field located on the North Slope of Alaska. The Prudhoe Bay field extends 12 miles by 27 miles and contains ~150,000 gross productive acres. BPT receives a per-barrel royalty on oil production from British Petroleum's (NYSE: BP) working interests in the Prudhoe Bay Field on the North Slope of Alaska.
Vertex Energy, Inc.
Market Cap: $801.3M
YTD Returns: 119.7%
Texas-based Vertex Energy, Inc. (NASDAQ: VTNR) is an environmental services company that provides a range of services designed to aggregate, process, and recycle industrial and commercial waste systems in the Gulf Coast and Central Midwest regions of the United States.
Vertex operates through Black Oil, Refining and Marketing, and Recovery segments. The Black Oil segment collects and purchases used motor oil directly from third-party generators; aggregates used motor oil from a network of local and regional collectors, and sells used motor oil to customers for use as a feedstock or replacement fuel for industrial burners. The segment also produces and sells a vacuum gas oil product to refineries and the marine fuels market; and base oil product to lubricant packagers and distributors.
Last month, Vertex Energy joined the Russell 3000. In theory, when a company is promoted to an index, it benefits from being lumped in with other, more robust companies. Such companies tend to draw more investor interest, resulting in higher trading volumes and higher liquidity.
Occidental Petroleum Corporation
Market Cap: $56.6B
YTD Returns: 94.6%
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 in partnership with Occidental Petroleum. Ecopetrol revealed that it would take a 40% stake in the blocks, while Occidental subsidiary Anadarko Colombia will have a 60% stake and will serve as the operator.
Obsidian Energy Ltd
Market Cap: $632.9M
YTD Returns: 81.4%
Obsidian Energy (NYSE: OBE) is a Canadian exploration and production company. OBE engages in exploration and development and holds interests in oil and natural gas properties and related production infrastructure in the Western Canada Sedimentary Basin. Obsidian Energy also trades in Canada under the ticker OBE.TO.
Recently, Obsidian Energy raised its 2022 production guidance to 32kboe/d (midpoint), versus prior guidance of ~31kboe/d (midpoint).
The company also provided 2023 guidance at 37-38kboe/d, good for 21% production growth. Capex was also lifted to $300m (midpoint) for 2022, up from prior guidance of $146m, a huge 105% increase.
Market Cap: $12.7B
YTD Returns: 57.1%
EQT Corporation (NYSE:EQT) operates as a natural gas production company in the United States. The company produces natural gas, and natural gas liquids (NGLs), including ethane, propane, isobutane, butane, and natural gasoline.
As of December 31, 2021, EQT had 25.0 trillion cubic feet of proved natural gas, NGLs, and crude oil reserves across approximately 2.0 million gross acres, including 1.7 million gross acres in the Marcellus play.
Two months ago, EQT Corp. unveiled a plan centered on producing more liquified natural gas by dramatically increasing natural gas drilling in Appalachia and around the country's shale basins, as well as pipeline and export terminal capacity, which it said would not only boost United States energy security, but also help break the global reliance on coal and on countries like Russia and Iran.
By Alex Kimani for Oilprice.com
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