This week’s oil and gas bull market has seen a handful of oil-weighted stocks moving in lockstep with WTI crude prices, so if you’re looking for a place to hedge your bets on rising oil prices, look for the correlation.
On Monday this week, oil prices entered a bull market after rising more than 20 percent from June lows. WTI Crude has been consistently trading above US$50 since September 20, and hit US$52.22 at close on September 25, the highest level since April this year.
Reports of strong global oil demand growth, a 1.8-million-barrel decline in U.S. commercial crude oil inventories for the week to September 22, reduced global crude overhang, a supply scare over possible disruptions of Kurdish oil exports and reports of improved compliance from OPEC all combined to boost WTI this week. The investor sentiment is now much more bullish than it was, say, a month ago.
This week we’re looking at the past performance, mover catalysts, and analyst expectations for three oil-weighted stocks of companies that operate with a minimum 60 percent of their production mix in oil.
These oil-weighted stocks are all part of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), which gained over 2.5 percent over the past week, as of late-morning trading on Friday. Related: Citi: An Oil Supply Squeeze Is Inevitable
#1 Oasis Petroleum (NYSE:OAS) had a 97.3 percent correlation with crude oil in the trailing five trading sessions.
On Monday, shares in Oasis Petroleum jumped to US$9.13 at close from US$8.62 at close on Friday, September 22. This upswing coincided with WTI entering bull-market territory.
As of late-morning trading on Friday, Oasis Petroleum had gained 3.05 percent for the week, while shares were down nearly 13 percent over the past year. The 52-week range for the stock is US$6.69–US$17.08.
Last week, Oasis Petroleum priced the initial public offering (IPO) of Oasis Midstream Partners (NYSE:OMP)—the master limited partnership it had formed to own, develop, operate, and acquire a diversified portfolio of midstream assets in North America—at US$17.00 per common unit, raising US$119.9 million in proceeds. This price came below the anticipated IPO price of between US$19.00 and US$21.00 per common unit. By mid-morning trading on Friday, OMP shares were still holding at $17.00.
At the beginning of last month, Oasis Petroleum—which operates primarily in the Williston Basin in North Dakota and Montana and has more than 75 percent of its production mix in oil—said that its Q2 production was affected by additional workover activity and a completion schedule weighted towards the end of the quarter. Total Q2 production was 61,943 barrels of oil equivalent per day (boepd), of which 77 percent was oil. Oasis Petroleum expects to complete 48 gross operated wells and produce between 67,500 boepd and 69,500 boepd in the second half of 2017, and continues to expect to hit exit rate of 72,000 boepd, the company said.
#2 Diamondback Energy (NASDAQ:FANG) had a 96.9-percent correlation with crude oil in the trailing five trading sessions.
Diamondback Energy’s stock also rose on Monday, to close at US$96.78 compared to US$95.74 at close on September 22. Late Thursday morning it briefly traded above US$98, before closing at US$97.14. By mid-morning on Friday, $FANG shares were trading at $98.06, up 1.72 percent for the week, and up over 5% over the past year. The 52-week range is US$82.77 – US$114.00.
Midland, Texas-based independent oil and natural gas company Diamondback Energy is focused on the Wolfcamp, Spraberry, Clearfork, Bone Spring, and Cline formations in the Permian.
Diamondback reported last month Q2 2017 production of 77,000 boepd, of which 75 percent oil. Output jumped 109 percent year on year and increased 25 percent on the quarter. The company lifted its production guidance for full-2017 to a range of 74,000-78,000 bopd, from 69,000-76,000 bopd, but scaled down the capital spend range to US$800 million-$950 million from US$800 million-US$1 billion. Diamondback reported adjusted earnings per share (EPS) at US$1.25 per diluted share, easily beating the analyst consensus estimate of EPS of US$0.92. In each of the past four quarters, Diamondback trumped analyst consensus forecasts for EPS. The consensus estimate for Q3 is EPS of US$1.14.
#3 Denbury Resources (NYSE:DNR) had 95.3 percent correlation with crude oil in the trailing five trading sessions, and if you want a cheap stock, this is it. Related: Controversial Lake Michigan Nuclear Power Plant To Stay Open
Denbury Resources—like crude oil and the other two companies we’re tracking today—started this week on the rise, closing on Monday at US$1.36, up from US$1.21 at close on September 22. Over the past five days, as of mid-morning on Friday, Denbury Resources shares had gained 8.87 percent. Over the past month, it’s gained over 42 percent, but is down over 57 percent over the past year. The 52-week average is US$0.91-US$4.29.
Denbury Resources has two key operating areas—the Gulf Coast and Rocky Mountain regions. Last month, the company reported a break-even in Q2 adjusted net income per diluted share, US$0.00, which beat the consensus estimate for a loss of US$0.02 per share. Denbury’s production averaged 59,774 barrels of oil equivalent per day in Q2, with 97 percent of production being oil. The company added some 19 million barrels of proved oil reserves from properties acquired during the first half of 2017. In response to lower than anticipated oil prices in H1 2017, Denbury Resources cut its estimated 2017 capital budget to around US$250 million from US$300 million.
On September 6, the company said that some 90 percent of its 16,000 boepd of net production shut-in due to Hurricane Harvey has been returned to production, with five of its six fields restarted, and it has not identified any significant damage at these impacted fields. The only field that remains shut-in is Thompson Field, which produced around 1,000 boepd before Harvey. Production at Thompson Field is expected to return to full capacity over the next eight weeks, as flooding in that area subsides and personnel are able to access the field, Denbury said.
Recently, some analysts have dropped their “sell” ratings on Denbury, which currently has 2 “sells” by analysts, compared to 5 “sell” ratings three months ago. The current consensus rating is “hold”, compared to “underweight” three months ago.
By Tsvetana Paraskova for Oilprice.com
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