Well, earnings season is proving to be hit-or-miss for many energy stocks.
The good news is that many E&P firms have managed to report overall rising production and higher average prices for that production. That’s great news, actually, considering many of the integrated giants have suffered in that category lately. At the same time, many smaller independent energy stocks continue to knock it outta the park in regions like the Bakken and Eagle Ford.
However, several names in the sector — such as Royal Dutch Shell (RDS.A, RDS.B) — have suffered under the weight of poor profits at their downstream operations as well as failed production goals. A rising tide is no longer lifting all boats, and it seems like the energy sector is once again becoming a stock picker’s market.
If so, stock pickers would be well-off investing in these five energy stocks:
ConocoPhillips’ (COP) transformation into a pure E&P player continues to work its magic for shareholders.
Performance at the former-integrated giant has been swift, and COP’s latest earnings report showcases the focus on shale, shale and more shale.
ConocoPhillips reported adjusted earnings of $1.47 per share, or a better-than-expected 39% jump in profit. Higher prices for crude oil and natural gas helped, but the real driver was higher production in the Eagle Ford and other “oily” shale regions in the U.S.
Best of all, investors should expect similar results from the new independent going forward.
Conoco has begun selling non-North American and risky assets in places like Kazakhstan, Algeria and Nigeria. Most recently, COP put its Libyan oil fields on the chopping block. Aside from the more than $9 billion these foreign assets should command, Conoco is setting itself up for future gains as the North American shale boom rolls on.
COP shares can be had for a song at a forward P/E of just under 12.
When it comes to the Marcellus shale in Pennsylvania and West Virginia, no one plays it better than natural gas producer Range Resources (RRC).
That’s surely evident from its latest earnings report. Overall, RRC managed to pump out record production for the third quarter at some pretty high prices. All told, total production increased by 21% vs. a year ago.
However, the real key was the production mix. RRC continues to focus on some of the best “wet” gas fields in the Marcellus and has seen its natural gas liquids and shale oil production surge. That’s important considering the recent rise and high price of West Texas Intermediate crude oil.
The independent E&P firm saw daily production improvements of 28% for NGLs, 43% in oil and 19% in traditional dry natural gas. Translation for Range Resources stock holders: Yippee!
NGLs and WTI crude oil continue be in demand from a variety of chemical producers and refining end-users. That will help the profits keep coming into Range Resources.
It pays to be a fist mover when it comes to America’s shale boom. In this case, it pays to the tune of 75% returns for shareholders in E&P firm SM Energy (SM).
This midcap and potential acquisition target has focusing its attention toward Texas and its Permian basin. While SM Energy’s Eagle Ford acreage continues to churn out production — it grew by 27% in the second quarter — SM’s future could lie with the Wolfcamp play in the Permian.
SM has gained control of around 53,000 total acres in the Permian, and that land is proving to be a dozy. Initial test drilling at its first well in the Wolfcamp has exceeded flow rates of its rivals in the area and has been described as the “best in the area” by analysts. More importantly, SM is seeing more oil than natural gas for its efforts.
That could help propel SM to higher earnings and send its shares rocketing further in the future. Sure, SM Energy’s stock isn’t cheap at 61 times earnings, but the first-mover status in the Wolfcamp — along with its Eagle Ford acreage — could make it prime target for a larger firm.
Moving from the bottom half of our nation to the top, we hit the prolific Bakken shale.
Like the Eagle Ford, the shale oil production from the Bakken continues grow by leaps and bounds, powering those firms that do business there. One of the best could be Oasis Petroleum (OAS).
The company is expected to report earnings this Wednesday, Nov. 6., but there’s plenty of reason to believe that analysts’ predictions of a near-doubling in earnings per share will come true. That’s because it’s becoming a pure play on the Bakken.
Back in September/October, OAS spent roughly $1.5 billion on four land grabs that boosted its acreage to a huge 492,000 acres — about 49% more than it previously had. These buys should add about 9,300 barrels per day to production. That’s awesome news for the future considering Oasis has already shown it can pump up the production. Back in the second quarter, OAS grew production by 48% to sit at 30,200 barrels of oil equivalent (BOE) per day. What’s even better is that the bulk of its production — roughly 90% — is high-priced shale oil.
Meanwhile, shares of OAS are still cheap at a forward P/E of just 14.
Realizing the error of its ways — i.e. spinning off its oil division as Cenovus (CVE) in 2009 — EnCana (ECA) has been spending much of the past year reinventing itself as a more balanced energy play rather than a strictly natural gas one. That has meant adding more liquids and shale oil back into its production mix.
And those efforts are finally beginning to pay off.
ECA reported a net profit of $188 million — or 25 cents per share — for the third quarter, compared to a $1.24 billion loss for the same period a year ago. The key for that profit has been higher average dry natural gas prices, as well as rising NGL and shale production. According to Reuters, EnCana saw its oil and NGL volumes nearly double during the quarter, averaging about 58,200 barrels per day. That should continue to grow as Canada’s largest natural gas producer is spending about 80% of its capex budget on boosting production of liquids.
For investors, the beaten-down name has real potential to be one of the best turnarounds in the industry as these efforts pay off. Meanwhile, ECA’s 4.5% dividend provides a nice cushion.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.