3 Energy Stocks That Don’t Rely on Cheap Oil

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It stands to reason that if you’re a natural resources firm and the underlying price of the commodity you produce is down, so will be your profits.

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Source: ©iStock.com/StrikingPhotography

Well, for energy stocks, the glut of cheap oil has hurt profits pretty badly across the board. A multitude of factors have caused oil to plunge by about 50% over the last seven months or so.

That plunge has been so severe that many of North America’s various shale formations are not even worth drilling at today’s cheap oil price. Energy stocks simply can’t even turn a profit on them.

But it’s not like that for everybody.

There are several energy stocks that have basically laughed in the face of cheap oil — continuously pumping out growing production and profits. And while those profits aren’t nearly as much as when oil topped $100 per barrel, they still are making hay.

These three are exactly the kind of energy stocks that investors should be owning today:

3 Energy Stocks That Don’t Rely on Cheap Oil: EOG Resources (EOG)

EOG Resources 185In the era of cheap oil, location is key. And for independent energy stock EOG Resources (EOG) that location is the prolific Eagle Ford shale. EOG is the largest operator in the Eagle Ford and that dominant position has allowed it continually raise production while reducing drilling & completion costs.

For all of 2014, EOG managed to increase crude oil and condensate production by 31% and natural gas liquids production by 23%, reaching 217.1 million of barrels worth of oil equivalent (BoE). This was in spite of oil cratering during the last half of the year.

So far this year, EOG has continued to make gains on the production front. On its latest earnings report, EOG said it managed to see production rise 8% while cutting capital expenditure spending by about 40%. That helped EOG report better-than-expected earnings. Full-year earnings are projected to grow by around 26% this year.

All in all, EOG has thrived in the era of lower oil prices. And with cheap oil getting not so cheap, EOG should continue to thrive into the future.

Shares of EOG stock can currently be had for a price-to-earnings ratio of 23. That’s not super cheap, but given the firm’s growth potential it seems fairly conservative. Even more so when you consider that analyst price targets are between 13% and 30% higher for the energy stock.

3 Energy Stocks That Don’t Rely on Cheap Oil: Continental Resources (CLR)

continental resourcesLike the Eagle Ford, the Bakken continues to be big and bad. And that makes leading energy stock in the region — Continental Resources (CLR) — the stock to buy.

Like EOG, CLR could care less about cheap oil prices. It’s almost always had to deal with the issue.

Back in 2003, CLR was one of the first firms to jump into the Bakken. That first-mover status has allowed it build up some of the most impressive acreage and reserve positions out of any other operator in the region. The problem is that because it’s still relatively new, the Bakken continues to remain barren of much-needed energy infrastructure. As such, Bakken-produced crude has traded at discount due to increased shipping costs to the Gulf Coast.

That differential has always forced CLR to run lean and mean — and the firm continues to reduce its CAPEX and drilling expenses in the wake of lower prices. In fact, founder and CEO Harold Hamm said that with recent cuts to spending, CLR can still make money with oil being $45 per barrel.

Cheap oil isn’t a worry for Continental.

And with the firm having several decades’ worth of undrilled locations across its reserves and acreage, the growth at CLR will be there for the long run, no matter what the oil price is.

With price targets for CLR stock still much higher than it currently can be had for, Continental’s P/E of 27 is still reasonable for the energy stock.

3 Energy Stocks That Don’t Rely on Cheap Oil: Valero Energy (VLO)

Valero NYSE:VLOYou know who doesn’t care about cheap oil? Those energy stocks that need oil as a feedstock for their operations, such as Valero Energy (VLO).

VLO has been able to feast on the lower price for crude oil and rising gasoline demand overseas to profit handsomely. The glut of crude oil means that refiners like Valero have an abundant and cheap source of ingredients for their products.

That low price for crude has resulted in improving margins at VLO. And 3-2-1 crack spreads, which represent the cost of turning three barrels of crude into two barrels of gasoline and one barrel of heating oil, continue to be robust.

VLO has one of the largest refining networks in the nation — 15 refineries and a total capacity of 2.9 million barrels of oil per day. That huge network of refining infrastructure across the country has allowed Valero to take advantage of local crude oil pricing and sourcing ensuring even cheaper access to crude oil.

All of that translates into rising earnings, growing dividends and happy shareholders. VLO stock can currently be had for a dirt-cheap P/E of 8 and a 2.7% dividend.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.

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Aaron Levitt is an investment journalist living in Ohio. With nearly two decades of experience, his work appears in several high-profile publications in both print and on the web. Also likes a good Reuben sandwich. Follow his picks and pans on Twitter at @AaronLevitt.


Article printed from InvestorPlace Media, https://investorplace.com/2015/06/energy-stocks-cheap-oil-eog-clr-vlo/.

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