So far, the first half of the year has been an absolute roller coaster for energy stocks. The year kicked-off with the glut of crude oil hitting epic portions. Naturally, with these abundant supplies and dwindling demand, crude oil prices plunged hard — hitting lows not seen in decades. That drop sent many energy stocks with it. Bankruptcies at some of the smallest and most debt ridden energy firms surged.
Global production dropped, the glut eased and prices for crude oil once again began to rise — with Brent prices pushing $50 per barrel for the first time since November of last year. Investors cheered for the sector once again.
That was until the so-called Brexit took place.
With the Brexit taking hold of the markets, energy stocks have once again began to falter. Which makes the start of the third quarter so critical for investors. There’s plenty of things going on — both sector-wise and globally — that could affect your energy investments.
Under that framework, here are 10 energy stocks to watch in the second half of the year:
Energy Stocks to Watch in Q3: Chesapeake Energy Corporation (CHK)
When it comes to energy stocks to watch, Chesapeake Energy Corporation (NYSE:CHK) has to be on the top of the list.
CHK spent much of the second quarter fighting back bankruptcy fears and reducing its large debt profile by selling assets, reducing capex and focusing on the most profitable regions it drills in. Those efforts seem to work as the firm reported better earnings last quarter.
And they could keep on working in the second half of the year.
For starters, rising crude oil and natural gas prices benefit production. Obviously, the more Chesapeake can get for its product, the better its bottom line and cash flows are going to be. And it needs those operational cash flows to continue reducing its debt.
Secondly, the firm continues to reduce capex. By using longer laterals and more frack stages, Chesapeake has been able to reduce its cash cost per well by 28%. This fact will only enhance its profit potential even further.
For investors, the second half of the year will be a make or break point for CHK stock. If things keep going their way, Chesapeake could very well be one of the energy stocks kings again.
Energy Stocks to Watch in Q3: BP plc (ADR)
Speaking of the Brexit, the event makes one of Britain’s largest energy firms — BP plc (NYSE:BP) — an energy stock to watch during the second half of the year.
BP finally regained some of its mojo after its legal nightmare stemming from the Deepwater Horizon spill. However, the Brexit throws some cold water on BP’s recovery.
To start with, the aftermath of the Brexit is going to have some serious implications for BP. Being a British-based corporation that sells and refines oil and natural gas all over E.U., BP is faced with a new legal framework in Europe … and it’s probably not going to be too kind to British based firms.
Being headquartered in London aside and the headaches this causes, BP’s troubles come from the strong dollar. A stronger dollar makes oil more expensive for foreign investors as it takes more of a local currency to buy dollars and then oil. The plunge in the pound sterling and the currency effects are going to have some serious complications on BP’s profits throughout the third quarter.
And if BP was hoping to sell more oil at home, it may want to think about plan B. Demand for oil in the U.K. should fall about 1% because of the Brexit. More if the economic impact is greater.
All in all, the second half of the year could be BP’s swan song.
Energy Stocks to Watch in Q3: SolarCity Corp (SCTY)
Not all the energy stocks to watch are beholden to crude oil. For leading residential solar installer SolarCity Corp (NASDAQ:SCTY), next quarter is all about shacking up.
SCTY was recently courted by electric vehicle manufacturer Tesla Motors Inc (NASDAQ:TSLA) in a $2.79 billion deal. Both firms are essentially run by billionaire Elon Musk. Musk postulated that the move would bring the stationary power storage business that Tesla has been developing together with SolarCity’s expertise in rooftop solar panels. Basically, the battery and the way to charge the battery.
Despite Musk’s enthusiasm for the deal, investors at TSLA were not so happy.
And while the deal promises several perceived benefits, it may not go through. The conflicts of interest are high — and not just with Musk. Five of SCTY’s eight board members recused themselves from ruling on the deal because of their ties to the electric vehicle producer or to Musk. Meanwhile, shareholder opposition has beginning to mount.
For SCTY, the deal could be seen as necessary as the firm has continued to struggle to find financing for its continued growth.
Deal or no deal, SCTY is one of major energy stocks to watch this second half.
Energy Stocks to Watch in Q3: Transocean LTD (RIG)
Are oil prices high enough to support rising capex spending in offshore drilling? That’s the question facing Transocean LTD (NYSE:RIG) this second half of 2016.
RIG and its deepwater drilling rivals have been basically destroyed over the last 60 days. With oil prices below $40 for much for much of the first half of the year, it doesn’t make much sense to drill in the deepest parts of the ocean. The breakeven cost is just too high.
But with oil breaking $50, the cost start to work in RIG’s favor.
Larger energy companies and state-owned energy stocks may start to consider taking on deepwater drilling with a longer-term outlook at these prices. That’s certainly been true for RIG. At the beginning of the month, Transocean scored a 730-day drilling contract with India’s largest energy producer Oil & Natural Gas Corporation Limited. That’s huge news for the suffering stock.
It’ll be interesting and important to see, whether or not, that was just a one-time thing or the start of a real trend. For investors, that could just what long-suffering RIG needs during the second half of the year.
Energy Stocks to Watch in Q3: Freeport-McMoRan Inc (FCX)
Buying a pair of struggling oil companies at the exact peak of prices wasn’t exactly a great idea for Freeport-McMoRan Inc (NYSE:FCX). And it’s dealing with the high debts and problems resulting from that decision for nearly four years.
But the second half of the year could be an interesting one for FCX.
That’s because, Freeport is finally taking the painful steps to minimize the oil and gas division’s damage. The firm canceled a pending spinoff of the energy assets as investor interest in the IPO was tepid. With that in mind, FCX has started laying off staff and moving the subsidiary in “house.” That’ll help reduce costs and help it wind down the business/make it smaller.
But it may not really have to.
As we’ve seen, oil prices have begun to rise. That should help the smaller division begin to realize some sort of cash flows from its operations. At the same time, Freeport’s main bailiwick in copper production has also seen rising prices and demand. The combo of the two having higher prices would go a long way in righting FCX’s ship.
With that in mind, FCX is certainly one energy stock that has a lot riding on the second half.
Energy Stocks to Watch in Q3: EOG Resources Inc (EOG)
For EOG Resources Inc (NYSE:EOG), the second half of the year is where we get to see if its strategy will finally pay off.
Unlike most energy stocks, EOG has been smartly drilling — but not completing wells. Basically it has tapped, but not opened, the spigot to let the oil flow yet. That’s allowed it to take advantage of lower capex costs and the ability to squeeze suppliers. It also allows it to keep the oil underground until prices rise.
Just like today.
The combination of higher prices and lower costs means that EOG has some serious profit potential on its production during the second half of the year. In fact, EOG estimates that it can make a 30% return on each well with oil at $40 per barrel. That number rises into the triple digits at $60 per barrel.
EOG has just over 200 wells that it tapped, but did not complete. That means if oil continues to stabilize and rise a bit, EOG has over 200 chances to profit.
That could make the second half very rich indeed for the fracking kingpin. Already one of the best energy stocks, EOG could get that much better in the third quarter.
Energy Stocks to Watch in Q3: Energy Transfer Equity LP (ETE)
One of the more interesting energy stocks to watch during the second half of the year could be the midstream drama of Energy Transfer Equity LP (NYSE:ETE).
As one of the largest pipeline and midstream firms in North America, it takes some pretty big additions to move the needle and boost cash flows at the firm. Adding a small 100-mile gathering line isn’t going to cut it.
That’s why it decided to buy rival monster-sized Williams Companies Inc (NYSE:WMB).
However, the deal has turned into a nightmare for both parties. Falling oil prices has made many of the synergies of the buyout less than ideal. ETE wants out. WMB wants it keep going.
At first, it seemed like ETE was stuck with buying WMB. But a recent court case ruled that ETE could get out of it. That decision came the same day as a shareholder vote from WMB saying they want the deal to go through.
This is turning into one great legal drama to watch and could shape of deals are done in the MLP and midstream industry going forward.
Energy Stocks to Watch in Q3: Exxon Mobil Corporation (XOM)
As one of the biggest energy stocks on the planet, it’s always worth watching Exxon Mobil Corporation (NYSE:XOM). After all, as goes XOM, so goes the rest of the industry. And things for Exxon may be looking up.
XOM may finally be putting a tiger in the tank after having a mixed first half of the year. Several big name projects have finally begun producing oil, and the average price for gas in the second/third quarter of the year has been much higher than Q1. All of this should help XOM on the earnings front.
But there a few negatives for XOM that bear watching.
One of the biggest is climate change. Exxon is facing several lawsuits and investigations into its funding of an anti-climate change think-tank Competitive Enterprise Institute. Those lawsuits claim that Exxon purposely and knowingly funded anti-climate research to strengthen its case in fossil fuels.
Those cases are finally starting to go to court and could be some ill-fated effects on Exxon, if the AG’s are successful. Ultimately, they could possibly derail any sort of recovery in XOM’s bottom line.
XOM stock certainly is worth watching.
Energy Stocks to Watch in Q3: Devon Energy Corp (DVN)
For Devon Energy Corp (NYSE:DVN), the second half of the year could be quite rosy. The former dry-gas producer has transformed itself well over the last couple of years and could be one of the best energy stocks to watch/own in Q3.
The reason is that DVN continues to achieve on its plans to drill in the most profitable places and make that production a lot more liquids-based.
DVN recently announced that it will be selling assets in East Texas, the Granite Wash and royalty interests in the Midland Basin. Those deals will bring in roughly $1 billion in proceeds and are part of a $1.3 billion plan to sell natural gas-focused assets in the third quarter. The sale will continue to provide Devon with extra cash to keep its investment grade debt rating — which will make it easier to raise money in the current environment — as well as make the firm more of an “oiler” in its production profile.
With oil prices rising, that could help DVN swing from operating losses to profits soon enough.
All in all, DVN continues to execute on its transition and the energy stocks bears watching this second half.
Energy Stocks to Watch in Q3: Halliburton Company (HAL)
With its proposed marriage to Baker Hughes Incorporated (NYSE:BHI) officially over, it will be interesting to see what oil services kingpin Halliburton Company (NYSE:HAL) does in the second half of the year.
The merger was seen as the panacea to HAL’s problems of lower margins and falling capex spending. Essentially giving it major pricing power when it came to fracking and well completion.
Without it, HAL will have to back to the drawing board. That could making smaller, more calculated buyouts of rivals.
However, HAL may not have to worry too much. With oil prices rising, so has capex — albeit slightly. Formerly, drilled wells are now being completed and that will have they calling up Halliburton.
Additionally, the company has seen plenty of interest from E&P firms with regards to its drilling and efficiency products. Sales here come with higher margins and designed to help drillers reduce cost and pull-out more oil over the long haul.
All of this could help HAL’s bottom line in the second of the year.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.