What a difference a couple of quarters makes. For many energy stocks, the last year has been a lifeline.
After crashing hard in 2016, oil prices spent much of 2017 rising as supply and demand finally moved in sync. And with demand surging on the back of rising global growth, oil prices have started off the new year on a hot streak.
All in all, crude has surged 133% since hitting its multi-year low of $27.30 per barrel back in February 2016. Today, prices are over the $61 per barrel mark.
That’s a huge relief for many smaller and mid-sized energy stocks. At that point, we’re looking at increased cash flows, balance sheet stabilization and dare I say it?
Profits. With a capital “P.”
For investors, the higher oil price environment means that energy stocks are once again on the menu.
And with that, here are five energy stocks have come back from the dead that belong in your portfolio.
Energy Stocks Coming Back From the Dead #1: Marathon Oil (MRO)
A perfect example energy stocks roaring back from the dead could be independent Exploration & Production (E&P) firm Marathon Oil Corporation (NYSE:MRO). Since it’s spin-off from down and mid-stream giant Marathon Petroleum (NYSE:MPC), Marathon Oil has struggled. This continued up through 2017 as the “lower for longer” oil price environment persisted.
However, with oil finally rising, Marathon has started to show its true potential.
As prices have begun to rise, Marathon Oil has reduced its debt in a big way and started to generate some real cash flows from its operations. About 57% of the company’s production is tied to crude oil prices. And with its operations located in some of the lowest-cost fields such as the Bakken, Permian Basin, and Eagle Ford, MRO stands to benefit greatly from higher crude oil prices.
With oil now at $61, MRO should have no problem profits as well as finally achieving free cash flow generation.
For long-suffering investors, that’s certainly welcome news. For investors, now could be a great time to buy MRO for the next leg upwards.
Energy Stocks Coming Back From the Dead #2: Continental Resources, Inc (CLR)
The Bakken Shale Formation has long been touted as one of America’s premier shale basins. High concentrations of oil, coupled with low drilling costs have made it a top spot for energy production. And the kingpin in the Bakken could be Continental Resources, Inc. (NYSE:CLR).
For Continental, higher oil prices could be a major win.
The firm is expected to raise production by 10 to 12% this year. That’s great when prices are rising. After all, you’ll get more dollars per barrel you pump.
But what really is exciting is that Continental doesn’t use hedges. While that can hurt on the downside, it leaves CLR uncapped on the upside. According to analysts at Cowen, “E&Ps lag as collar ceilings are reached.”
With no such limits, Continental is a magnified bet on rising oil prices.
As prices and production continue to rise, profits at Continental should soar. That fact is exacerbated by the fact it operates in the low-cost Bakken. Already, its cost per barrel is one of the lowest in the industry.
In the end, CLR is coming back in a big way and will only get better as oil prices keep rising.
Energy Stocks Coming Back From the Dead #3: EOG Resources (EOG)
Truth be told, EOG Resources Inc (NYSE:EOG) was never dead or dying. As one of the country’s best independent E&P firms, EOG still was a top dog during the energy crash.
The shale superstar was one of the first movers into some of the nation’s biggest shale regions. EOG was able to load up on mega-sized acreage in the Bakken, Permian and prolific Eagle Ford shales long before anyone else.
And during the bust, EOG played smart with those resources. To take advantage of low drilling costs, they drilled, but did not complete wells. This strategy helped reduced its overall all-in production costs.
With energy prices rising, EOG has been turning on the spigot on these wells. Right now, EOG is boosting production without actually doing much new drilling. As a result, cash flows at the E&P firm have started to significantly rise. In fact, EOG is one of the few E&P firms that can live within its cash flows — even after capex and dividends are included.
All the higher energy prices are doing is boosting EOG’s fortunes further.
Energy Stocks Coming Back From the Dead #4: Chesapeake Energy (CHK)
As we’ve said time and time again — for Chesapeake Energy Corporation (NYSE:CHK) it’s all about cash flows. Becoming one of the largest natural gas firms took a lot of debt, and Chesapeake has spent much of the last few years paying back that debt.
That debt repayment hit a big speed bump as oil prices crashed and bounced around at the end of 2016/beginning of 2017.But with prices finally rising higher, Chesapeake is once again starting to see some decent cash flows from its operations.
Thanks to a focus on drilling technology and picking the right high-volume shales to frack, Chesapeake has continued to lower its costs. As a result, the boost in prices should help the company achieve its goal of cash flow neutrality this year.
And with its debt maturity profile playing along — only $53 million in debt is due this year — bankruptcy risk is off the table for the firm. Chesapeake just needs some time and higher oil prices to work its magic.
At about $4 per share, Chesapeake could be a huge value for investors and is just starting to grind forward. All in all, this one energy stock that is just starting to rise from the dead.
Energy Stocks Coming Back From the Dead #5: Comstock Resources (CRK)
When it comes to energy stocks, Comstock Resources (NYSE:CRK) isn’t very well known. The firm really focuses on just one region of the U.S. — the Haynesville Shale. And it’s not a super huge player in the region at that.
However, CRK is quickly becoming no slouch thanks to rising energy prices.
The last few quarters have been great for the firm. The combination of higher prices and lower drilling costs have boosted its fortunes. In fact, the last three reported quarters for Comstock have shown increased revenues and most importantly, positive operating income.
This all due to rising energy prices. That great operational performance has managed to nearly double the share price of CRK stock since October when the stock bottomed.
With higher oil and natural gas prices ahead, small-cap Comstock has the potential to keep going higher.
It’s the riskiest play on this list, but it does have the most reward. And that reward is great as long as energy continues its trajectory higher.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.