Oil production is slowly but surely ramping up, as signs of an economic reopening mount. OPEC allies will begin to pull back their production cuts in coming months. U.S. oil output will rise as well, albeit at a downward revised rate. U.S. output is anticipated to reach 11.04 million barrels per day after last month’s 11.15 million barrels per day rate was revised downward, following the cold spell that affected Texas and other U.S. production regions. In light of these premises, there exists a strong argument to invest in oil stocks.
Vaccine distribution and economic stimulus programs have caused both the International Energy Agency and OPEC to raise their 2021 daily oil demand forecasts.
This news is certain to reverberate through the markets, and investors are likely to rotate into the oil stocks best poised to capitalize.
- Oasis Petroleum (NASDAQ:OAS)
- HESS Corp. (NYSE:HES)
- Chevron (NYSE:CVX)
- Suncor Energy (NYSE:SU)
- Pioneer Natural Resources (NYSE:PXD)
- EOG Resources (NYSE:EOG)
- ConocoPhillips (NYSE:COP)
Oil stocks: Oasis Petroleum (OAS)
Oasis Petroleum develops, operates, and owns diversified midstream assets as well as exploration and production assets. As a reminder, midstream oil production refers to the storage, processing and transportation of petroleum products.
The company undertook a period of simplifying distribution from its partners. Prior to undertaking its strategy to reduce complexity, OAS received an estimated $429-$452 million from midstream distributions and E&P EBITDA. The company sold roughly $85 million in midstream distributions for $507 million, and now simply receives distributions from a single midstream partner. Oasis Petroleum believes that the strategic realignment will free up capital for reinvestment and improve its financial standing.
This is part of the company’s realignment toward more efficient operations and capital allocation. The company is undertaking many strategic initiatives aimed at making it a leaner operator in a changing oil landscape.
The company operates in the Bakken Permian basin, and across the U.S. Oasis Petroleum will be affected by the cold spells that led to production rates being revised downward. It is, after all, tied to the region. But, as production ramps up, Oasis Petroleum should be in prime position to rise.
HESS Corp. (HES)
Hess is focusing on two primary locations in 2021. The company intends to allocate more than 80% of its capital expenditures toward projects in the Bakken and Guyana.
In the fourth quarter, net production in the Bakken reached 189,000 barrels of oil per day, up from 174,000 in the same period a year prior. Hess drilled 7 wells, completed 8, and brought 12 wells on line in the region during Q4.
The company has identified the Bakken region as a high priority.
Hess has also identified operations in Guyana as having high precedence. Offshore operations in the Caribbean nation began in December of 2019 and resulted in 26,000 barrels of oil per day in Q4 of 2020.
Midstream operations were also a bright spot for the company in a tough year for the entire industry. Q4 revenues rose to $62 million from $33 million in the same period 2019.
The company has managed to do fairly well in the tough operating environment. Although fourth quarter 2020 revenues decreased to $1.32 billion from $1.683 billion in Q4 of 2019, there were positives. The $222 million loss it posted in Q4 of 2019 decreased to a $97 million loss in Q4 of 2020. Overall, the company hopes that it can return to or exceed 2019 revenues of $6.51 billion. 2020 revenues were slashed to $4.804 billion.
Chevron is an oil giant and household name which operates in the upstream and downstream oil segments. Most consumers recognize the company for its downstream gas stations but the company has significant exploration and production operations as well.
Like most, if not all energy companies, Chevron is balancing its legacy business with the emerging energy landscape of the future.
Chevron’s Technology Ventures arm is actively focusing on finding and funding cleaner energy. The company launched its Future Energy Fund II back in February on the heels of the success of the initial Future Energy Fund. The fund will look to leverage $300 million toward identifying and investing in cleaner energy technology companies.
The company will release earnings on April 30. When the company released earnings back in late January, investors saw how severely the pandemic has affected it. Throughout 2019 Chevron recorded net earnings of $2.924 billion. That figure became a net earnings loss of $5.543 billion in 2020. Like many oil stocks, this one should bounce back when production and the economy normalize.
Suncor Energy (SU)
Suncor Energy is a petroleum company from Canada. The company enjoyed a three year period in which operating earnings increased from over $3 billion in 2017 to over $4 billion in both 2018 and 2019. But due to the pandemic, in 2020 the company recorded operating earnings of $2.242 billion.
Wall Street is betting that the company can bounce back from the extremely difficult year and has the company rated overweight.
A big part of the reason that Suncor Energy has fared so poorly during 2020 was not that its productivity declined. Rather, the company faced significant price realizations for its end products.
Total production volume decreased throughout 2020. However, the company faced an even bigger issue. Suncor’s crude sales basket price, which accounts for the prices it receives for all products, declined.
With the increase in oil production, Suncor should see both prices and production rise.
Pioneer Natural Resources (PXD)
One of the reasons Pioneer Natural Resources is among the worthwhile oil stocks to buy is its break even price. The current price of WTI crude is roughly $61. Pioneer Natural Resources has a break even price in the high $20s according to its 2021 earnings outlook. The company claims that the figure is a low break even price. Whether there are other oil companies with lower break even prices is irrelevant. If the company is correct in its assertion, investors have every reason to consider buying PXD stock. Wall Street certainly seems to believe in the shares which carry a ‘buy’ rating.
The company prioritizes free cash flow which it returns to investors. The company carries a base dividend of $2.24. While that is attractive, perhaps the more attractive aspect of the company is its strategy of low leverage.
The company is reducing its debt-to-EBITDAX ratio to below 0.75. EBITDAX is a measure specific to the oil industry which accounts for EBITDA plus ‘X’, which is its exploration expense.
EOG Resources (EOG)
EOG Resources is another of these oil stocks that will likely see better days ahead. Based on current prices and analysts’ target prices, the company certainly looks attractive. EOG stock currently trades at $68.88 per share. The analysts with coverage of EOG Resources have given it an average target price around $83. So there’s clear sentiment that the shares are primed to rise.
The company itself is an exploration company with operations in the U.S. and internationally. Like so many other oil companies, EOG Resources staggered through a tough 2020. Full year revenues slightly surpassed $11 billion, down from $17.38 billion in 2019. The company’s $2.735 billion net income in 2019 became a $605 million net loss in 2020. Certainly not ideal.
However, there is reason for optimism within the company’s financial results even in the difficult pandemic backdrop. That’s because EOG Resources’ $43 million loss in Q3 turned positive in Q4 when net income reached $337 million.
So, as production increases and the economy reopens, EOG Resources looks like a relatively strong bet in the oil sector.
Investors who believe in the Wall Street prognosticators will be glad to know that a preponderance of them like COP stock as a big oil play. Among those analysts who consider it to be buy worthy is Goldman Sachs’ Neil Mehta. He argues that ConocoPhillips, along with several other oil majors, represents a stronger investment than Chevron – a traditional safe default play in oil. Mehta is quick to point out that he still believes in Chevron’s investment thesis, but sees stronger returns in other big oil companies.
For current shareholders there is other good news from ConocoPhillips: The company has resumed a share repurchase program that should repurchase $1.5 billion worth of shares in 2021, leaving more earnings for shareholders who maintain their shares.
The company lost $2.7 billion in 2020, and $0.8 billion alone in Q4. ConocoPhillips’ commitment to its dividend and share repurchases strongly signal that better days are ahead.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.”