With oil prices hovering around $70 and some analysts believing they could go as high as $100. Therefore, it may seem like a waste of time to think about high-risk oil stocks. However, there will come a day – perhaps later than 2050 – when the only place you’ll find an internal combustion engine vehicle is at a classic car show. That could lead to a severe drop in oil demand, and make related stocks look a lot less attractive.
Granted, oil isn’t going away today or tomorrow. In fact, we’ll need oil for decades to come. However, it’s also likely that electric vehicles will capture significantly more than the single-digit market share they currently have, which could have a devastating impact on today’s price of oil.
In a world where more consumers are buying electric vehicles, regular oil changes will be on the decline. Shell (NYSE:SHEL) owns both the Pennzoil and Quaker State brands which are two of the most popular brands on the market. Therefore, it stands to reason that the company would be considered one of the high-risk oil stocks in an electrified future.
And while Shell wouldn’t be alone in suffering from lost demand at the gas pump, it may have an outsized effect on SHEL stock. Investors should look back to the Covid-19 pandemic. This was a Black Swan event that some analysts say provides a blueprint for oil stocks in an EV world. With that said, it must be noted that Shell cut its dividend at the onset of the pandemic. Three years later, the dividend remains about 40% below its pre-pandemic level.
At the same time, it’s only fair to note that Shell is positioning itself for the EV revolution by investing in creating retail charging stations. And the company was a pioneer in researching and developing renewable energy sources.
Halliburton (NYSE:HAL) is next on this list of high-risk oil stocks to sell as EV demand increases. The company is a pick-and-shovel company that supports oil exploration companies. You can almost see Congress firing their legislative arrows at Halliburton in the last two years. The company is pretty much the definition of an oil stock that Congress wishes was no longer an entity.
And they’ve been somewhat successful. HAL stock is down a shade over 30% in the last five years. And despite two rallies in the last two years, the stock price has never reached the all-time highs of over $70 a share set in 2014 nor its high of around $45 in 2018.
This stock price slump is happening even as the company is showing rising revenue and earnings. That makes this a fairly easy calculation for investors. If the company is struggling to impress investors when oil demand remains relatively strong, what will happen when it falls off a cliff?
Camber Energy (CEI)
The problems for Camber Energy (OCTMKTS:CEI) are clear to see in 2023. The company owns oil wells and that puts the company in a precarious position if demand for oil dies down.
You can feel secure in that opinion because of what’s happening to CEI stock in the last 12 months. As permitting remains tight, Camber Energy is dropping over 92%. That makes it a near certainty that the stock would be under increased pressure if demand drops dramatically from current levels.
This is a company that generates very little revenue today and struggles to turn a profit. In January 2023, Camber Energy shareholders voted to allow the board of directors to execute a 1-for-50 reverse stock split. The purpose was to bring CEI into compliance with stock exchange rules. Reverse stock splits are always cause for concern, but Camber may be presenting investors with the worst case scenario as the stock has dropped more than 50% in 2023.
Transocean (NYSE:RIG) is a company that, like Halliburton, provides drilling equipment. Specifically, Transocean supplies offshore drilling equipment that the major oil companies need to conduct their drilling operation.
In early May, I asked generative AI to suggest some stocks that might outperform the market in 2023. RIG stock was one of the stocks the chatbot provided. The case seemed believable. If oil demand increases as it’s likely to do, Transocean should have a nice year. However, since my article came out the company reported its first-quarter earnings and posted a loss that was more than double that of the same quarter in the previous year.
Nevertheless, RIG stock is up 77% in the lasst 12 months, and this may be one case of AI getting it right for 2023. But if AI was gazing into a less oil-reliant future, it would likely agree that Transocean is one of the high-risk oil stocks.
Frontline (NYSE:FRO) stock is up 70% in 2023 and it’s not hard to understand why. The company owns and operates a fleet of 70 tankers that are responsible for transporting crude oil and oil products throughout the world.
In the first quarter, the company’s revenue more than tripled from the previous year. And revenue which was negative in Q1 of 2022 was sharply positive in 2023. That sparked Frontline to raise its dividend to 70 cents a share. This was a level the stock hadn’t seen since 2020.
But this is an article about high-risk oil stocks in an electrified world. And it’s not hard to imagine that as demand wanes so will the need to transport crude oil all over the world. That will put pressure on revenue and earnings and also FRO stock.
Devon Energy (DVN)
A key thesis for investors looking to invest in renewable energy is not to sleep on legacy oil and gas companies. Many of these companies are already making investment in a low-carbon future. And Devon Energy (NYSE:DVN) is one of them.
The company may be able to make that transition. But in the here and now, the company’s revenue and earnings are being fueled by oil demand. Specifically, the company develops oil and natural gas reserves in the United States. And here’s where it gets worse for shareholders of DVN stock. Despite what should be a favorable environment, the stock is underperforming.
The company does offer a decent dividend and it recently announced a share buyback plan. But with DVN stock down over 17% in the last 12 months and over 3% in the last month, investors don’t seem to be as enthusiastic about the company’s prospects. That will only get worse in an electrified future.
APA Corp. (APA)
The last stock on this list of high-risk oil stocks is APA Corp. (NASDAQ:APA). The company is an oil exploration company that has operations on several continents. And like many of the oil stocks on this list, APA stock has had a rough go of it in the last 12 months.
Also, like many oil companies, APA is saying all the right things about sustainability. But this is becoming a little bit like companies that are talking about exposure to artificial intelligence. Many companies will talk about it, but some will be more successful than others. Right now, it doesn’t seem like APA will be a major player in the renewable energy game.
Time will tell on that. But for now, the company needs to be evaluated as an oil stock. And right now, the company’s revenue and earnings are above pre-pandemic levels, but that’s not showing up in the APA stock price. That may be all that investors need to know.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.