Elevating geopolitical tensions, primarily the Israel-Hamas conflict, is propelling the rise in oil prices. Concerns about potential Middle East supply disruptions are being exacerbated by the prospect of Hezbollah's involvement, contributing to the ongoing price surge in the oil market.
To capitalize on this situation, it seems wise to invest in fundamentally strong energy stocks Santos Limited (SSLZY), Koninklijke Vopak N.V. (VOPKY), and CrossAmerica Partners LP (CAPL), given their current potential for significant returns. Let’s understand this in detail.
Global oil prices had been on the rise for several months due to production cuts in Saudi Arabia and Russia, causing concerns about diminished global supply. Recently unveiled U.S. measures, designed to elevate the cost of Russia's efforts to circumvent an oil price cap, have further boosted oil prices.
In addition, the Israel conflict, with its potential spillover into the oil-rich Middle East, could elevate prices even further. The United States has warned that Hamas, the Palestinian militant group, could provoke an escalation, drawing the broader Middle East into a state of conflict and exacerbating the situation.
Compounding these concerns is the potential involvement of militant groups in the Israel-Hamas conflict. U.S. National Security Advisor Jake Sullivan's primary concern centers on Hezbollah, headquartered in Lebanon, possibly initiating attacks on Israel from the northern front.
If the conflict escalates, with the Middle East responsible for about 30% of global oil production, there's a potential for oil prices to surge beyond $100 per barrel. Meanwhile, Amrita Sen, co-founder and research director at Energy Aspects, warns that in the event of an escalation in the Israel-Hamas conflict, oil prices could potentially soar to $150 per barrel.
In light of these trends, let’s look at the fundamentals of the three featured energy stocks.
Santos Limited (SSLZY)
Based in Adelaide, Australia, SSLZY explores, produces, transports, and markets hydrocarbons. It also produces natural gas, liquefied petroleum gas, ethane, methane, coal seam gas, liquefied natural gas, shale gas, condensate, and oil. Additionally, the company is involved in advancing carbon capture and storage technologies.
On September 19, SSLZY reaffirmed its strategic commitment to the Pikka development in Alaska. The company revealed plans to farm down 50% of its working interest in 148 exploration leases, covering over 270,000 acres of Alaska North Slope lands. This decision arises from a partnership with APA Alaska LLC and Lagniappe Alaska LLC.
This strategic transaction highlights the sustained enthusiasm for exploration and development endeavors in the region. Alaska's North Slope is regarded as a tier-one jurisdiction, boasting supportive stakeholders and promising undeveloped acreage, making it an attractive prospect for SSLZY's future endeavors.
On August 7, SSLZY, alongside its Bayu-Undan joint venture partners, entered into a Memorandum of Understanding (MoU) with Timor-Leste's national oil company, TIMOR GAP, with the aim of exploring partnership opportunities for the prospective Bayu-Undan Carbon Capture and Storage (CCS) project in Timor-Leste's offshore region.
By actively participating in CCS, SSLZY not only demonstrates its alignment with global climate goals but also opens avenues for future growth. SSLZY can potentially diversify its portfolio, tapping into the increasing demand for sustainable energy solutions while establishing a prominent presence in the CCS sector.
For the half year that ended June 30, 2023, SSLZY’s revenues from contracts with customers increased 16.9% year-over-year to $90 million. Also, net profit attributable to owners of SSLZY came in at $790 million for the period. Moreover, as of June 30, 2023, the company’s cash and cash equivalents amounted to $1.84 billion, while total current assets stood at $4.53 billion.
SSLZY’s shares have gained 2.4% year-to-date to close the last trading session at $4.79.
SSLZY’s strong fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
SSLZY has an A grade for Quality and a B for Momentum and Stability. It has topped the 44-stock B-rated Foreign Oil & Gas industry.
In addition to the POWR Ratings I’ve just highlighted, you can see SSLZY’s ratings for Growth, Value, and Sentiment here.
Koninklijke Vopak N.V. (VOPKY)
Headquartered in Rotterdam, the Netherlands, VOPKY is an independent tank storage company. It stores and manages liquid chemicals, gases, and oil products. The company operates 78 terminals across 23 countries, boasting a substantial storage capacity of 36.6 million cubic meters.
On August 23, Gate Terminal, co-owned by Gasunie and VOPKY, announced an investment decision to expand storage and regasification capacity. This includes a new 180,000 cubic meter LNG storage tank and 4 BCM per year regasification capacity. Gate terminal, founded by Vopak and Gasunie in 2011, is crucial for gas supply in the Netherlands and neighboring regions.
Upon project completion, it will offer 20 billion cubic meters/year regasification capacity. This investment aligns with VOPKY's LNG infrastructure growth strategy, ensuring a reliable and accessible energy supply.
On July 27, VOPKY celebrated a significant achievement as it joined forces to successfully execute Singapore's inaugural ship-to-ship bio-methanol bunkering operation. Participation in bio-methanol bunkering operations ensures revenue streams through fuel supply and logistics services while bolstering VOPKY's reputation as an eco-conscious industry leader.
For the half year that ended June 30, 2023, VOPKY’s revenues increased 8.9% year-over-year to €720.80 million ($757.46 million). Its operating profit came in at €275.50 million ($289.52 million), compared to an operating loss of €265.80 million ($279.32 million) in the prior year’s period.
In addition, the company’s net profit and earnings per ordinary share stood at €243.40 million ($255.78 million) and €1.79, compared to a net loss and loss per share of €321.20 million ($337.54 million) and €2.67 in the prior year’s period respectively.
The consensus revenue estimate of $1.51 billion for the fiscal year ending December 2023 reflects a 3.1% year-over-year improvement. Likewise, the consensus revenue estimate of $1.51 billion for the next fiscal year (ending December 2024) reflects a marginal rise from the prior year.
Over the past year, VOPKY has gained 70.4%, closing the last trading session at $32.61.
VOPKY’s solid outlook is apparent in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
VOPKY has an A grade for Stability and a B for Growth, Momentum, and Quality. It is ranked #2 out of 44 stocks within the Foreign Oil & Gas industry.
Click here to access additional VOPKY ratings for Value and Sentiment.
CrossAmerica Partners LP (CAPL)
CAPL engages in wholesale motor fuel distribution, convenience store operations, and retail real estate ownership/leasing. Its Wholesale segment distributes fuels to various entities; and the Retail segment sells convenience items and motor fuels at both company-operated and commission agent-operated sites.
On April 3, CAPL unveiled its enhanced financial strength through an amended five-year Revolving Credit Facility, led by Citizens Bank, N.A., and a consortium of lenders. The facility now affords CAPL borrowing potential of up to $925 million, a significant uptick from the prior $750 million.
This extension bolsters CAPL's maturity timeline, enabling the consolidation of debts under a singular credit facility, and empowering the company with the financial versatility essential for the seamless pursuit of its strategic endeavors in the foreseeable future.
During the second quarter that ended June 30, 2023, CAPL’s gross profit grew 9.9% year-over-year to $97.72 million. Its adjusted EBITDA grew 2% from the year-ago value to $42.20 million. Also, net income and earnings per common unit increased 4.1% and 2.9% from the prior year’s quarter to $14.54 million and $0.36, respectively.
Analysts expect CAPL’s revenue to grow 8.8% year-over-year to $5.09 billion for the fiscal year ending December 2024. Similarly, the company’s EPS for the same period is expected to rise 17.8% from the previous year to $0.80. Also, the company surpassed the consensus EPS estimates in three of four trailing quarters.
The stock has gained 13.1% over the past year, closing the last trading session at $21.49.
CAPL’s robust prospects are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
CAPL has an A grade for Sentiment and a B for Momentum and Stability. It has topped the A-rated 26-stock MLPs - Oil & Gas industry.
Click here to access the additional CAPL ratings (Growth, Value, and Quality).
What To Do Next?
Get your hands on this special report with 3 low priced companies with tremendous upside potential even in today’s volatile markets:
3 Stocks to DOUBLE This Year >
SSLZY shares were trading at $4.84 per share on Monday afternoon, up $0.05 (+0.94%). Year-to-date, SSLZY has declined -0.82%, versus a 15.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
3 A-Rated Energy Stocks to Keep an Eye On StockNews.com
