Russian President Vladimir Putin recently threatened to completely stop all energy supplies to Europe, citing technical issues on the Nord Stream 1 pipeline. This could lead to a supply deficit this winter.
Goldman Sachs (GS) expects crude oil to rise to $125 a barrel in 2023 despite the G7 countries’ agreement to put a price cap on Russian crude, as Russia could retaliate by shutting production and elevating global prices even further.
Shares of well-known oil and gas company Occidental Petroleum Corporation (OXY) have been down recently. The stock has slumped 6.4% over the past three months and 6% over the past five days to close its last trading session at $64.61. The company’s worldwide daily production volumes in the second quarter of the year decreased 6.4% year-over-year to 1,147 MBoe/d.
Moreover, the stock is trading at a premium to its peers. OXY’s forward EV/Sales of 2.51x is 37.4% higher than the industry average of 1.83x. Its forward Price/Book multiple of 2.62 is 47.5% higher than the industry average of 1.77. So, OXY may not be a wise investment right now.
However, for investors looking to capitalize on the oil and gas industry’s solid growth prospects, fundamentally sound stocks APA Corporation (APA), PBF Energy Inc. (PBF), and Adams Resources & Energy, Inc. (AE) could be better investment options.
APA Corporation (APA)
APA explores, develops, and produces oil and gas properties. It has operations in the United States, Egypt, and the United Kingdom, as well as exploration activities in offshore Suriname.
On August 23, APA announced an oil discovery offshore Suriname at Baja-1 in Block 53 and provided an update on recent drilling operations at Dikkop-1 in Block 58. APA recently received regulatory approval regarding an amendment to the Block 53 Production Sharing Contract that provides options to extend the exploration period of the PSC by up to four years. The new discovery is expected to ramp up the production of the company.
In June, APA announced flow test results from the Krabdagu exploration well (KBD-1) on Block 58 offshore Suriname. John J. Christmann IV, APA’s CEO, and president, said, “The connected resource demonstrated from the flow tests at Krabdagu, combined with the results from Sapakara South, are a significant step forward in advancing a project in this area of Block 58.”
APA’s total revenue and other came in at $3.05 billion for the second quarter of 2022 ending June 30, representing a 71.3% year-over-year growth. Its adjusted EBITDAX rose 93.6% year-over-year to $1.96 billion, while adjusted earnings grew 204.9% from the prior-year quarter to $811 million. The company’s adjusted EPS increased 238.6% from the prior-year period to $2.37.
Analysts expect APA’s revenue for the quarter ended September 2022 to be $2.59 billion, indicating a 56.8% year-over-year growth. The company’s EPS for the same quarter is expected to increase 146.8% from the prior-year quarter to $2.42.
APA has gained 94% over the past year and 37.3% year-to-date to close its last trading session at $36.93.
APA’s POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
APA is rated an A in Momentum and Quality and a B in Growth and Value. Within the B-rated Energy - Oil & Gas industry, it is ranked #9 out of 96 stocks.
Beyond what we’ve stated above, we have also given APA grade for Stability and Sentiment. Get all the APA ratings here.
PBF Energy Inc. (PBF)
PBF refines and supplies petroleum products. The company operates in two segments, Refining and Logistics, producing gasoline, ultra-low-sulfur diesel, heating oil, diesel fuel, jet fuel, lubricants, petrochemicals, and asphalt, as well as unbranded transportation fuels, and other petroleum products.
On July 28, PBF and PBF Logistics LP (PBFX) announced a definitive agreement and plan of merger to acquire all the outstanding common units representing limited partner interests of PBFX. This transaction is expected to simplify the company’s corporate structure and eliminate costs of running a separate public company.
Earlier in July, PBF announced that its indirect subsidiary PBF Holding Company LLC, had fully redeemed all of the $1.25 billion in aggregate principal amount outstanding of its 9.25% Senior Secured Notes due 2025 issued by PBF Holding and PBF Finance Corporation at a redemption price of 104.625%.
PBF’s revenues came in at $14.08 billion for the second quarter of 2022 ended June 30, representing a 104.1% year-over-year growth. Its adjusted EBITDA grew 28,537.3% from the prior-year quarter to $1.92 billion, while its net income rose 1,668% from the same period last year to $1.24 billion. EPS increased by 2,374.4% from the prior-year period to $9.65.
Analysts expect PBF’s revenue for the third quarter ending September 2022 to be $10.18 billion, indicating a 41.7% year-over-year growth. The company’s EPS for the same quarter is expected to increase 4,704.4% from the prior-year quarter to $5.77.
PBF has gained 249% over the past year and 10.3% over the past month to close its last trading session at $30.06. The stock has gained 155.9% year-to-date.
It is no surprise that PBF has an overall B rating, which translates to Buy in our POWR Rating system.
PBF has an A grade for Growth, Value, and Momentum and a B for Quality. It is ranked #5 in the same industry.
In addition to the POWR Rating grades we’ve stated above, we have also given PBF grade for Stability and Sentiment. Get all the PBF ratings here.
Adams Resources & Energy, Inc. (AE)
AE markets, transports, and engages in the terminaling and storage in various crude oil and natural gas basins. The company operates through its three broad segments of Crude Oil Marketing, Transportation, and Storage; Tank truck Transportation of Liquid Chemicals, Pressurized Gases, Asphalt, and Dry Bulk; and Pipeline Transportation, Terminaling, and Storage of Crude Oil.
On September 1, AE announced that its subsidiary, Service Transport Company, had opened a new terminal in Pittsburgh area. This new facility is expected to provide additional opportunities for revenue and profitability growth.
In August, AE announced that its subsidiary Victoria Express Pipeline, L.L.C. would construct a new pipeline connection to Max Midstream Texas, LLC’s Upper Gulf Coast Pipeline System. “This connection with Max Midstream is the next step toward maximizing this asset’s potential,” said Kevin Roycraft, AE’s Chief Executive Officer and President.
AE’s revenue increased 103.8% year-over-year to $992.05 million in the second quarter ended June 30. Its adjusted cash flow grew 21.2% from the year-ago value to $8.95 million, while its adjusted earnings improved 64.3% year-over-year to $3.06 million. The company’s adjusted earnings per common share increased 56.8% from its year-ago value to $0.69.
The consensus EPS estimate of $3.43 for the fiscal year ending December 2022 indicates a 24.7% improvement year-over-year. The consensus revenue is expected to be $3.79 billion for the same period.
The stock has declined marginally within the past five days to close its last trading session at $28.25.
The stock has an overall rating of B, which translates to Buy in our proprietary rating system. AE is rated an A in Momentum and a B in Value and Sentiment. Within the same industry, it is ranked #22.
To see the additional POWR Ratings for Growth, Momentum, and Stability for AE, click here.
APA shares were trading at $37.88 per share on Friday afternoon, up $0.95 (+2.57%). Year-to-date, APA has gained 42.32%, versus a -13.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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