The wide application of crude oil and gas in diverse sectors worldwide, expansion of the petrochemical industry, and a surge in investments for oil and gas exploration would create numerous growth opportunities for oil and gas companies. Also, the possibility of higher oil prices due to robust demand and tight supplies could impact the industry positively.
Given the industry’s bright prospects, it could be wise to consider investing in fundamentally solid oil and gas stocks MPLX LP (MPLX), Repsol S.A. (REPYY), and Hess Midstream Partners LP (HESM) for potential gains.
The global oil and gas segment plays and holds a vital role in the world economy as it supplies essentials like energy resources to various industries and households. The market encompasses vast operations like exploration, production, refining, and distribution of crude oil and natural gas. The sector has bloomed and transformed drastically in recent years.
The oil and gas market size is expected to grow from $71.19 trillion in 2023 to $7.63 trillion in 2024 at a CAGR of 6.1%. Furthermore, the market is estimated to reach $9.35 trillion by 2028, growing at a CAGR of 5.2%.
Key trends such as industry players focusing on emission reduction solutions, a shift toward digital technologies, the rising popularity of reservoir modeling, and the adoption of advanced drilling solutions would boost the oil and gas industry’s growth and profitability.
According to the U.S. Energy Information Administration (EIA), U.S. crude oil production is forecasted to reach 13.2 million barrels per day (b/d) in 2024 and 13.4 million b/d in 2025. Both these estimates mark new records. Also, increases in well efficiency will positively accelerate production growth over the next two years.
In addition, EIA projects that Brent crude oil prices will average $82 per barrel (b) this year and $79/b in 2025, nearing the 2023 average of $82/b. OPEC+ production restraint is expected to keep prices near current levels. EIA forecasted that OPEC+ crude oil production will average 36.4 million (b/d) in the current year and 37.2 million b/d in 2025.
The supply disruptions due to escalating tensions in the Middle East and attacks on ships in the Red Sea further increase the possibility of higher crude oil prices.
Given the backdrop, investing in quality oil and gas stocks MPLX, REPYY, and HESM could be wise for solid gains.
Let’s discuss the fundamentals of these stocks in detail:
MPLX LP (MPLX)
MPLX owns and operates midstream energy infrastructure and logistics assets. The company functions in two segments: Logistics and Storage; and Gathering and Processing. It is involved in the gathering, processing, and transportation of natural gas; gathering, transportation, fractionation, exchange, storage, and marketing of natural gas liquids.
On January 24, 2024, MPLX’s Board of Directors declared a quarterly cash distribution of $0.85 per common unit for the fourth quarter of 2023. The distribution will be paid on February 14, 2024, to common unitholders of record as of February 5, 2024.
MPLX pays an annual distribution of $3.40 per unit, which translates to a yield of 9.08% on the current share price. Its four-year average yield is 11.19%. The company’s dividend payouts have grown at a CAGR of 5.7% over the past three years. MPLX has raised its dividends for ten consecutive years.
The company continues to advance its Permian growth strategy through the acquisition of the remaining 40% interest in a gathering and processing joint venture for nearly $270 million. This transaction closed in December 2023.
MPLX’s trailing-12-month gross profit margin and EBIT margin of 56.01% and 39.74% are higher than the respective industry averages of 46.47% and 21.44%. Likewise, the stock’s trailing-12-month EBITDA margin of 51.16% is 44.8% higher than the industry average of 35.32%.
During the fourth quarter that ended December 31, 2023, MPLX’s total revenue and other income increased 11.4% year-over-year to $2.97 billion. Its income from operations was $1.37 billion, up 29.7% from the prior year’s quarter. Also, net income attributable to MPLX grew 39% and 41% year-over-year to $1.13 billion and 1.10 per limited partner unit, respectively.
In addition, the company’s adjusted EBITDA rose 11.6% from the year-ago value to $1.62 billion. As of December 31, 2023, its cash and cash equivalents stood at $1.05 billion, compared to $238 million as of December 31, 2022.
Analysts expect MPLX’s revenue and EPS for the first quarter (ending March 2024) to increase 6.9% and 8.1% year-over-year to $2.90 billion and $0.98, respectively. Moreover, the company surpassed the consensus EPS estimates in each of the trailing four quarters.
MPLX’s stock has surged 6.4% over the past six months and 7.7% over the past year to close the last trading session at $37.43.
MPLX’s robust outlook is reflected in its POWR Ratings. The stock has an overall rating of A, which translates 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.
The stock has a B grade for Quality, Stability, Sentiment, Growth, and Momentum. It has topped among the 25 stocks in the A-rated MLPs – Oil & Gas industry.
Click here to access all MPLX ratings.
Repsol, S.A. (REPYY)
Headquartered in Madrid, Spain, REPYY is a global integrated energy company. It operates through three segments – Upstream; Industrial; and Commercial and Renewables. The company engages in the exploration, development, and production of crude oil and natural gas reserves; and refining activities and petrochemicals business.
On January 3, 2024, REPYY began producing electricity at Sigma, its first renewable project in Andalusia and the third project that the company brought into operation in Spain. Located in Jerez de la Frontera (Cádiz), it is made up of five solar plants with a total installed capacity of 204 MW.
With an investment of nearly €150 million ($161.75 million), the Arco 1, 2, 3, 4, and 5 make up the Sigma project. Also, its construction has led to the creation of more than 500 jobs and will generate enough electricity for 43,000 homes. Such facilities position Repsol closer to its strategic goal of having 6 GW of installed capacity by 2025.
On December 13, 2023, REPYY received the first shipment of used cooking oil to be used as a raw material in Spain's first renewable fuels plant. The ship unloaded the first 7,500 tons of used cooking oil at the Port of Cartagena. From here, the used cooking oil will be transformed into renewable fuels at REPYY’s industrial complex.
REPYY is transforming its industrial complexes into multi-energy centers with extensive capacity to produce fuels with a low or zero carbon footprint.
For the third quarter that ended September 30, 2023, REPYY’s revenue from operating activities increased 18.9% from the prior quarter to €16.26 billion ($17.54 billion). Its operating income grew 48% quarter-over-quarter to €1.68 billion ($1.81 billion). The company’s adjusted income came in at €1.10 billion ($1.18 billion), up 32.8% from the prior quarter.
Furthermore, the company’s earnings per share grew 365.2% quarter-on-quarter to €1.07. Its EBITDA came in at €2.89 billion ($3.12 billion), an increase of 79.9% from the previous quarter.
Shares of REPYY have gained 2.9% over the past nine months to close the last trading session at $14.50.
REPYY’s POWR Ratings reflect its promising prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has a B grade for Growth, Value, Stability, and Momentum. REPYY is ranked #3 of 43 stocks within the B-rated Foreign Oil & Gas industry.
To see additional POWR Ratings of REPYY for Quality and Sentiment, click here.
Hess Midstream Partners LP (HESM)
HESM owns, develops, operates, and acquires midstream assets. It operates through three segments: Gathering; Processing and Storage; and Terminaling and Export. The company owns natural gas gathering and compression systems, crude oil gathering systems, and produced water gathering and disposal facilities.
On January 29, HESM announced that the Board of Directors of its general partner declared a quarterly cash distribution of $0.6343 per Class A share for the fourth quarter that ended December 31, 2023. The distribution represents an increase of about 2.7% in the quarterly distribution per Class A share for the fourth quarter of 2023 compared to the third quarter of 2023.
HESM pays an annual distribution of $2.54 per share, which translates to a yield of 7.41% on the current share price. Its four-year average yield is 8.09%. The company’s dividend payouts have grown at a CAGR of 11.8% over the past five years. HESM has raised its dividends for six consecutive years.
“We continue to execute on our differentiated financial strategy, prioritizing consistent and ongoing return of capital to our shareholders,” said Jonathan Stein, Chief Financial Officer of Hess Midstream. The company targets at least 5% growth in annual distributions per Class A share through 2025.
HESM’s trailing-12-month EBITDA margin and gross profit margin of 74.62% and 76.79% are 109.7% and 65.9% higher than the industry averages of 35.59% and 46.28%, respectively. Further, the stock’s trailing-12-month ROTC of 14.57% is 60.8% higher than the industry average of 9.06%.
For the fourth quarter of fiscal 2023, HESM’s net revenue increased 13.3% year-over-year to $356.50 million. Its income from operations grew 7.0% from the year-ago value to $210.10 million. The company’s net income came in at $152.80 million, or $0.55 per Class A share, up 2% and 12.2% from the prior year’s quarter, respectively.
In addition, HESM’s adjusted EBITDA increased 7.7% year-over-year to $264.10 million. The company’s adjusted free cash flow came in at $146.60 million, an increase of 1.7% from the prior year’s quarter.
As per fiscal 2024 guidance, the company expects full-year net income to be between $670 million and $720 million, and its adjusted EBITDA is expected to be between $1.125 billion and $1.17 billion.
Further, in 2024, HESM anticipates generating adjusted free cash flow of between $685 million and $735 million and nearly $115 million at the midpoint of guidance after funding distributions that are targeted to grow at least 5% per annum on a distribution per Class A share basis.
Street expects HESM’s revenue for the first quarter (ending March 2024) to increase 15.6% year-over-year to $352.49 million, while its EPS is expected to grow 36.4% year-over-year to $0.64, respectively. For the fiscal year 2024, the company’s revenue and EPS are expected to grow 11.7% and 32.9% year-over-year to $1.51 billion and $2.76, respectively.
HESM’s shares have gained 12.6% over the past six months and 13.6% over the past year to close the last trading session at $34.23.
HESM’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has a B grade for Value, Growth, Momentum, and Quality. Within the A-rated MLPs – Gas industry, HESM has topped among two stocks.
In addition to the POWR Ratings we’ve stated above, we also have HESM ratings for Stability and Sentiment. Get all HESM ratings here.
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MPLX shares fell $0.03 (-0.08%) in premarket trading Monday. Year-to-date, MPLX has gained 4.21%, versus a 4.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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