Crude oil prices rallied again on Friday, following an International Energy Agency (IEA) report of a tight oil market. Brent crude futures rose $1.01, or 1.1%, to $92.42 per barrel, while the United States West Texas Intermediate crude gained $1.15, or 1.3%, to $91.03 per barrel. The IEA also added that the OPEC+ alliance produced 900,000 barrels per day (bpd) below target in January.
According to JPMorgan Chase & Co. (JPM), oil prices could soar to $120 per barrel if Russia’s crude exports are derailed amid tensions with Ukraine. JPM also forecasted that if Russian oil exports are cut in half, Brent oil prices would likely surge to $150 per barrel. In addition, OPEC+ has raised its annual oil demand estimate for 2022 to 100.8 million bpd, up from 100.79 million bpd in last month’s report, due to solid economic growth and the easing COVID-19 restrictions.
Given this backdrop, we think the stocks of oil and gas exploration and production industry companies ConocoPhillips (COP), EOG Resources, Inc. (EOG), Occidental Petroleum Corporation (OXY), and APA Corporation (APA) might be solid bets. These stocks are fundamentally strong and are rated B (Buy) in our proprietary POWR Ratings system.
ConocoPhillips (COP)
Houston, Tex.-based COP explores for, produces, transports, and markets crude oil, natural gas, and natural gas liquids (NGLs). The company’s portfolio comprises conventional and tight oil reservoirs, shale gas, heavy oil, LNG, oil sands, and other operations.
On December 8, COP announced that it had agreed to sell its subsidiary that owns its 54% interest in the Indonesia Corridor Block Production Sharing Contract and a 35% shareholding interest in the Transasia Pipeline Company to MedcoEnergi for $1.36 billion. The transactions are expected to power up the Asia-Pacific segment in its global portfolio. In addition, the company’s Australian subsidiary declared that it would exercise its preemptive right to purchase up to an additional 10% shareholding interest in Australia Pacific LNG (APLNG) from Origin Energy for $1.65 billion.
On December 1, COP announced that it had acquired the Delaware basin position of Shell Enterprises LLC for $9.50 billion in cash. The acquisition should expand the company’s operational capability.
For its fiscal fourth quarter of 2021, COP’s total revenues and other income increased 163.9% year-over-year to $15.96 billion. This can be attributed to a 175.4% rise in sales and other operating revenues from the prior-year quarter to $15.12 billion. Its adjusted earnings after tax and adjusted earnings per share of common stock came in at $3.01 billion and $2.27, respectively, up substantially from their negative year-ago values.
The $2.28 consensus EPS estimate for the quarter ending June 30, 2022, indicates a 79.5% year-over-year increase. And the $14.41 billion consensus revenue estimate for the same quarter reflects a 41.1% improvement from the prior-year quarter. Also, COP has an impressive surprise earnings history; it has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 94.5% in price over the past year and 62.7% over the past six months to close yesterday’s trading session at $91.91.
COP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
COP has an A Momentum grade and a Growth, Sentiment, and Quality grade of B. In the 82-stock Energy – Oil & Gas industry, it is ranked #8. The industry is rated B. Click here to see the additional POWR Ratings for COP (Value and Stability).
EOG Resources, Inc. (EOG)
EOG operates as a company exploring, developing, producing, and selling crude oil, natural gas, and NGLs. The Houston, Tex.-based company's primary producing areas are New Mexico, Texas, the United States, the Republic of Trinidad and Tobago, China, and Oman.
On October 5, EOG published its 2020 Sustainability Report highlighting its commitment to the environment and social engagement. The company reported a reduced emission intensity rate, increased water reuse, its plans for zero routine flaring by 2025, and net-zero ambitions.
EOG’s total operating revenue and other increased 112.2% year-over-year to $4.77 billion in its fiscal third quarter, ended September 30. Its operating income came in at $1.47 billion, up considerably from its negative year-ago value. Its adjusted net income after tax and adjusted EPS rose 401.6% and 402.3%, respectively, from the same period in the prior year to $1.26 billion and $2.16.
Analysts expect EOG’s EPS to increase 350.7% year-over-year to $3.20 for its fourth fiscal quarter. Also, the Street expects its revenue to rise 98.8% from the prior-year quarter to $5.90 billion. And its EOG has topped consensus EPS estimates in each of the trailing four quarters.
Over the past year, EOG’s shares have gained 87.1% in price to close yesterday’s trading session at $112.66. It has gained 14.9% over the past month.
It is no surprise that EOG has an overall B rating, which translates to Buy in our POWR Rating system. The stock has an A grade for Momentum and a B grade for Growth and Quality. It is ranked #22 in the Energy – Oil & Gas industry. To see the additional POWR Ratings for Value, Stability, and Sentiment for EOG, click here.
Occidental Petroleum Corporation (OXY)
OXY is an oil and gas exploration company that operates primarily in the United States, the Middle East, Africa, and Latin America. The Houston, Tex.-based company operates through three segments: Oil and Gas; Chemical and Marketing, and Midstream.
On November 8, OXY subsidiary Oxy Low Carbon Ventures (OLCV) announced that it had awarded a services contract to Worley, a provider of professional project and asset services in the energy, chemicals, and resources sectors for a facility being designed to produce renewable fuels in British Columbia. It is expected that this will advance the development of the company’s AIR TO FUELS™ facility by leveraging Worley’s method of driving innovation.
On November 3, OXY declared a regular quarterly dividend of $0.01 per share on its common stock, which was payable to shareholders on Jan. 14, 2022. This reflects the company’s ability to return values to shareholders.
And on October 13, OXY agreed to sell its interests in two Ghana offshore fields for $750 million to Kosmos Energy Ltd. (KOS), for $550 million, and Ghana National Petroleum Corporation (GNPC) for $200 million. The company intends to use the proceeds from the sale for debt reduction.
For the third fiscal quarter, ended September 30, 2021, OXY’s total revenues and other income increased 107.6% year-over-year to $6.82 billion. Its adjusted income attributable to common stockholders and adjusted EPS came in at $836 million and $0.87, respectively, up substantially from their negative year-ago values.
The $1.11 consensus EPS estimate for its fourth fiscal quarter, ended Dec. 31, 2021, indicates a 242.3% increase from the prior-year quarter. The $7.31 billion consensus revenue estimate for the same quarter reflects a 118.4% year-over-year improvement. In addition, OXY has beaten consensus EPS estimates in three out of the trailing four quarters.
The stock has gained 58.9% in price over the past year and 40.3% year-to-date to close yesterday’s trading session at $40.68.
This promising outlook is reflected in OXY’s POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. OXY has a Momentum grade of A and a Growth, Sentiment, and Quality grade of B. It is ranked #13 in the Energy – Oil & Gas industry. Click here to see the additional POWR Ratings for Value and Stability for OXY.
APA Corporation (APA)
Houston Tex.-based APA is an oil and gas exploration company in the United States, Egypt’s Western Desert, and the United Kingdom’s North Sea. The company also operates explorations in Suriname. In 2021, Apache Corporation came under APA in a holding company structure.
On December 27, APA signed an agreement to modernize and consolidate the company’s current Production Sharing Contracts (PSCs) with Egypt’s Ministry of Petroleum and Mineral Resources (MOP) and the Egyptian General Petroleum Corporation (EGPC). John J. Christmann IV, APA’s CEO, and president, said “Since the beginning of 2021, we have increased drilling activity from five to 11 rigs in Egypt, and under the revised PSC, we look forward to further increasing the rig count and generating significant year-over-year growth in oil production. Looking ahead, we will be implementing a number of impactful ESG initiatives aligned with our focus areas of air, water, communities, and people.”
On November 16, APA announced results from its flow testing at the Sapakara South well and drilling results from the Bonboni exploration well, both in Suriname. The results from the Sapakara South well show the presence of a high-quality black oil reservoir, while the Bonboni drilling results confirm the presence of high-quality reservoir sands and the generation of black oil. The wells are expected to add considerably to APA’s revenue.
For its third fiscal quarter, ended Sept. 30, APA’s oil, natural gas, and natural gas liquids production revenues increased 61.1% year-over-year to $1.69 billion. Its adjusted earnings after tax and adjusted EPS stood at $372 million and $0.98, respectively, up substantially from their negative year-ago values. And its adjusted EBITDAX increased 105.7% year-over-year to $1.16 billion.
The Street’s $1.47 EPS estimate for the quarter ended Dec. 31, 2021, reflects a 3,040% year-over-year increase. And the Street’s $1.92 billion revenue estimate for the same quarter indicates a 48.7% rise from the prior-year quarter. Furthermore, APA has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 90% in price over the past year and 75.6% over the past six months to close yesterday’s trading session at $33.46.
APA has an overall B rating, which translates to Buy in our POWR Rating system. The stock has an A grade for Growth, Momentum, and Quality. It is ranked #4 in the Energy – Oil & Gas industry. To see the additional POWR Ratings for Value, Stability, and Sentiment for APA, click here.
Note that APA is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.
COP shares were trading at $93.24 per share on Friday afternoon, up $1.33 (+1.45%). Year-to-date, COP has gained 29.18%, versus a -7.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
4 Buy-Rated Stocks in the Oil and Gas Exploration & Production Industry StockNews.com
