Oil prices are set to rise due to tight supplies after OPEC+ voluntary cuts and robust demand for oil and natural gas globally, creating significant tailwinds for companies providing energy services. Given the industry’s bright prospects, it could be wise to invest in fundamentally sound energy stock Halliburton Company (HAL) for substantial returns.
However, investors could hold Schlumberger Limited (SLB) and wait for a better entry point in this stock while avoiding struggling Antero Resources Corporation (AR) seems prudent.
Several OPEC+ oil producers agreed to voluntary production cuts totaling nearly 2.2 million barrels per day (bpd) in the first quarter of 2024. Saudi Arabia, the world’s biggest crude exporter, will lead the effort by extending a voluntary oil output cut of 1 million bpd, priorly intended till the December end, by another three months, as per a statement from OPEC+.
In addition to Saudi, the following voluntary barrel-per-day output cuts were announced: Russia by 500,000; Iraq by 223,000; the United Emirates by 163,000; Kuwait by 135,000; Kazakhstan by 82,000; Algeria by 51,000; and Oman by 42,000. Further, OPEC+ announced after the meeting that Brazil, another major producer, will join at the beginning of next year.
Oil prices could reach $100 a barrel next year if OPEC+ members fulfill pledges for voluntary oil cuts. According to UBS strategist Giovanni Staunovo, these pledged cuts would keep the oil market in deficit in the first half of 2024, allowing prices to rise in the undersupplied oil market.
Similarly, Goldman Sachs forecasts higher oil prices. “We estimate a modest mechanical boost from the extra cut to Brent Dec24 prices of around $4/bbl relative our prior OPEC+ assumptions,” the investment bank said in a note, adding that it anticipates the group “can maintain Brent oil prices in the $80-$100 range in 2024.”
Further, OPEC expects global oil demand to rise by 2.44 million bpd to an average of 102.1 million bpd this year. In 2024, world oil demand is expected to grow by 2.25 million bpd. Developing economies, led by China, will account for most of this year’s demand growth, OPEC said in its Monthly Oil Market Report (MOMR).
Rising oil prices, strong energy demand, and solid well productivity are key drivers for continued growth in oil and gas production. The global oil and gas wells drilling services market is expected to reach $173.52 billion by 2028, growing at a CAGR of 4.1%.
Several technological advancements in the oil and gas industry led to the development of efficient and cost-effective drilling, exploration, and production techniques. This has increased the demand for specialized services like hydraulic fracturing and horizontal drilling.
Amid this backdrop, quality energy stock HAL could be an ideal buy this month. But it could be wise to hold SLB and wait for a better entry point in this stock, while fundamentally weak stock AR is best avoided now.
Let’s discuss the fundamentals of these stocks:
Stock to Sell:
Antero Resources Corporation (AR)
AR is an independent oil and natural gas company. It operates through three segments: Exploration, Development and Production of Natural Gas, NGLs and Oil; Marketing and Utilization of Excess Firm Transportation Capacity; and Midstream Services Through Our Equity Method Investment in Antero Midstream.
AR’s trailing-12-month levered FCF margin of negative 1.46% compared to the 5.86% industry average. In addition, the stock’s trailing-12-month ROCE and ROTC of 13.44% and 7.01% are lower than the industry averages of 19.99% and 9.30%, respectively.
In terms of forward non-GAAP P/E, AR is currently trading at 28.28x, 196.2% higher than the industry average of 9.55x. Also, the stock’s forward EV/EBIT and Price/Cash Flow multiples of 21.23 and 6.39 are higher than the industry averages of 8.87 and 4.47, respectively.
AR’s revenue decreased 45.5% year-over-year to $1.13 billion in the third quarter that ended September 30, 2023. Its adjusted EBITDAX came in at $271.20 million, down 69.1% from the previous year’s quarter. Net income and comprehensive income attributable to AR declined 96.8% year-over-year to $17.81 million.
Furthermore, the company income per share decreased 96.5% from the year-ago value to $0.06. Also, net cash provided by operating activities was $183.38 million, down 83.1% year-over-year.
Analysts expect CHPT’s revenue for the fiscal year (ending December 2023) to decrease 34.6% year-over-year to $4.67 billion. The consensus EPS estimate of $0.74 indicates a decline of 86.5% year-over-year.
Shares of AR have slumped 23.8% over the past month and 33.2% over the past year to close the last trading session at $21.
AR’s POWR Ratings reflect this bleak outlook. The stock has an overall rating of F, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
AR has an F grade for Growth. It has a D for Sentiment, Quality, and Stability. In the Energy - Drilling industry, it is ranked last among 15 stocks.
In addition to the POWR Ratings mentioned above, one can access AR’s additional ratings for Value and Momentum here.
Stock to Hold:
Schlumberger Limited (SLB)
SLB engages in the provision of technology for the energy industry globally. It operates through four divisions: Digital & Integration; Reservoir Performance; Well Construction; and Production Systems. It offers field development, hydrocarbon production, and integration of adjacent energy systems; open and cased hole services; coiled tubing equipment solutions; and more.
On October 30, SLB announced that its End-to-end Emission Solutions business (SEES) was selected by Eni S.p.A (E), an integrated energy company, to deliver comprehensive fugitive methane emissions measurement and reporting plans for E’s global operating facilities.
“Working collaboratively with Eni, we are leveraging our deep knowledge of OGMP 2.0 requirements and our global footprint to provide Eni with accurate, reliable methane data measurement and reporting across their on- and offshore operations in a rapid six-month delivery window,” said Kahina Abdeli-Galinier, emissions business director, SLB.
On October 4, SLB’s SEES business launched a first-of-its-kind, next-generation methane point instrument. The compact, self-install device for continuous methane monitoring uses IoT-enabled sensors to quickly and cost-effectively detect, locate, and quantify emissions across oil and gas operations. This new launch is expected to drive the company’s growth and profitability.
SLB’s trailing-12-month ROCE and ROTC of 22.71% and 10.30% are higher than the respective industry averages of 19.99% and 9.30%. But the stock’s trailing-12-month gross profit margin of 19.79% is 57.2% lower than the 47.32% industry average. Also, its trailing-12-month EBITDA margin of 21.99% is 40.6% lower than the 37.05% industry average.
In terms of forward non-GAAP P/E, SLB is currently trading at 16.56x, 73.5% higher than the industry average of 9.55x. Likewise, the stock’s forward EV/EBITDA and Price/Sales multiples of 9.99 and 1.12 are higher than the industry averages of 5.22 and 1.35, respectively.
For the third quarter that ended September 30, 2023, SLB’s revenue increased 11.1% year-over-year to $8.31 billion. Its pretax segment operating income rose 20.2% year-over-year to $1.68 billion. Its adjusted EBITDA grew 18.5% from the year-ago value to $2.08 billion. Net income attributable to SLB and EPS were $1.12 billion and $0.78, up 23.8% year-over-year, respectively.
Street expects SLB’s revenue to increase 13.6% year-over-year to $8.95 billion for the fourth quarter ending December 2023. The company’s EPS for the ongoing quarter is expected to grow 18.3% year-over-year to $0.64. Also, it surpassed the consensus EPS estimates in all four trailing quarters.
Over the past six months, SLB’s stock has gained marginally to close the last trading session at $48.46. However, the stock has plunged 10.5% over the past month.
SLB’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system.
SLB has a C grade for Growth, Stability, and Quality. Within the Energy -Services industry, it is ranked #24 out of 49 stocks.
To access additional ratings of SLB for Value, Sentiment, and Momentum, click here.
Stock to Buy:
Halliburton Company (HAL)
HAL offers products and services to the energy industry globally. The company operates through two segments: Completion and Production; and Drilling and Evaluation. It provides production enhancement services, including stimulation and sand control services; cementing services like well bonding and casing; and pipeline and process services.
On November 7, HAL and Sekal AS entered an agreement to jointly offer leading well construction automation solutions as part of a long-term strategy to deliver fully automated drilling operations.
Under the deal, HAL and Sekal collaborate on various technologies and services incorporating Halliburton’s digitally integrated, well-construction solutions and the Sekal DrillTronics automation platform. Additionally, both parties’ remote operations centers will provide expertise and support to these offerings. This strategic partnership should bode well for HAL.
On November 6, HAL and Oil States Industries, Inc. announced a collaboration that combines two award-winning technology sets to provide innovative deepwater managed pressure drilling (MPD) solutions. MPD offers operators enhanced control when navigating narrow pressure windows compared to conventional drilling.
HAL’s trailing-12-month ROCE, ROTC, and ROTA of 31.40%, 14.17%, and 10.77% are favorably higher than the industry averages of 9.30%, 7.49%, and 13.72%, respectively. The stock’s trailing-12-month asset turnover ratio of 0.97x is 77.6% higher than the industry average of 0.55x.
During the third quarter ended September 30, 2023, HAL’s revenue increased 8.3% year-over-year to $5.80 billion. Its operating income grew 22.6% from the year-ago value to $1.04 billion. Adjusted net income attributable to the company rose 31.6% year-over-year to $716 million. Also, its adjusted net income per share was $0.79, up 31.7% year-over-year.
Analysts expect HAL’s revenue and EPS for the fiscal year (ending December 2023) to increase 13.7% and 43.1% year-over-year to $23.08 billion and $3.08, respectively. Moreover, the company has surpassed the consensus EPS estimates in each of the trailing four quarters.
For the fiscal year 2024, HAL’s revenue and EPS are expected to grow 7.1% and 12.3% from the prior year to $24.71 billion and $3.45, respectively.
Over the past six months, the stock has gained 5.8% to close the last trading session at $34.42.
HAL’s POWR Ratings reflect promising prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
HAL has a B grade for Momentum and Sentiment. It is ranked #14 out of 49 stocks in the Energy - Services industry.
Click here to see the other ratings of HAL for Growth, Value, Stability, 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 >
SLB shares rose $0.54 (+1.11%) in premarket trading Friday. Year-to-date, SLB has declined -6.57%, versus a 20.93% 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.
Analyzing 3 Energy Stocks: Buy, Hold, or Sell in December? StockNews.com
