The violence between Israel and Hamas has led to a rise in global oil prices. Additionally, increased natural gas production and LNG exports contribute to the energy sector's promising outlook.
So, investors could consider quality gas and oil stocks NuStar Energy L.P. (NS), Enterprise Products Partners L.P. (EPD), and Cheniere Energy Partners, L.P. (CQP), which are poised for success in the dynamic market.
Oil prices surged following an attack by Hamas on Israel, bringing renewed instability to the Middle East. Although Israel is not a major oil producer, the conflict could draw in other Middle East nations that are significant oil exporters, particularly Iran. The Middle East is a major oil-producing region, and any instability there can impact the overall balance of global oil markets.
In addition to OPEC’s earlier supply cuts, Saudi Arabia will continue its voluntary 1 million barrel per day crude oil production cut until the end of 2023. Russia will also extend its voluntary export reduction by 300,000 barrels per day until the end of December 2023. These cuts will result in reduced global oil supply, which can potentially support higher oil prices.
Moreover, the September Short-Term Energy Outlook from the EIA anticipates that U.S. crude oil production will reach a historic peak, averaging 12.8 million barrels per day (b/d) in the current year and surging to 13.2 million b/d by 2024.
Additionally, EIA forecasts an increase in dry natural gas production, with expectations of reaching 102.69 billion cubic feet per day (bcf/d) in 2023 and further rising to 104.93 bcf/d in the following year, surpassing the 2022 record of 98.12 bcf/d.
Furthermore, as per EIA’s Annual Energy Outlook 2023, U.S. natural gas production is projected to increase by 15%, and LNG exports will surge by 152% between 2022 and 2050. Also, natural gas production is expected to reach 42.1 trillion cubic feet (Tcf) by 2050.
With these favorable trends in mind, let's delve into the fundamentals of the three MLPs – Oil & Gas stock picks, beginning with the third choice.
Stock #3: NuStar Energy L.P. (NS)
NS engages in the transportation, terminalling, and storage of petroleum products and renewable fuels, and the transportation of anhydrous ammonia in the United States and internationally. It operates through Pipeline; Storage; and Fuels Marketing segments.
On August 11, 2023, NS closed the offering of 13,000,000 common units, aiming to generate approximately $199.6 million in gross proceeds. NS plans to use the net proceeds to redeem Series D cumulative convertible preferred units, covering associated fees and expenses.
The company pays an annual dividend of $1.60, which translates to a yield of 9.32% at the current price level. It has a four-year average dividend yield of 11.40%.
NS provided a positive outlook for the remainder of 2023 with an update on key financial and operational aspects. The company anticipates full-year 2023 net income in the range of $252 to $290 million and adjusted EBITDA in the range of $700 to $760 million.
It plans to allocate $125 to $145 million in strategic capital investments during the year, with a focus on the Permian Crude System and West Coast Renewable Fuels Network. Additionally, NS intends to spend between $25 and $35 million on reliability capital.
During the fiscal second quarter ended June 30, 2023, NS’ total revenues amounted to $374.33 million. Adjusted net income stood at $46.14 million and $0.09 per share. Also, its total costs and expenses declined 14.2% from the previous-year quarter to $275.46 million.
NS’ EPS is expected to rise 30.3% year-over-year to $0.26 for the fiscal third quarter that ended September 2023. The company’s revenue for the same quarter is likely to stand at $387.93 million.
Shares of NS have gained 20.9% over the past year to close the last trading session at $17.16.
NS’ POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade for Momentum. It is ranked #10 out of 26 stocks in the A-rated MLPs – Oil & Gas industry.
Beyond what is stated above, we’ve also rated NS for Value, Growth, Quality, Stability, and Sentiment. Get all NS ratings here.
Stock #2: Enterprise Products Partners L.P. (EPD)
EPD provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, petrochemicals, and refined products in North America. The company’s segments include NGL Pipelines & Services; Crude Oil Pipelines & Services; Natural Gas Pipelines & Services; and Petrochemical & Refined Products Services.
On August 1, 2023, EPD officially launched its second propane dehydrogenation plant, known as "PDH 2," in Chambers County, Texas. PDH 2 boasts the capacity to process 35,000 barrels per day of propane to generate 1.65 billion pounds of polymer-grade propylene annually.
In conjunction with its existing PDH 1 plant, EPD can now consume 70,000 BPD of propane, yielding 3.3 billion pounds of PGP each year at its Chambers County facility. Furthermore, the new PDH 2 facility is interconnected with a comprehensive propylene system, encompassing an extensive pipeline network spanning over 1,000 miles, storage capacity exceeding 3 billion pounds, and the ability to export approximately 4 billion pounds per year.
On October 3, EPD declared a quarterly cash distribution to be paid to common unitholders with respect to the third quarter of 2023 of $0.50 per unit. The company pays an annual dividend of $2, which translates to a yield of 7.34% on the current market price.
The quarterly distribution will be paid to common unitholders on November 14, 2023. This distribution represents a 5.3% year-over-year increase. This year marks the partnership’s 25th consecutive year of distribution growth.
In the fiscal second quarter that ended June 30, 2023, EPD reported revenues of $10.65 billion. The company’s total costs and expenses decreased 36.2% year-over-year to $9.19 billion. Its adjusted FCF amounted to $1.07 billion.
Analysts expect EPD’s EPS for the fiscal third quarter ended September 2023 to increase 1.2% year-over-year to $0.64. It surpassed Street EPS estimates in three of the trailing four quarters, which is impressive.
The stock gained 13.5% year-to-date to close the last trading session at $27.37.
EPD’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has a B grade for Value, Momentum, and Stability. It is ranked #6 in the same industry.
Click here to see the other ratings of EPD for Growth, Sentiment, and Quality.
Stock #1: Cheniere Energy Partners, L.P. (CQP)
CQP provides liquefied natural gas (LNG) to integrated energy companies, utilities, and energy companies worldwide. The company owns and operates a natural gas liquefaction and export facility at the Sabine Pass LNG production terminal located in Cameron Parish, Louisiana.
On August 14, CQP paid a cash distribution of $1.03 per common unit to unitholders. CQP’s annual dividend of $3.10 per share translates to a 5.66% yield on the prevailing share price. Its four-year average dividend yield is 7.10%.
CQP has raised its dividend for six consecutive years. The company’s dividend payouts have increased at CAGRs of 6.9% and 8.6% over the past three and five years.
On June 6, CQP announced that it had priced its previously announced offering of Senior Notes due 2033. The CQP 2033 Notes will bear interest at a rate of 5.95% per annum and will mature on June 30, 2033.
CQP intends to contribute the proceeds from the offering to its subsidiary, Sabine Pass Liquefaction, LLC, to redeem a portion of the outstanding aggregate principal amount of its senior secured notes due 2024.
During the second quarter that ended June 30, 2023, CQP reported total revenues of $1.93 billion. Its income from operations grew 47.4% year-over-year to $818 million. The company’s net income rose 81.9% from the previous year’s quarter to $622 million, and its net income per common unit came in at $0.84, an increase of 236% year-over-year.
CQP is expected to report an EPS and revenue of $1.04 and $2.38 billion in the fiscal third quarter that ended September 2023. Moreover, the company surpassed the consensus EPS and revenue estimates in three of the trailing four quarters.
The stock has gained 14.6% over the past three months to close its last trading session at $53.78.
CQP’s solid 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.
CQP has a B grade for Momentum and Quality. It is ranked #4 in the same industry.
In addition to the POWR Ratings highlighted above, one can access CQP’s ratings for Growth, Value, Stability, and Sentiment here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
EPD shares were trading at $27.36 per share on Thursday morning, down $0.01 (-0.04%). Year-to-date, EPD has gained 19.96%, versus a 15.26% 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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