With sustained high demand for crude oil and OPEC+ strategically cutting production, the likelihood of elevated oil prices persists. That said, this could be an opportune time to add robust energy stocks Shell plc (SHEL), NuStar Energy L.P. (NS) and Summit Midstream Partners, LP (SMLP) to your portfolio for year-end gains.
Before delving into highlighted stocks, let's delve into the unfolding dynamics within the industry.
The oil and gas industry has stabilized following the Russia-Ukraine conflict, with high crude oil demand over the last two years. According to GlobalData's October and November study on the industry's 2024 capital expenditure estimate, half of respondents anticipate a significant increase in capex for the year.
In addition, as energy security concerns take center stage, the medium-term prediction for oil and gas consumption over the next five to 10 years is not likely to fall fast. Also, the OPEC+ group's persistent implementation of strategic production cutbacks is positioned to keep oil prices elevated.
OPEC's key member, Saudi Arabia, has extended its voluntary 1 million barrels per day production cut until the first quarter of 2024. In response to the oil cartel's efforts, Russia has pledged to decrease supplies by 300,000 barrels per day in crude and 200,000 barrels per day in petroleum products over the same time.
Individual member countries have unilaterally proclaimed voluntary reductions of 2.2 million barrels per day for the first quarter of 2024. With decreased availability, the demand-supply dynamics could drive upward pressure on global oil prices.
Furthermore, according to the U.S. Energy Information Administration (EIA), the Brent crude oil price, a global benchmark, will rise from an average of $90 per barrel in 2023 to an expected $93 per barrel in 2024. In light of these trends, let’s look at the fundamentals of the three energy stocks.
Shell plc (SHEL)
Based in London, the United Kingdom, SHEL explores and extracts crude oil, natural gas, and natural gas liquids. The company also engages in oil and gas marketing and transportation, produces gas-to-liquid fuels and various products, and manages essential upstream and midstream infrastructure for efficient gas market delivery.
On October 23, Shell Gas BV, a subsidiary of SHEL, and partners in the Oman LNG LLC venture signed an amended shareholders' agreement, extending the business beyond 2024. Shell Gas remains the largest private shareholder with a 30% stake, retaining its role as a technical adviser.
SHEL firmly believes in the growing role of Liquefied Natural Gas (LNG) in the energy system. This milestone underscores SHEL's commitment to its integrated gas business and solidifies Oman's position as a key heartland for SHEL.
For the third quarter that ended September 30, 2023, SHEL’s income for the period rose 4.8% from the year-ago value to $7.18 billion. Its EPS increased 14.1% year-over-year to $1.05. Also, as of September 30, 2023, the company’s cash and cash equivalents amounted to $43.03 billion, up from $40.25 billion as of December 31, 2022.
For the fiscal year ending December 2024, SHEL’s revenue is estimated to grow 1.6% year-over-year to $343.56 billion. Similarly, the company’s EPS for the next fiscal year is expected to rise 6.3% from the prior year to $8.66. Moreover, the company surpassed the consensus revenue estimates in three of the four trailing quarters.
Year-to-date, the stock has gained 13% to close the last trading session at $63.27.
SHEL’s positive fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
SHEL has a B grade for Momentum and Quality. It is ranked #12 out of 85 stocks within the Energy - Oil & Gas industry.
In addition to the POWR Ratings I’ve highlighted, you can see SHEL’s Value, Growth, Sentiment, and Stability ratings here.
NuStar Energy L.P. (NS)
NS transports refined products, crude oil, and anhydrous ammonia through its Pipeline segment. The Storage segment offers services for storing and handling various liquids. Moreover, the Fuels Marketing segment conducts bunkering operations in the Gulf Coast and blending operations in the Central East System.
In its fiscal third-quarter release, NS conveyed an optimistic outlook for the remainder of 2023. The company anticipates a net income between $261 million and $273 million, coupled with adjusted EBITDA ranging from $720 million to $740 million for the full year 2023, signaling a positive trajectory for the company's financial performance.
For the third quarter that ended September 30, 2023, NS’ service revenues rose 4.5% year-over-year to $289.95 million. Its operating income grew 3.1% from the year-ago value to $115.30 million. Also, the company’s adjusted EBITDA marginally increased from the prior year’s period to $179.75 million.
The consensus revenue estimate of $1.67 billion for the fiscal year ending December 2024 reflects a 4.2% year-over-year improvement. Similarly, the consensus EPS estimate of $1.33 for the next fiscal year exhibits a 35.1% rise from the previous year. Shares of NS have gained 24.1% over the past year to close the last trading session at $19.00.
NS’ sound prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
NS has a B grade for Growth and Momentum. It is ranked #11 out of 26 stocks within the A-rated MLPs - Oil & Gas industry.
Click here to access the additional NS ratings (Value, Stability, Sentiment, and Quality).
Summit Midstream Partners, LP (SMLP)
SMLP owns, develops, and operates midstream energy infrastructure assets, primarily in shale formations. The company delivers natural gas gathering, compression, treating, processing services, crude oil, and produced water gathering services.
On March 6, SMLP and Clariter unveiled a strategic collaboration, integrating SMLP into Clariter's network of partners and investors. The alliance strategically aligns with SMLP's intent to leverage its infrastructure development and operation expertise to contribute to the United States' energy transition, expanding and enhancing SMLP's business portfolio.
During the third quarter that ended September 30, 2023, SMLP’s total revenues increased 36.7% year-over-year to $121.19 million. Its net income came in at $3.87 million, compared to a net loss of $7.79 million in the prior year’s period. Also, the company’s adjusted EBITDA rose 33% from the preceding year’s period to $72.79 million.
In addition, as of September 30, 2023, SMLP’s cash and cash equivalents amounted to $17.10 million, compared to $11.81 million as of December 31, 2022.
The consensus revenue estimate of $393.20 million for the fiscal year ending December 2023 reflects a 6.4% year-over-year improvement. Likewise, the consensus revenue estimate of $418.10 million for the next fiscal year (ending December 2024) indicates a 6.3% rise from the previous year.
The stock has gained 11.5% over the past six months to close the last trading session at $17.99.
SMLP’s robust outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
SMLP has a B grade for Growth and Momentum. It has ranked #12 out of 26 stocks within the MLPs - Oil & Gas industry.
Click here to access additional SMLP ratings for Value, Stability, Sentiment, and Quality.
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SHEL shares were trading at $63.95 per share on Friday morning, up $0.68 (+1.07%). Year-to-date, SHEL has gained 16.81%, versus a 21.19% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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