3 Stocks To Buy As Oil Prices Rise Above $50 - OilPrice.com

3 Stocks To Buy As Oil Prices Rise Above $50 - OilPrice.com


3 Stocks To Buy As Oil Prices Rise Above $50 - OilPrice.com

Posted: 12 Jan 2021 04:00 PM PST

As oil prices continue to maintain the latest trajectory above the psychologically significant $50/barrel level, investors are increasingly recalibrating their investment prisms for beaten-down oil and gas companies. 

WTI has rallied 12.8% over the past 30 days to trade at $53.02 per barrel while Brent is up 12.3% to $56.49, levels they last touched nearly a year ago thanks to a revamped OPEC-plus deal as well as an unexpected bonanza after Saudi Arabia announced plans to unilaterally cut its oil production by another 1M barrels.

Enter Shale 3.0.

For a sector that was supposed to be on its deathbed, U.S. shale might be the biggest beneficiary yet of the oil rally as higher crude prices offer a much-needed reprieve to strained balance sheets. The U.S. shale patch bears some of the highest production costs in the world, with most companies in the sector needing oil prices between $50 and $55 per barrel to break even.

That's highly significant because it implies that another 5-10% climb in oil prices from here could mean the difference between bleeding cash and gushing profits for the shale sector.

But not all oil and gas companies need such high oil prices to break even, with a handful solidly in the green even at current prices.

Here are 3 such companies.

#1. Suncor Energy

Source: CNN Money

Warren Buffett spent much of 2020 offloading his energy stakes. Notably, back in May, Berkshire Hathaway (NYSE:BRK.B) sold off its final stake in Phillips 66 (NYSE:PSX) despite repeatedly touting the company's management team as one of the best in the business, especially as far as capital management is concerned. Related: Google Looks To Turn Data Centers Into Energy Storage

However, it did not take long before Buffett went shopping again--this time picking 19.2 million shares of Suncor Energy Inc. (TSX:SU) (NYSE:SU) worth ~US$217 million. That's a tiny stake, really, when you consider the firm's past energy buys. Nevertheless, it might be one of its smarter ones.

At first glance, Buffett's purchase of Suncor stock appears to have been driven by his long-term ethos to buy companies that are undervalued compared to their intrinsic values. After all, Suncor never truly recovered from the 2014 oil crisis and has been on a particularly sharp downtrend over the past two years. The Covid-19 pandemic and the oil price war only served to exacerbate the stock's unfortunate trend.

But there could be something deeper than that.

It appears Warren Buffett is a big fan of Suncor's assets, especially its long-lived oilfields with a lifespan of approximately 26 years. Suncor's dependable assets have helped the company generate stable cash flows and pay out consistently high dividends. Suncor had consistently increased dividends since it began distribution in 1992 till the 2008 financial crisis. The company, however, slashed the dividend by 55% in April due to the pandemic but boasts a still respectable forward yield of 4.6%. Thankfully, the deep dividend cut really helped shore Suncor's balance sheet, which is now among the most resilient among its peers.

In fact, Suncor revealed that it requires WTI prices to be north of $35/barrel to meet capex and dividend payouts. With WTI prices hovering in the low-50s after several Covid-19 vaccines entered the fray, Suncor appears well placed to maintain that dividend and maybe even raise it in the not-so-distant future.

SU has rallied nearly 50% over the past 3 months and 10.5% YTD.

#2. EOG Resources

Source: CNN Money

EOG Resources (NYSE:EOG) is not only the largest shale producer but also one of the largest oil producers in the United States.

EOG is also one of the lowest-cost shale producers, needing crude prices at around $36 per barrel to break even.

EOG is spread across six separate shale basins, which gives it great diversification compared to its rivals who operate in one or two basins. The multi-basin approach also allows the company to grow each asset at an optimum pace to maximize profitability and long-term value. Related: Big Oil Is An Unsung Hero In The Fight Against COVID

Also, being smaller than oil majors such as ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) makes EOG nimbler and able to adapt to rapid changes in oil demand--a big plus during these uncertain times.

With oil prices well above the company's breakeven level, EOG plans to use its free cash flow to pay down debt, buy back shares, and possibly even boost the dividend.

#3. Pioneer Natural Resources

Source: CNN Money

Of the leading oil and gas majors, Pioneer Natural Resources (NYSE:PXD) sets itself apart as the only top 10 producer with zero international interests. Further, Pioneer has been selling off most of its assets in the Eagle Ford to better focus on the Midland Basin side of the Permian, where it dominates.

Further, Pioneer has announced plans to acquire Parsley Energy in an all-stock transaction valued at ~$4.5 billion. Pioneer says the merger is expected to drive annual synergies to the tune of $325 million and to be accretive to cash flow, free cash flow, earnings per share, and corporate returns beginning in the first year after the merger.

Pioneer Natural Resources' improved cost structure is capable of delivering impressive free cash flows at low oil prices, and this should keep it in good stead even as low energy prices persist.

That's great for the company's bottom line, because the company's breakeven is already low, somewhere around the mid-30s. All that extra free cash flow is likely to flow into the pockets of investors via dividends if oil prices remain high as Pioneer is looking to adopt a variable dividend model. Many oil companies are turning to variable dividends that reward income investors with higher dividends during periods of higher oil prices without completely cutting them off during leaner times.

By Alex Kimani for Oilprice.com

More Top Reads From Oilprice.com:


Crude Oil Price Update – Strong Close Makes $53.60 Easy Target Early Next Week - Yahoo Finance

Posted: 08 Jan 2021 01:38 PM PST

TipRanks

3 "Strong Buy" Stocks with Over 9% Dividend Yield

Markets ended 2020 on a high note, and have started 2021 on a bullish trajectory. All three major indexes have recently surged to all-time highs as investors seemingly looked beyond the pandemic and hoped for signs of a rapid recovery. Veteran strategist Edward Yardeni sees the economic recovery bringing its own slowdown with it. As the COVID vaccination program allows for further economic opening, with more people getting back to work, Yardeni predicts a wave of pent-up demand, increasing wages, and rising prices – in short, a recipe for inflation. "In the second half of the year we may be on the lookout for some consumer price inflation which would not be good for overvalued assets," Yardeni noted.The warning sign to look for is higher yields in the Treasury bond market. If the Fed eases up on the low-rate policy, Yardeni sees Treasuries reflecting the change first.A situation like this is tailor-made for defensive stock plays – and that will naturally bring investors to look at high-yield dividend stocks. Opening up the TipRanks database, we've found three stocks featuring a hat trick of positive signs: A Strong Buy rating, dividend yields starting at 9% or better – and a recent analyst review pointing toward double-digit upside.CTO Realty Growth (CTO)We'll start with CTO Realty Growth, a Florida-based real estate company that, last year, made an exciting decision for dividend investors: the company announced that it would change its tax status to that of a real estate investment trust (REIT) for the tax year ending December 31, 2020. REITs have long been known for their high dividend yields, a product of tax code requirements that these companies return a high percentage of their profits directly to shareholders. Dividends are usual route of that return.For background, CTO holds a varied portfolio of real estate investments. The holdings include 27 income properties in 11 states, totaling more than 2.4 million square feet, along with 18 leasable billboards in Florida. The income properties are mainly shopping centers and retail outlets. During the third quarter, the most recent reported, CTO sold off some 3,300 acres of undeveloped land for $46 million, acquired two income properties for $47.9 million, and collected ~93% of contractual base rents due. The company also authorized a one-time special distribution, in connection with its shift to REIT status; its purpose was to put the company in compliance with income return regulation during tax year 2020. The one-time distribution was made in cash and stock, and totaled $11.83 per share.The regular dividend paid in Q3 was 40 cents per common share. That was increased in Q4 to $1, a jump of 150%; again, this was done to put the company in compliance with REIT-status requirements. At the current dividend rate, the yield is 9.5%, far higher than the average among financial sector peer companies.Analyst Craig Kucera, of B. Riley, believes that CTO has plenty of options going forward to expand its portfolio through acquisition: "CTO hit the high end of anticipated disposition guidance at $33M in 4Q20, bringing YTD dispositions to nearly $85M, with the largest disposition affiliated with the exercise of a tenant's option to purchase a building from CTO in Aspen, CO. Post these dispositions, we estimate >$30M in cash and restricted cash for additional acquisitions, and we expect CTO to be active again in 1H21."To this end, Kucera rates CTO a Buy along with a $67 price target. At current levels, his target implies a 60% one-year upside potential. (To watch Kucera's track record, click here)Overall, CTO has 3 reviews on record from Wall Street's analysts, and they all agree that this stock is a Buy, making the analyst consensus of Strong Buy unanimous. The shares are priced at $41.85, and their average price target of $59.33 suggests room for ~42% growth in the year ahead. (See CTO stock analysis on TipRanks)Holly Energy Partners (HEP)The energy sector, with its high cash flows, is also known for its high-paying dividend stocks. Holly Energy Partners is a midstream transportation player in sector, providing pipeline, terminal, and storage services for producers of crude oil and petroleum distillate products. Holly bases most of its operations in the Colorado-Utah and New Mexico-Texas-Oklahoma regions. In 2019, the last full year for which numbers are available, the company saw $533 million in total revenues.The company's revenues in 2020 slipped in the first and second quarters, but rebounded in Q3, coming in at $127.7 million. Holly reported at distributable cash flow – from which dividends are paid – of $76.9 million, up more than $8 million year-over-year. This supported a 35-cent dividend payment per regular share, or $1.40 annualized. At that rate, the dividend yields a strong 10%.Noting the dividend, Well Fargo analyst Michael Blum wrote, "Our model suggests the distribution is sustainable at this level as [lost revenue] is offset by inflation escalators in HEP's pipeline contracts and contributions from the Cushing Connect JV project. About 80% of HEP's distribution is tax-deferred."Blum gives HEP a $20 price target and an Overweight (i.e. Buy) rating. His target implies a 38% upside for the next 12 months. (To watch Blum's track record, click here)"Our rating primarily reflects the partnership's steady, fee-based cash flows, robust yield and conservative balance sheet," Blum added.For the most part, Wall Street agrees with Blum's assessment on HEP, as shown by the Strong Buy analyst consensus rating. That rating is supported by 6 reviews, split 5 to 1 Buys versus Hold. The average price target, at $18.67, suggests that the stock has room to grow ~29% this year. (See HEP stock analysis on TipRanks)DHT Holdings (DHT)Midstreaming is only one part of the global oil industry's transport network. Tankers are another, moving crude oil, petroleum products, and liquified natural gas around the world, in bulk. Bermuda-based DHT operates a fleet of 27 crude oil tankers, all rated VLCC (very large crude carrier). These vessels are 100% owned by the company, and range in tonnage from 298K to 320K. VLCCs are the workhorses of the global oil tanker network.After four quarters of sequential revenue gains, even through the 'corona half' of 1H20, DHT posted a sequential drop in revenues from 2Q20 to 3Q20. The top line that quarter fell from $245 million to $142 million. It's important to note, however, that the 3Q revenue result was still up 36.5% year-over-year. EPS, at 32 cents, was a dramatic yoy turnaround from the 6-cent loss posted in 3Q19.DHT has a history of adjusting its dividend, when needed, to keep it in line with earnings. The company did that in Q3, and the 20-cent per regular share payment was the first dividend cut in 5 quarters. The general policy is a positive for dividend investors, however, as the company has not missed a dividend payment in 43 consecutive quarters – an admirable record. At 80 cents per share annualized, the dividend yields an impressive 14%.Kepler analyst Petter Haugen covers DHT, and he sees potential for increased returns in the company's contract schedule. Haugen noted, "With 8 out of 16 vessels ending their TC contracts by end Q1 2021, we believe DHT is well positioned for when we expect freight rates to appreciate in H2 2021E."Getting into more details, Haugen adds, "[The] main underlying drivers are still intact: fleet growth will be low (1% on average over 2020- 23E) and the US will still end up being a net seaborne exporter of crude oil, making further export growth from the US drive tanker demand. We expect spot rates to improve again during 2021E, shortly after oil demand has normalised. We expect average VLCC rates of USD41,000/day in 2022E and USD55,000/day in 2023E."In line with his comments, Haugen rates DHT a Buy. His $7.40 target price suggests that this stock can grow 34% in the months ahead. (To watch Haugen's track record, click here)The rest of the Street is getting onboard. 3 Buys and 1 Hold assigned in the last three months add up to a Strong Buy analyst consensus. In addition, the $6.13 average price target puts the potential upside at ~11%. (See DHT stock analysis on TipRanks)To find good ideas for dividend stocks trading at attractive valuations, visit TipRanks' Best Stocks to Buy, a newly launched tool that unites all of TipRanks' equity insights.Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

Oil Tops $50 With Saudis Pledging a Surprise Unilateral Cut - Bloomberg

Posted: 04 Jan 2021 12:00 AM PST

[unable to retrieve full-text content]Oil Tops $50 With Saudis Pledging a Surprise Unilateral Cut  Bloomberg

Crude oil prices briefly traded below $0 in spring 2020 but have since been mostly flat - Today in Energy - US Energy Information Administration - EIA

Posted: 05 Jan 2021 05:01 AM PST

January 5, 2021West Texas Intermediate crude oil futures price

Source: U.S. Energy Information Administration, New York Mercantile Exchange (NYMEX)
Note: Prices reflect front-month (contract with the earliest delivery date) futures prices.


In the first half of 2020, responses to the COVID-19 pandemic led to steep declines in global petroleum demand and to volatile crude oil markets. The second half of the year was characterized by relatively stable prices as demand began to recover. As petroleum demand fell and U.S. crude oil inventories increased, West Texas Intermediate (WTI) crude oil traded at negative prices on April 20, the first time the price for the WTI futures contract fell to less than zero since trading began in 1983. The next day, Brent crude oil, another global crude oil price benchmark, fell to $9.12 per barrel (b), its lowest daily price in decades.

Demand for petroleum products in the United States fell sharply in mid-March, which led refiners to curtail operations. Between March 13 and May 8, U.S. weekly gross refinery inputs fell 20% to 13.1 million barrels per day (b/d), based on a four-week rolling average. That level was the lowest volume of crude oil processed in the United States since the week ending September 26, 2008, after Hurricanes Gustav and Ike disrupted refineries along the U.S. Gulf Coast, according to the U.S. Energy Information Administration's (EIA) Weekly Petroleum Status Report.

U.S. crude oil producers did not respond as fast as refiners did to the sudden drop in demand, and crude oil inventories increased. Between March 13 and May 1, commercial crude oil inventories in the storage hub of Cushing, Oklahoma, rose by 27 million barrels, reaching 83% of the hub's working storage capacity and contributing to the negative crude oil price on April 20.

After reaching an annual low in April, U.S. petroleum product demand and refinery runs began to increase but still remained much lower than the previous five-year (2015–19) average. During the summer, several hurricanes and storms resulted in U.S. refinery shutdowns and steep drops in refinery gross inputs. Refinery runs began increasing again in November.

U.S. weekly petroleum supply estimates

With demand beginning to return after April, crude oil prices increased. The WTI price climbed to $40/b on July 1 and remained near that amount through most of the rest of the year. At the end of 2020, crude oil prices began to increase as markets responded to news of several COVID-19 vaccine rollouts and to the announcement from members of the Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+) that they would limit production increases in 2021.

Principal contributor: Matt French

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