One would think that President Biden’s initiative on climate change would be the worst possible scenario for the energy sector. He stopped construction on the XL pipeline, halted drilling on government land and rejoined the Paris Climate Agreement via executive order, putting a shudder through energy investors. According to many on Wall Street, the reality is that politics often takes a backseat to supply/demand dynamics. Nothing proves that more than the rise in energy prices as wind farms were shut down from the brutal cold that swept Texas and other parts of the country.
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There is another factor that could be huge for the top companies in the sector, as West Texas Intermediate crude surges past $60 a barrel, which is the highest level in over a year. In a new Truist Securities report, outstanding energy analyst Neal Dingmann points out that some of the top companies in the industry have no hedges on their production. That means that not only will none of their production be taken at lower levels that the market is currently at, they also can sell at any time as the price rises, or hedge some if they choose later.
Five companies with stocks rated Buy have zero hedges currently on their production. While things can certainly change, the X factor of the economy reopening and travel returning could keep some support under pricing. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Apache
This company has long been considered an industry leader, and its stock is perhaps offering one of the best entry points in the sector. Apache Corp. (NYSE: APA) is an independent energy company that explores for, develops and produces natural gas, crude oil and natural gas liquids (NGLs). The company has operations in onshore assets located in the Permian and Midcontinent/Gulf Coast onshore regions, and offshore assets situated in the Gulf of Mexico region. It also holds onshore assets in Egypt’s Western desert and offshore assets in the North Sea region, including the United Kingdom.
On Jan. 14, 2021, Apache and Total announced an oil discovery at the Keskesi East-1 exploration well in Block 58 offshore Suriname. This follows the January, April and July 2020 announcements of discoveries at the Maka Central-1, Sapakara West-1 and Kwaskwasi-1 wells, respectively. The next exploration well on Block 58 will be at the Bonboni location.
The Truist Securities price target for the shares is $22, and the Wall Street consensus target is $19.61. Apache stock retreated almost 6% on Thursday and closed at $17.63 a share.
Chevron
This energy giant is a safer way for investors looking to be positioned in the energy sector. Chevron Corp. (NYSE: CVX) is a U.S.-based integrated oil and gas company, with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals. The company sports a sizable dividend and has a solid place in the sector when it comes to natural gas and liquefied natural gas (LNG).
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Back in December, the company gave some solid 2021 guidance, and the analyst noted this at the time:
Chevron provided guidance around capital expenditures through 2025. On a headline basis, the company expects to spend $14 billion in 2021 ($9.7 billion in cash capital expenditures), and $14-$16 billion annually in 2022-2025 relative to Chevron’s prior out year guidance of $19-22 billion, which excluded the Noble transaction. The company remains focused on investments in the Permian, other unconventionals, and the Gulf of Mexico.
Shareholders receive a 5.43% dividend, which analysts feel comfortable will remain at current levels. Truist Securities has a $105 price target, which is higher than the $103.77 consensus target. The last Chevron stock trade on Thursday was reported at $95.00 a share.
24/7 Wall St.ConocoPhillips
This is another large-cap company with a stock that offers strong value for investors. ConocoPhillips (NYSE: COP) explores for, produces, transports and markets crude oil, bitumen, natural gas, LNG and NGLs worldwide.
Conoco’s portfolio includes resource-rich North American tight oil and oil sands assets; lower-risk legacy assets in North America, Europe, Asia and Australia; various international developments; and an inventory of conventional and unconventional exploration prospects.
Many Wall Street analysts feel that Conoco can accelerate growth from a reloaded portfolio depth in the Bakken and Eagle Ford, with visibility on future growth from a sizable position in the Permian. While sentiment on the company has soured given, federal lands exposure, M&A uncertainty and some less than stellar earnings execution, the analysts expect the stock price to reflect a recovery in 2021 and 2022 crude oil prices.
Investors receive a 3.61% dividend. Truist Securities has set its price target at $50. The posted consensus target is higher at $55.27, and ConocoPhillips stock closed at $47.69 on Thursday.
Continental Resources
This company has very large exposure to crude oil. Continental Resources Inc. (NYSE: CLR) is primarily a producer of onshore U.S. oil and has positioned itself in two growing hydrocarbon discoveries in the country: 1) the Bakken oil play in Montana and North Dakota, and 2) the SCOOP/STACK in Oklahoma, giving the company good growth opportunities for years to come.
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Many on Wall Street feel that the company’s investment thesis is virtually unmatched. Investors get core Permian-like acreage at a non-Permian valuation. Of greatest importance, Continental is one of few diversified large-cap stocks that offers investors exposure to low-cost oil outside of the Permian. With current capacity and distribution issues in the Permian, this is another solid reason to own shares.
The $26 Truist Securities price objective is above the $21.10 consensus target price. Continental Resources stock was last seen on Thursday at $21.82, down over 6% on the day.
24/7 Wall St.EOG Resources
This leading energy firm shows up well on many Wall Street screens. EOG Resources Inc. (NYSE: EOG) is one of the largest independent exploration and production companies operating in the United States, Canada, Trinidad, the United Kingdom and China. The company’s principal producing areas in the United States are located in New Mexico, North Dakota, Texas, Utah and Wyoming.
The stock was hit hard when the U.S. president announced no more oil drilling on federal lands, and it is offering an outstanding entry point for investors looking for quality ideas in the sector. EOG has secured four years of drilling permits while retaining flexibility to reallocate resources to other parts of the portfolio. EOG has 3,000 locations not on federal lands, which most on Wall Street expect to expand through its exploration.
Holders of EOG Resources stock receive a 2.48% dividend. The price target at Truist Securities is $63. The $69.09 consensus target is higher, but shares closed trading on Thursday at $60.57, after pulling back almost 5% for the day.
The price of oil can be very volatile, as we have seen over the past year. While this recent spike may take a break soon, the wildcard of the economy could provide ample support, especially as we move closer to the all-important summer driving and travel season.
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