We wrote back in January that eventually somebody would blink, and while at first glance the news of a production freeze at January levels from Saudi Arabia, Russia, Qatar and Venezuela is not a cut, it’s a start. With the Saudi and Russian economies both desperately in need of higher prices, and Iran’s production coming into the markets after years of international sanctions, it would seem like a cut can’t be too far behind.
A new Jefferies research note says that a 1 million barrel per day cut should start to stabilize markets, and a 1.5 million barrel cut should help to draw down global inventory balance by the second half of this year. The report lists top picks for investors from the energy research team, and we focus on four that could react the fastest to positive news.
Anadarko Petroleum
Shares of this top company are down a stunning 65% since May of 2015. Anadarko Petroleum Corp. (NYSE: APC) operates through three segments. The Oil and Gas Exploration and Production segment explores for and produces natural gas, oil, condensate and natural gas liquids (NGLs).
The Midstream segment provides gathering, processing, treating and transportation services to Anadarko and third-party oil, natural-gas and NGLs producers, as well as owns and operates gathering, processing, treating and transportation systems in the United States. The Marketing segment markets oil, natural gas and NGLs in the United States; oil and NGLs internationally; and anticipated liquefied natural gas production from Mozambique.
The company’s asset portfolio includes U.S. onshore resource plays in the Rocky Mountains, the southern United States, the Appalachian basin and Alaska. It also includes the deepwater Gulf of Mexico and Mozambique, Algeria, Ghana, Brazil, Colombia, Côte d’Ivoire, Kenya, Liberia, New Zealand and other countries. As of December 31, 2014, it had approximately 2.9 billion barrels of oil equivalent of proved reserves.
In December the company once again posted earnings that beat estimates and raised the guidance going forward. In addition to strong performance, it is lowering costs and keeping the balance sheet as clean as possible.
Anadarko investors receive a 0.51% dividend, after a huge 81% cut. The Jefferies price target for the stock is $53, and the Thomson/First call consensus target is $65. Shares closed on Tuesday at $39.09.
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Pioneer Natural Resources
Many Wall Street analysts love this stock as a pure crude oil play, and recently it was upgraded by Deutsche Bank and Citigroup. Pioneer Natural Resources Co. (NYSE: PXD) engages in the exploration and production of oil and gas in the United States. The company produces and sells oil, natural gas and NGLs. It has operations primarily in the Permian Basin, the Eagle Ford Shale play and the West Panhandle field in Texas, and the Raton field in southeastern Colorado.
Pioneer is a huge player in the Permian Basin and the Eagle Ford, and the company owns more than 20,000 locations in the world’s second largest oil reservoir in the Midland Basin. Wall Street analysts were very positive on the third-quarter results and noted that the company reiterated annual production growth guidance of 15% or more while cutting the number of rigs expected to operate. With a stellar balance and the new capital from a recent secondary offering the company is poised to remain the number one player in the Permian.
The company recently announced fourth-quarter earnings and posted an adjusted loss that was smaller than the Wall Street consensus. Revenues also came in slightly higher than street expectations.
Investors receive a tiny 0.07% dividend. Jefferies has a $142 price target, and the consensus figure is $165.21. Pioneer closed on Tuesday at $115.45.
RSP Permian
This was one of the production growth leaders in the latter half of 2015. RSP Permian Inc. (NYSE: RSPP) is an independent oil and natural gas company focused on the acquisition, exploration, development and production of unconventional oil and associated liquids-rich natural gas reserves in the Permian Basin. The vast majority of the company’s acreage is located on large, contiguous acreage blocks in the core of the Midland Basin section of the Permian Basin.
The company reported 114% third-quarter production growth compared to last year’s quarter. It produced 24,000 barrels of oil equivalent per day (Mboe/d) compared to 11.2 Mboe/d in the third quarter in 2014. The company’s overall production was comprised of 75% crude oil, 14% NGLs and 11% natural gas. It also completed 11 operated horizontal wells and five operated vertical wells in the quarter.
The company is set to report fourth-quarter numbers soon. We recently reported that Goldman Stocks ranked the stock as one of four top picks for $35 oil.
The $27 Jefferies price target is lower than the consensus target of $29.14. The stock closed Tuesday at $20.09.
Schlumberger
Schlumberger Ltd. (NYSE: SLB) is hardly a company that many investors would view as a value stock, but given the debacle in the energy sector over the past year, the decline in share prices has pushed it almost to value levels.
It remains the largest oilfield services company in the world for now, with far-reaching operations all around the globe, and it could be poised for years of solid growth despite the huge turndown in oil pricing. Many Wall Street analysts think it will continue to drive margins on execution, technologies and efficiencies. Russia, Saudi Arabia, Iraq and China are expected by some to be the strongest markets if geopolitical concerns remain somewhat in check.
The company announced last August a deal to buy oil field services giant Cameron International in a deal expected to cost about $12.7 billion in cash and stock. Wall Street analysts note what they term the company’s “drive to disrupt the status quo,” which includes transformation initiatives like the gigantic purchase of Cameron. Trading at a low 6.6 times the firm’s normalized EBITDA estimates, the stock looks cheap.
For the fourth quarter the company announced revenue that declined 39% from the same quarter last year. Net income for the quarter fell into the red, due in part to $2.1 billion in asset impairments and restructuring charges related to reducing its workforce. All in all, the report was better than some expected, and we covered last month how the company is outpacing its major competition.
Schlumberger investors receive a 2.84% dividend. The Jefferies price objective is $71 and could be lifted soon. The consensus target is $81.26. The shares closed Tuesday at $71.75.
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Needless to say, freezing production versus production cuts is hardly the final answer to a world bloated with oil. What it does say, finally, is that producers are willing to make the tough choices necessary to boost prices from multiyear lows. While $100 a barrel oil is nowhere in sight, just halting the slide and firming above $30 would at least be a start.
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