Investing

OPEC Vehemently Rejects Production Increase Headlines: Buy These Mega-Cap Dividend Energy Leaders Now

Lee Jackson

Published: November 23, 2022 6:00 am

Last Updated: November 29, 2022 7:14 am

At one point on Monday, Brent Crude and West Texas Intermediate oil prices were both down well over 5% and looked like they were both poised to crash lower. The reason for the massive selloff in the two benchmarks was a story that was circulating through the financial press and media that instead of cutting production by 2 million barrels per day, the Organization of the Petroleum Exporting Countries (OPEC) was actually going to increase production by 500,000 barrels a day.

On Tuesday the top exporter in the group Saudi Arabia and other countries denied the production increase, and stated they remain firm in production cuts of 2 million barrels per day that were announced earlier this fall that will be in effect for all of 2023. The confusion, and of course the algorithms that scan headlines and attack have driven some of the top oil stocks in the sector back to very appealing entry points.

We screened our 24/7 Wall St. energy database looking for the mega-cap integrated leaders that all pay solid dividends and are rated Buy. We found seven both here and abroad that make sense now and for 2023. It’s important to remember though that no single analyst report should be used as a sole basis for any buying or selling decision.

APA

This company was long considered an industry leader when they were known as Apache, and is perhaps offering one of the best entry points in the sector. APA Corporation (NYSE: APA), through its subsidiaries, explores for and produces oil and gas properties. It has operations in the United States, Egypt, and the United Kingdom, as well as has exploration activities in offshore Suriname. It also operates gathering, processing, and transmission assets in West Texas, as well as holds ownership in four Permian-to-Gulf Coast pipelines.

The company is one of the largest US E&P companies with 2.3 BBOE of proven reserves (63% liquids). It is an acquirer/exploiter/explorer, a fiscally conservative company that has grown its reserves and production consistently via acquisitions and organic projects.

APA reported third-quarter net income of $422 million, after reporting a loss in the same period a year earlier. The company said it had profit of $1.28 per share. Earnings, adjusted for non-recurring costs, were $1.97 per share. The results topped Wall Street expectations for $1.92 per share.

Shareholders are paid a 2.21% dividend. The Citigroup team has a Buy rating and its price target for the company is set at $62. The Wall Street consensus is posted much lower at $54.92. The last trade for Tuesday came in at $47.78, up close to 6% as energy rallied.

BP

This company is one of the premier European integrated oil giants and the Goldman Sachs analysts are very positive on the shares. BP Plc (NYSE: BP) engages in the energy business worldwide. It operates through gas and low carbon energy, oil production and operations, customers and products, and Rosneft segments.

BP produces and trades in natural gas; offers biofuels; operates onshore and offshore wind power, and solar power generating facilities; and provides de-carbonization solutions and services, such as hydrogen, and carbon capture, usage, and storage.

The company also is involved in the convenience and mobility business, which manages the sale of fuels to wholesale and retail customers; convenience products; aviation fuels; and Castrol lubricants; and refining, supply, and trading of oil products, as well as operation of electric vehicle charging facilities. In addition, it produces and refines oil and gas; and invests in upstream, downstream, and alternative energy companies, as well as in advanced mobility, bio and low carbon products, carbon management, digital transformation, and power and storage areas.

Shareholders are paid a whopping 4.01% yield. The Piper Sandler team has an Overweight rating and their price target for the domestic shares is $40, which compares with the $38.20 consensus target. The final trade Tuesday was reported at $34.89, up over 5% on the sector strength.

Chevron

This integrated giant is a safer way for investors looking to get positioned in the energy sector. Chevron Corporation (NYSE: CVX), through its subsidiaries, engages in integrated energy and chemicals operations worldwide. The company operates in two segments, upstream and downstream.

The upstream segment is involved in the exploration, development, production, and transportation of crude oil and natural gas; processing, liquefaction, transportation, and regasification associated with liquefied natural gas; transportation of crude oil through pipelines; and transportation, storage, and marketing of natural gas, as well as operates a gas-to-liquids plant.

The downstream segment engages in refining crude oil into petroleum products; marketing crude oil, refined products, and lubricants; manufacturing and marketing of renewable fuels; transporting crude oil and refined products by pipeline, marine vessel, motor equipment, and rail car; and manufacturing and marketing of commodity petrochemicals, plastics for industrial uses, and fuel and lubricant additives. It is also involved in the cash management and debt financing activities; insurance operations; real estate activities; and technology businesses.

The company sports a sizable 3.10% dividend, and has a solid place in the sector when it comes to natural gas, and liquefied natural gas. Raymond James has an Outperform rating and a $215 target price. The consensus target is posted lower at $191.67. The shares closed Tuesday at $185.89 a 3% gain.

ConocoPhillips

This is another large-cap company that offers strong value for investors. ConocoPhillips (NYSE: COP) explores for, produces, transports, and markets crude oil, bitumen, natural gas, liquefied natural gas, and natural gas liquids 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 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.

Investors are paid a 1.89% dividend. Truist Financial has a Buy rating and their price target for the company is a Wall Street high of $167, which compares with the lower Wall Street consensus price target of $136.26. Conoco was last seen Tuesday at $129.98 up nearly 4%.

Exxon Mobil

Despite the rally in oil this year, this mega-cap energy leader trades at a reasonable valuation and still offers investors an excellent entry point. Exxon Mobil Corporation (NYSE: XOM) is the world’s largest international integrated oil and gas company that explores for and produces crude oil and natural gas in the United States, Canada/South America, Europe, Africa, Asia, and Australia/Oceania.

Exxon Mobil also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products. It also transports and sells crude oil, natural gas, and petroleum products.

Top Wall Street analysts expect the company to remain a key beneficiary in a higher oil price environment, and most remain very positive around the company’s sharp positive inflection in capital allocation strategy, upstream portfolio, and leverage to a further demand recovery, with ExxonMobil offering greater downstream/chemicals exposure relative to peers.

The top U.S. oil producer reported a per-share profit of $4.68, exceeding Wall Street’s $3.89 consensus view, on a huge jump in natural-gas earnings, continued high oil prices, and strong fuel sales.

The company pays investors a solid 3.28% dividend, which will continue to be defended. Jefferies has a Buy rating and a $133 price target for the stock. The Wall Street consensus is set much lower at $116.58. Exxon closed trading Tuesday at $114.18 up almost 3%.

Occidental Petroleum

Over the last year Berkshire Hathaway has been buying the shares of the company in a big way. Occidental Petroleum (NYSE: OXY) together with its subsidiaries is engaged in the acquisition, exploration, and development of oil and gas properties in the United States, the Middle East, Africa, and Latin America. It operates through three segments: oil and gas, chemical, and midstream and marketing.

The company’s oil and gas segment explores for, develops, and produces oil and condensate, natural gas liquids (NGLs), and natural gas. Its chemical segment manufactures and markets basic chemicals, including chlorine, caustic soda, chlorinated organics, potassium chemicals, ethylene dichloride, chlorinated isocyanurates, sodium silicates, and calcium chloride. Also vinyls comprising vinyl chloride monomer, polyvinyl chloride, and ethylene.

The midstream and marketing segment gathers, processes, transports, stores, purchases, and markets oil, condensate, NGLs, natural gas, carbon dioxide, and power. This segment also trades around its assets consisting of transportation and storage capacity and invests in entities.

Berkshire Hathaway received regulatory approval to buy up to 50% of the stock. The investment giant currently owns 194.4 million shares of Occidental, which is equal to a 20.9% position. Some reports have indicated he will not acquire a controlling stake.

Investors are paid a small 0.73% dividend. Barclays has a Buy rating and a tall $84 price target. That’s versus the lower $76.70 consensus and Thursday’s closing print of $72.77, close to a 5% gain on the day.

Shell

This is another European energy giant that offers investors size and strength. Shell Plc (NYSE: SHEL) operates as an energy and petrochemical company in Europe, Asia, Oceania, Africa, the United States, and the rest of the Americas. The company operates through integrated gas, upstream, marketing, chemicals and products, and renewables and energy solutions segments.

Shell explores for and extracts crude oil, natural gas, and natural gas liquids; markets and transports oil and gas; produces gas-to-liquids fuels and other products; and operates upstream and midstream infrastructure necessary to deliver gas to market. The company also markets and trades natural gas, liquefied natural gas (LNG), crude oil, electricity, carbon-emission rights; and markets and sells LNG as a fuel for heavy-duty vehicles and marine vessels.

Shell trades in and refines crude oil and other feed stocks, such as low-carbon fuels, lubricants, bitumen, sulfur, gasoline, diesel, heating oil, aviation fuel, and marine fuel; produces and sells petrochemicals for industrial use; and manages oil sands activities. Further, the company produces base chemicals comprising ethylene, propylene, and aromatics, as well as intermediate chemicals such as styrene monomer, propylene oxide, solvents, detergent alcohols, ethylene oxide, and ethylene glycol. Additionally, it generates electricity through wind and solar resources; produces and sells hydrogen; and provides electric-vehicle charging services, as well as electricity storage.

Shareholders are paid a rich 3.58% dividend. BofA Securities has a Buy rating on the shares to go with a $70 target price. The consensus target across Wall Street is $67.45. The final trade Tuesday was reported at $56.82, up just shy of 4%.

TotalEnergies

This French integrated giant is another great way to play the energy rally from the European side. TotalEnergies SE (NYSE: TTE) operates as an integrated oil and gas company worldwide. The company operates through four segments: exploration and production; integrated gas, renewables and power; refining and chemicals; and marketing and services.

The company’s exploration and production segment is involved in oil and natural gas exploration and production activities in approximately 50 countries. Its integrated gas, renewables and power segment engages in the liquefied natural gas (LNG) production, shipping, trading, and regasification activities; trading of liquefied petroleum gas (LPG), petcoke and sulfur, natural gas, and electricity; transportation of natural gas; electricity production from natural gas, wind, solar, hydroelectric, and biogas sources; energy storage activities; and development and operation of biomethane production units, as well as provides energy efficiency services.

TotalEnergies refining and chemicals sector is involved in refining petrochemicals, including olefins and aromatics; and polymer derivatives, such as polyethylene, polypropylene, polystyrene, and hydrocarbon resins, as well as biomass conversion and elastomer processing. This segment also engages in trading and shipping crude oil and petroleum products. Its marketing and services group produces and sells lubricants; supplies and markets petroleum products, including bulk fuel, aviation and marine fuel, special fluids, compressed natural gas, LPG, and bitumen; and provides fuel payment solutions. It operates about 15,500 service stations.

Investors are paid a massive 4.66% dividend. BofA Securities has a Buy rating and a huge $92 price target. The consensus target for the stock is posted much lower at $71.71. The shares closed trading Tuesday at $60.07.

Given the shaky geo-political state of the world we decided to focus on the mega-cap domestic and foreign-sector leaders. Needless to say, if the current administration doesn’t pivot at some point on the over-regulation and energy policy mistakes, the current supply situation will likely get worse. Now is a good time to stay with mega-cap energy leaders, especially after the recent selling.