Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Posts Tagged ‘oil stocks’

My Top Value Play in Bakken Oil

By for Profit Confidential

Top Value Play in Bakken OilThe weakness in oil prices was pretty sudden and has changed the financial dynamics for many producers. Typically, weaker oil prices are slow to translate into lower prices at the pumps.

Domestic junior oil stocks have been hot commodities until recently. Many of the market’s best growth stocks in this sector continue to be expensively priced and finding value has been a difficult endeavor.

One company we’ve considered before in these pages is Northern Oil and Gas, Inc. (NOG). (See “My Favorite Bakken Oil Play.”) This outfit is based in Minnesota and operates in North Dakota and Montana. The stock is not expensively priced, and the company is back online with solid sequential growth in production.

Northern has experienced infrastructure problems and weather-related issues that have hampered well completions, but the company’s latest quarter was a big success and full-year 2014 production guidance was upgraded to between 20% and 25% growth over 2013, compared to previous guidance of 15%.

According to Northern, its 2014 second-quarter production grew 17% sequentially and 41% year-over-year to 1.4 million barrels of oil equivalent (boe), averaging 15,369 boe per day.

The company’s total oil and gas sales in the second quarter of 2014 increased dramatically to $121 million, compared to $80.0 million in the second quarter of 2013.

But management incurred a significant loss on the mark-to-market of a derivative instrument and on the settlement of a derivative instrument, which resulted in actual second-quarter revenues being knocked down to $74.6 million, compared to $96.0 million in the second quarter of 2013.

As a result of the derivative loss (perhaps the reason why the … Read More

How to Profit from the Surge in Domestic Oil Production

By for Profit Confidential

Best Investment Opportunity in Oil-Related StocksCrude oil has pulled back from its recent price strength, but it’s still holding up pretty well above the $100.00-per-barrel mark for West Texas Intermediate (WTI).

Energy is still a top sector for equity portfolios, but it is the case that many oil stocks have already moved up tremendously and valuations are a little stretched.

I’m a big believer in energy infrastructure and pipelines for income-seeking investors and junior energy stocks for risk-capital investors.

It’s more difficult to find value in this market; that’s for sure. But domestic oil and gas production, transportation, and storage remain a growth industry.

Halliburton Company (HAL) just reported another great quarter, with its oil and gas services still being pretty robust worldwide.

In particular, Halliburton’s management noted solid strength in the U.S. market for energy services, and that’s on top of several tremendously good years in recent history.

According to the company, 2014 second-quarter sales came in at $8.1 billion, up solidly from first-quarter sales of $7.35 billion and comparative second-quarter sales of $7.32 billion last year.

Recent quarterly revenues were a new record for Halliburton, with notable strength in its North American operations. In fact, domestic operations are so strong that management plans to immediately add new equipment, transportation capabilities, and work crews for hydraulic fracturing.

The company’s operating margins are rising (internationally, as well), and the board just increased its share repurchase authorization by a huge $4.8 billion to $6.0 billion in total.

Halliburton’s share price is up 40% year-to-date, and I’d say there’s a good probability the position is going higher yet, as it’s not overpriced for double-digit growth.

The company’s … Read More

Big Growth Ahead for These Three Shale Oil Plays

By for Profit Confidential

Three Shale Oil Plays with Good UpsideI was listening to hedge fund guru and energy baron T. Boone Pickens on CNBC the other day and, as he always has, he wants to stop the flow of OPEC (Organization of the Petroleum Exporting Countries) oil into this country. This, folks, is not fiction; it is actually realistic, given the surging production of domestic shale oil and natural gas. Pickens wants to create a North American energy partnership through which the United States would align with Mexico and Canada to develop an energy conglomerate.

In my view, this makes sense, and it could perhaps drive oil prices lower, which could create a buying opportunity for investors (albeit I doubt the big oil companies would want such a thing to happen).

The oil patch is driving riches from Texas to North Dakota and Montana. The price of West Texas Intermediate (WTI) crude is holding above $100.00 per barrel.

The key to energy independence will be the ability to drive shale oil production higher. Consider that in 2012, shale gas represented 39% of total natural gas production in the United States, making it the top shale oil producer worldwide, according to the Energy Information Administration (EIA). Canada came in second at 15%. The numbers are estimated to get even bigger and with this, I see a buying opportunity.

Even the “cartel” OPEC realizes the impact of shale oil on its operations. In a report undertaken by OPEC in 2013, the cartel estimates a decline in its market share as shale oil production rises. (Source: Lawler, A., “OPEC to lose market share to shale oil in 2014,” Yahoo! Finance web site, … Read More

Why It’s Not Too Late to Enter the Hot Oil Sector

By for Profit Confidential

Oil Sector Hot Here's How to Get in on the ProfitsThe spot price of oil is holding up and there are countless oil stocks pushing their highs.

If the 1990s were the decade for technology stocks, then the 2010s are the decade for independent oil producers.

While the largest integrated oil and gas companies are struggling to grow production, mid-tier, independent producers are filling the gap, and there are countless growth stories in the marketplace.

EOG Resources, Inc. (EOG) has been a top stock market performer and is likely to continue ticking higher. The company has net proven reserves of some 2,119 million barrels of oil equivalent, of which 94% is located in the United States.

Of the company’s total 2013 production, 88% came from the U.S. and Canada, representing a nine-percent gain over 2012.

First-quarter 2014 earnings were $661 million, compared to $495 million in the first quarter of 2013.

The company’s total crude oil and condensate production rose 42% over the comparable quarter last year, and management has significant hedges, locking in oil prices just under $100.00 a barrel. Approximately 30% of North American natural gas production is hedged for the remainder of 2014 at a weighted average price of $4.55 per million British thermal units (MMBtu).

The Street expects EOG Resources to grow its revenues by about 17% this year and about seven percent in 2015.

Previously in these pages, we looked at Cimarex Energy Co. (XEC), which has been very strong on the stock market since the beginning of February. (See “Where to Find the Best Price Momentum Right Now.”)

This oil and gas growth story is slowing, but the company is still expected … Read More

Investment Theme with Legs to the End of This Decade

By for Profit Confidential

One Domestic Industry That Continues to BoomIf there’s one sector of the stock market still poised for more capital gains, it has to be in domestic oil and gas producers.

This sector continues to be a top wealth creator. Most of the action is in the junior and mid-tier producers, as well as the limited partnerships focused on storage and distribution.

On the other hand, large, integrated producers are running into oil equivalent production issues. Both Exxon Mobil Corporation (XOM) and Chevron Corporation (CVX) are good examples, as they are currently dealing with declining production as new projects have yet to come on stream.

EOG Resources, Inc. (EOG) is a large-cap oil and gas producer with an excellent track record of wealth creation for shareholders. In the past, this stock has gotten ahead of itself, but it is still very much a growth story.

The stock’s been getting upgraded after reporting excellent financial and production growth in the first quarter. The position’s already been a huge winner, but within the numbers, there is still very meaningful growth in domestic (U.S.) crude oil production.

U.S. first-quarter production of crude oil grew an impressive 45% to 258.1 thousand barrels of oil per day (MBbld), up from 178.3 MBbld in the first quarter of 2013.

Natural gas production also improved in the first quarter but grew at a lesser rate of 20% comparatively (including U.S. and Canadian volumes).

For a large-cap resource company, it’s worth taking a closer look at EOG’s numbers. Its balance sheet is in very good shape with tons of cash on the books. And its net cash provided by operating activities soared in the most … Read More

The Unavoidable Risk in Resource Investing

By for Profit Confidential

Oil Stocks Attractive Beware Unavoidable RiskThe spot price of oil has pulled back to the $100.00-per-barrel mark, but oil stocks are holding up extremely well and the price strength is almost across the board, from related services to the big integrated producers.

Earnings expectations for many within the oil group have been going up for this year and next, while valuations, even among fast-growing producers, aren’t generally overdone. Earnings have caught up to share prices over the last couple of quarters.

Not every investor wants to be in oil. But for those who do, the sector can be a key component of an equity portfolio. There’s a lot of income and capital gain potential with related businesses and plenty of options on how to play the industry.

One junior energy producer we’ve been looking at in these pages since early 2013 is Kodiak Oil & Gas Corp. (KOG). This is a highly liquid Bakken oil play and institutional favorite. The company reports after the market closes this Thursday; its news is material for oil and gas speculators.

Kodiak has a very good track record of generating significant production and financial growth. In the fourth quarter of 2013, the company’s oil and gas sales soared to $266.5 million, representing a comparable gain of 104% over the fourth quarter of 2012.

Average production of barrels of oil equivalent per day (boepd) grew to 36,100 in the fourth quarter of 2013, basically doubling the average boepd in the comparable quarter.

Kodiak’s total oil and gas sales in all of 2013 were $905 million for a gain of 121% over 2012. Earnings growth was less robust, as the company … Read More

My Top Energy Pick with Market-Defying Momentum

By for Profit Confidential

My Top Energy Stock Pick for This Slow-Growth MarketThe strength in this market is with oil, as both the spot price and oil stocks are holding up very well.

While the broader market has been experiencing a well-deserved price retrenchment, both large- and small-cap oil stocks have been on the comeback trail. The price strength is helpful as speculative fervor continues to come out of equities. The performance illustrates how helpful sectoral portfolio diversification can be when asset prices fall.

ConocoPhillips (COP) is not expensively priced at approximately 9.5 times trailing earnings. The stock sold off significantly at the beginning of the year but has since recovered nicely. Currently yielding just less than four percent, this oil and gas story is similar to the other big integrated energy companies: it isn’t about production growth but more about income for investors.

One company we’ve looked at several times in these pages is Kodiak Oil & Gas Corp. (KOG). This is a Bakken oil play that’s really doing well. This stock was consistently expensive, being a highly liquid favorite of institutional investors, but earnings have caught up to the share price and the story is still intact. This junior energy producer still has a very bright future. The company’s stock chart is featured below:

 Kodiak Oil And Gas Corp ChartChart courtesy of www.StockCharts.com

Energy consistently has a role to play in equity market portfolios, and it doesn’t have to be pure-play production stories. In terms of resource investing, I find it much more attractive over precious metals, particularly for investors looking for some longevity in their holdings.

In an environment that’s likely to remain slow-growing for several years, I like both the income and capital … Read More

If This Indicator Turns, the Stock Market’s in Trouble…

By for Profit Confidential

Factors Now Creating a Positive Backdrop for This Stock MarketWith the stock market jittery due to geopolitical events, its underlying strength is highlighted by the relative outperformance of the NASDAQ Composite, the Dow Jones Transportation Average, and the Russell 2000. If these indices are doing relatively better than the S&P 500 and Dow Jones Industrial Average, then there is still an underlying strength to a market that hasn’t experienced a material correction for far too long.

The stock market has done a very good job of recovering from January’s sell-off. Certainty from the Federal Reserve, fourth-quarter earnings results that were modest but mostly met expectations, and strong corporate balance sheets are providing a decent fundamental backdrop. The stock market can have another decent year if it isn’t sidetracked by some sort of lasting shock.

The other indicator that is not directly related to the stock market but certainly is worth taking note of is the spot price of oil. Oil prices have been holding quite solidly above the $100.00-per-barrel level.

Stronger oil prices are a reflection of their own specific fundamentals, but they’re also a barometer or gauge on the part of speculators regarding future economic activity. The spot price has brought back a lot of oil stocks that recently sold off and valuations are creeping up close to previous levels (which was very expensive for Bakken oil stocks).

I maintain a positive outlook for the stock market given current fundamentals and recognize, of course, that geopolitical events can turn investor sentiment on a dime. If the stock market were to experience a substantial price correction right now, I would view it as a buying opportunity.

Earnings estimates for … Read More

Upside for Oil Appears Limited, but Investments in Oil Markets Aren’t

By for Profit Confidential

Why I Believe the Upside for Oil Is LimitedOil prices have rallied back to the $100.00-per-barrel level on some near-term supply and inventory concerns.

While the upside move is rewarding the buyers of oil stocks, I don’t think oil prices are set for an extended rally.

The chart of the West Texas Intermediate (WTI) crude oil shows oil prices bouncing higher after the formation of a bullish double bottom, based on my technical analysis. And while oil prices can head higher on the chart, I just don’t see any moves being sustainable.

Light Crude Oil ChartChart courtesy of www.StockCharts.com

The catalyst for higher oil prices has more to do with tight inventories driven by a rise in demand. The inventory of oil contracted by 1.5 million barrels per day in October to December 2013, according to the International Energy Agency (IEA). The IEA suggests the demand for oil will rise by 50,000 barrels per day to 1.3 million barrels in 2014. (Source: Johnson, C. and Sheppard, D., “Robust demand tightening oil market, IEA says,” Reuters, February 13, 2014.) If this estimate pans out, oil prices could edge higher and hold above $100.00, but I doubt the move will last that long.

Now, if China jumps out of its sluggish growth (read “Investment Opportunities in Depressed Chinese Stocks”) and Europe can drive its economic renewal, then we could see brighter prospects for oil prices.

On the supply side, America is relying less on the Organization of the Petroleum Exporting Countries (OPEC) and foreign oil as American oil companies continue to squeeze more oil out of the ground, specifically shale oil.

There may even be a time down the road when … Read More

Oil Returns as Major Indicator of Capital Markets?

By for Profit Confidential

Oil Investments Back in PlayThe lull between earnings seasons will soon be here and with the absence of corporate results, trading action can get choppy.

It’s still important to follow transportation stocks and the NASDAQ Composite. Transportation stocks have a tendency to lead the broader market, and outperformance from the NASDAQ Composite (compared to the other major indices) signals speculative fervor remains.

The one commodity that’s very much back in play in terms of a reflection of investor sentiment is oil. West Texas Intermediate (WTI) has come back to the $100.00-per-barrel level on what looks like speculative betting on better economic growth this year.

There were actually quite a few disappointments in big oil’s recent financial results and production is definitely an issue. Both large-cap and small-cap oil stocks have not seen their share prices rise commensurately with oil prices, but some value is finally appearing in this sector.

One company that we looked at previously is Kodiak Oil & Gas Corp. (KOG). This is a Bakken oil play that, until recently, was expensively priced. (See “While Few See It, This Stock Sector Is Getting Risky.”)

Kodiak expects to produce 42,000–44,000 barrels of oil equivalent per day (boepd) this year, which represents about a 45% gain over last year. The company’s stock chart is featured below:

Kodiak Oil and Gas Corp ChartChart courtesy of www.StockCharts.com

Kodiak reports its fourth-quarter and year-end financial results at the end of this month. Junior oil companies may see their fourth-quarter numbers affected by the severe cold in terms of the number of well completions.

While Kodiak may be considered a hold currently, this position is becoming more attractively valued. The … Read More

Despite Consolidation in Oil Sector, These Junior Oil & Gas Stocks Have Momentum

By for Profit Confidential

Oil in Consolidation, but Momentum Remains in Junior Oil & Gas StocksThose interested in the oil business will know that smaller stocks in the sector have mostly been doing very well, even as the spot price of the commodity dropped below $100.00 a barrel.

The run-up has been pronounced in a number of companies, likely in anticipation of third-quarter earnings. Oil stocks advancing on declining spot prices is a very unusual development in the resource sector. But there is definitely an appetite out there among institutional investors for junior oil and natural gas producers.

One company we looked at previously is Kodiak Oil & Gas Corp. (KOG). This Bakken oil play reports tomorrow, and expectations are high.

Wall Street consensus is for Kodiak to generate sales growth of around 150% in its upcoming quarter. Earnings have the potential to double over the third quarter of 2012.

Company management recently announced its full-year 2013 average daily production will be approximately 30,000 barrels of oil equivalent per day (boepd). This compares to an average of 14,000 boepd in 2012. This year’s exit production rate is currently estimated at 42,000 boepd.

So, there’s definitely economic growth in the domestic oil and gas business due to new technology and the willingness of investors to finance junior companies.

Kodiak is trading right at its all-time record high after experiencing a meaningful consolidation throughout 2012 and the first half of this year. The stock is fully priced, which is no surprise. If oil prices were to reaccelerate, this position would be even higher.

Also reporting tomorrow is ConocoPhillips (COP), which is outperforming other big oil companies on the stock market.

ConocoPhillips spun off Phillips 66 (PSX) last … Read More

Why the Street Is So Bullish on This Junior Oil Producer

By for Profit Confidential

oil stocksWith all the things going on in the world, it’s a good time to be in the oil business. Bakken oil stocks are almost all high-valuation; but the marketplace knows this, and it’s getting what it’s paying for—there’s big growth among many of these producers.

Everything is relative in the stock market. Valuations among junior oil producers with growing production (on strong oil prices) aren’t comparable to other businesses or industry sectors.

Triangle Petroleum Corporation (TPLM) recently shot way up on the stock market after reporting exceptional growth in production and its financials. This company is developing the Bakken Shale and Three Forks formations in the Williston Basin of North Dakota and Montana.

The stock’s actually been flat over the last two years. Part of the reason for this is that the company has had to sell a number of new shares in order to finance its business plan.

Triangle Petroleum recently reported fiscal 2014 second-quarter (ended July 31, 2013) revenues of $50.4 million, compared to $10.3 million a year ago.

Operating income was an impressive $13.0 million compared to a loss of $1.3 million. Net income was $6.8 million, or $0.12 per diluted share, compared to a net loss of $1.2 million, or $0.02 per diluted share.

The company finished the quarter with 57 million diluted shares outstanding, compared to 44.3 million shares last year.

The tough call in junior oil stocks isn’t knowing which companies are the big growth stories; it’s knowing the spot price of oil, because that’s always what energy stocks trade off. And naturally, you can’t predict the spot price of oil just like you … Read More

My Favorite Bakken Oil Play

By for Profit Confidential

Bakken Oil PlayFinancial metrics are improving significantly for oil stocks, and the commodity’s prices are a combination of speculative fervor mixed with geopolitical events. At $110.00 a barrel for West Texas Intermediate (WTI) crude, drill bit profitability has improved significantly.

I’ve always been an advocate of having one large, integrated oil and gas company (or limited partnership) in a long-term equity market portfolio. There are good dividends to be had and solid prospects for long-term capital appreciation.

But the marketplace is dealing with declining production among the biggest companies, and this is why smaller, domestic producers are now doing much better on the stock market. As is always the case, oil production growth must be combined with spot price growth. When the two are moving commensurately, there’s good money to be made.

As I’ve mentioned a number of times in this column, Kodiak Oil & Gas Corp. (KOG) is a popular Bakken oil play that’s highly liquid and is an institutional favorite. This company boasts excellent potential going forward. However, Kodiak is a stock with a lot of high expectations priced into its share price. (See “My Two Favorite Picks in the Speculative Oil & Gas Sector.”)

One company that I think speculative resource investors should now be putting on their radar is Northern Oil and Gas, Inc. (NOG), which is another junior oil and natural gas producer that operates in Montana and North Dakota.

Northern has been going down steadily on the stock market, as the company has had difficulty growing its production due to infrastructure issues. Specifically, company management cited adverse weather and extended road restrictions as hampering … Read More

Why You Shouldn’t Be Worried About Surging Oil Prices

By for Profit Confidential

Oil PricesI just filled my gas-guzzling SUV that only uses premium gasoline; trust me when I say it wasn’t pleasant. And I know I will need to visit the gas station again in just a few days.

I accept that, but what I don’t understand is the surging increase in oil prices. Oil is now more than $106.00 a barrel.

I realize we have the uncertainties in Egypt after the ousting of the country’s former leader Mohammed Morsi by the army. Of course, while Egypt is not a major oil producer, the Suez Canal does run through it. And a huge amount of Middle Eastern oil is carried through the canal to the Mediterranean Sea from the Red Sea.

At the current price for oil, the technical picture continues to point to gains in the near term. But I would look at an upside move in oil prices as an opportunity to sell if you currently have oil exposure. Oil is not in a sustainable upward move or bull market.

But the commodity is still advised for traders. I would expect a return to normalcy in the near future, with oil prices retrenching back to less than $100.00 a barrel.

The chart of the West Texas Intermediate crude (WTIC) oil prices below shows the overextension from the previous sideways channel, with $98.00 on the top end. I doubt the breakout will hold as the underlying fundamentals are not supporting a situation of a demand-supply imbalance.

WTIC Light Crude Oil- Spot Price (EOD) CME

Chart courtesy of www.StockCharts.com

The U.S. economic recovery is ongoing, but it’s also showing signs of stalling. U.S. companies are struggling to grow revenues and … Read More

How to Make the Current Oil Situation Work for You

By for Profit Confidential

How to Make the Current Oil Situation Work for YouThe spot price of oil is worth keeping a sharp eye on. With West Texas Intermediate (WTI) oil having jumped past $105.00 a barrel, oil stocks are moving again.

Geopolitical tensions certainly have added a bit of a premium to oil prices, but there’s been resilience in spot well over the last couple of months, and it’s based on the prospects of a stronger U.S. economy.

And that strength in oil prices, while never helpful for consumers, is happening in the face of the highest amount of U.S. crude oil production in 20 years.

The primary consequence of stronger oil prices for the consumer is obviously the bill at the pump. But it’s also in the infrastructure that is struggling to keep up with the production boom. U.S. oil production has overtaken pipeline capacity and railroads are making up for the transportation gap.

In the first half of 2013, 356,000 carloads of crude oil and refined petroleum products were moved by rail, according to the Association of American Railroads (AAR). This equates to 1.37 million barrels of oil being shipped every day, according to the U.S. Energy Information Administration (EIA).

There is now a 60,000-car order backlog for oil railcars in the U.S. market.

Based on the latest 2013 monthly output numbers, the EIA says the U.S. is producing 7.2 million barrels of crude oil per day. The majority of the increase in rail transportation of the commodity is due to the huge growth in Bakken oil production, mostly in North Dakota—which doesn’t have enough pipeline capacity. (I’ll be travelling to the Bakken oil region shortly for a first-hand account … Read More

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