Having recently plunged to the $52.00 per barrel level, oil prices are down more than 50% since last June. And the horizon doesn’t hold much promise with oil futures under $65.00 per barrel past 2020. That doesn’t mean the beaten down oil and gas sector doesn’t hold a lot of long-term promise. But to find the best oil and gas companies with the greatest upside potential, you’ll need to look beyond small, undiscovered companies.
Oil and Gas Industry in
If you were looking for a mid-year recovery in the oil patch, don’t hold your breath. Suffice it to say, a deluge of bearish factors, including the Greek economic crisis, worries about the slowing Chinese economy, and ongoing challenges with Iran, are putting the brakes on any hopes of recovery.
That doesn’t mean investors should turn their back on oil and gas stocks. In fact, now is the perfect time to look for the best underperforming oil and gas stocks. And that means taking a longer-term view of stocks beyond 2015.
Because low oil prices are going to be with us for a while, it’s better to look at larger, more stable companies with a long history of providing capital appreciation and consistent increases in annual dividends.
Many investors will be looking for small undiscovered oil and gas plays to add to their portfolio. But the oil and gas companies with the best upside potential have a strong international footprint, solid balance sheets, and have trimmed their capital spending.
Admittedly, even shares of the bigger oil and gas companies are getting hit. But they are large enough that they will be able to rebound more quickly than much smaller oil and gas stocks. In fact, many of those oil and gas stocks may not even survive the ultra-low oil environment. And they probably don’t deserve to.
This could bode well for the oil and gas majors who, needing to increase their stock market valuation, will boost production. Such companies could follow in the steps of Shell, who announced the $70.0 billion acquisition of BG Group in April.
Top 3 Oil and Gas Stocks to Watch in 2015
ConocoPhillips (NYSE/COP) is the world’s largest independent exploration and production company, based on proved reserves and production of liquids and natural gas. (Source: ConocoPhillips.com, July 7, 2015.)
With activities and operations in 27 countries, ConocoPhillips explores for, produces, transports, and markets crude oil, bitumen, natural gas, liquefied natural gas, and natural gas liquids worldwide.
In 2014, the company produced 1.54 million barrels of oil equivalent per day. At the end of 2014, ConocoPhillips had proven reserves of 8.9 billion barrels of oil equivalent and resources of 44 billion barrels of oil equivalent.
ConocoPhillips currently provides a 4.94% annual dividend, or $2.92 per share. For income-starved investors, it’s important to note that the company has raised its annual dividend for 14 consecutive years.
The company is on track to meet its previously stated target of two percent to three percent production growth in 2015 from continuing operations. ConocoPhillips is also on track for $11.5 billion of capital expenditures and investments in 2015. Capital spending is expected to decrease throughout the year as major projects come on line and activity levels continue to ramp down in North America. (Source: ConocoPhillips.com, July 7, 2015.)
Chevron Corporation (NYSE/CVX)
Chevron is the second-largest U.S.-based energy company—among the largest corporations in the world based on market cap ($178 billion). (Source: Chevron.com, July 7, 2015.)
In 2014, Chevron had proved reserves of 11.1 billion barrels of oil equivalent with daily production of 2.57 million barrels per day. Roughly 26% of production comes from the United States with the rest from more than 20 countries.
The company owns or has stakes in 8,060 gas stations in the U.S. (and 8,600 outside the U.S.) that operate mainly under the Chevron and Texaco brands. Chevron also owns 50% of chemicals concerning Chevron Phillips Chemical.
Chevron currently provides a 4.52% annual dividend ($4.28 per share) and has raised its annual dividend for the last 27 consecutive years.
In 2014, the company’s earnings were down from the previous year at $19.2 billion, or $10.14 per share, compared to $21.4 billion ($11.09 per share) in 2013. This is largely due to the sharp decline in crude oil prices. Thanks to lower cost structure and capital spend rate, Chevron has the financial strength to meet the challenges of the volatile crude oil environment. (Source: Chevron.com, July 7, 2015.)
Noble Corporation PLC (NYSE/NE)
Thanks to strategic acquisitions, Noble Corporation PLC (NYSE/NE) has moved on from being a one-rig pony. One of the largest offshore drilling contractors in the world today, Noble Corporation owns and operates a fleet of mobile offshore drilling units off the waters of five continents. (Source: Noblecorp.com, July 7, 2015.)
Noble has 32 offshore drilling units, consisting of 17 semisubmersibles and drillships and 15 jackups, focused largely on ultra-deepwater and high-specification jackup drilling opportunities. It also has one high-specification, harsh environment jackup under construction.
Noble focuses on ultra-deepwater and high-specification jack-up drilling opportunities. It spun off its standard specification shallow-water, mid-water, and deep-water assets in 2014 as Paragon Offshore while retaining its high-specification and ultra-deepwater units.
Noble currently provides an annual dividend of 10.14% or $1.50 per share.
The company reported first quarter 2015 net income from continuing operations of $178 million, or $0.72 per diluted share. Excluding impairment charges, the company reported fourth quarter 2014 net income of $119 million, or $0.47 per diluted share. For the first quarter of 2014, net income from continuing operations was $155 million, or $0.60 per diluted share. (Source: Noblecorp.com, July 7, 2015.)
Revenues for the first quarter of 2015 totaled $804 million compared to $805 million in the fourth quarter of 2014 and $795 million in the first quarter of 2014.
During the first quarter, the company repurchased $100 million worth of shares at an average price of $16.10 per share.