NEW YORK, July 14, 2016 /PRNewswire/ --
Over the last three months crude oil prices have been in recovery mode. Recent news and economic developments paint a slightly mixed picture for the oil industry, with hints for a better and more stable oil market. SPDR S&P Oil & Gas Exploration & Production ETF (NYSEARCA: XOP), Marathon Oil Corporation (NYSE: MRO), International Western Petroleum, Inc. (OTCQB: INWP), Approach Resources Inc. (NASDAQ: AREX), Hess Corp. (NYSE: HES)
After the United Kingdom voted to exit the European Union the British pound reacted by plummeting to 30 year lows. The result of Brexit was a sell-off of the global markets and selloff of riskier assets such as oil futures. The markets quickly rebounded however, and broke record high levels since then. Risky and volatile assets were back on the radar.
This Tuesday, oil futures were up four percent in technical rally after two-month lows. In addition, the main reason for the collapse of oil prices, which started in the second half of 2014 wasn't global economic concerns, but oversupply, and recent news on stabilization provides hope to the beaten down oil markets.
On June 22nd, the newly appointed Saudi Oil Minister, Khalid Al-Falih, has announced that the oil glut is over. At the Saudi Aramco facilities in Houston, Texas, Khalid Al-Falih said, "The oversupply has disappeared. We just have to carry the overhang of inventory for a while until the system works it out." As a result, he expects a gradual upward movement in the price of oil to continue over time.
SPDR S&P Oil & Gas Exploration & Production ETF (NYSEARCA: XOP) rebounded more than 5.5% on Tuesday. Year to date, the exchange trading fund is up 19%. Small oil and gas exploration companies that were forgotten, are now starting to pop up on radars. Companies like International Western Petroleum, Inc. (OTC: INWP), a Texas-based E&P company that focuses on the acquisition, development, and exploration of crude oil and natural gas properties in Texas.
International Western Petroleum, Inc. just announced that it has executed a definitive Purchase and Sale Agreement (the "Agreement") to purchase all assets of a privately held Houston-based E&P company in the Texas Gulf Coast region (the "Seller".). The acquisition, which consists of three phases, includes current producing assets of the Seller and acquisition targets of the Seller, which taken together, constitutes current production of approximately $2.0 million per month EBITDA (based on June production and pricing). Proven reserves of the combined entity upon acquisition is estimated by reputable third party engineering firms DeGolyer McNaughton, Ralph E Davis & Associates, American Energy Advisors and Netherland Sewell & Associates at 5.615 million bo proved and 111.8 BCF gas or $129 million PV10% and $201 million undiscounted.
More small cap companies like Approach Resources Inc. (NASDAQ: AREX) for example has risen from their 52 week lows on February 25th this year at $.60 to this year's high of $3.10 on April 28th or rebounding a whopping 416% in a short period of time.
While, generally speaking, small-cap companies are the first to take a hit and usually the first that rally back up strong, larger companies have seen volatile moves as well but on a smaller percentage scale. Shares of companies like Marathon Oil Corporation (NYSE: MRO) jumped more than 6%, continuing a strong rally of about 40% since April, and Hess Corp. (NYSE: HES) jumped 7%.
While Brexit might be a concern long term, it is not likely to affect the U.S economy any time soon. The economy is fundamentally strong, as the most recent jobs report has proven, and considering the fact that the oil glut seems to be stabilizing for the time being, riskier assets like oil futures will continue to be attractive to investors.
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