LONDON, August 3, 2017 /PRNewswire/ --
The latest downturn in prices is likely to cause another shakeout in the oil industry, a further separation of the best and the rest. The collapse of oil prices in 2014 caused several waves of bankruptcies in the ensuing years, yet generous financing from Wall Street has kept a lot of companies alive, even if they are not thriving.
But prices have been persistently low, and the long-awaited rebound has suffered from several false starts. The most recent downturn in June, which saw WTI dip into the low-$40s, has hit the industry hard once again. Yet, it also opens up another round of opportunities for choosy investors, a window that will not stay open forever. Active companies on watch include: Schlumberger Limited (NYSE: SLB), Pioneer Natural Resources Company (NYSE: PXD), Anadarko Petroleum Corporation (NYSE: APC), Continental Resources, Inc. (NYSE: CLR), BHP Billiton Limited (NYSE: BHP)
Here are five companies that could profit big in the short and medium-term, especially if oil prices continue to regain ground:
#1 Pioneer Natural Resources (NYSE: PXD)
Pioneer Natural Resources is a top-tier shale driller, with low breakeven prices, great acreage, and growing production. Pioneer's management is extremely bullish on U.S. shale in general and the Permian more specifically. Pioneer's CEO Scott Sheffield said recently that he sees U.S. oil production surging to 15 million barrels per day (mb/d) in the years ahead, more than 50 percent increase from today's levels. The Permian alone, Sheffield said, could produce up to 10 mb/d.
While those figures are probably fanciful, it highlights how confident the company is in the competitiveness of U.S. shale in today's market.
Crucially, Pioneer has said that it has drilling assets that breakeven below $30 per barrel. That means that with oil prices wallowing between $40 and $50, other shale companies could suffer, but Pioneer will still thrive.
#2 Pentanova (PNO.V; PENYF)
The small Canadian-based exploration company could be on the verge of some very exciting drilling prospects in Colombia - one of several reasons Pentanova offers huge upside potential.
Pentanova's management members are alums of Pacific Rubiales, another small/mid-cap Canadian producer that had huge success in Colombia. Pentanova's chairman, Serafino Iacono, presided over a stock price surge at Pacific Rubiales, quintupling in roughly two years. He knows Colombia inside out and is looking at natural gas prospects in the South American nation. Pentanova also has the backing of Frank Giustra, the mining financier and legendary investor, who, not coincidentally, also supported Pacific Rubiales. With these two icons now at Pentanova, they are looking to repeat the extraordinary drilling successes they have already achieved in Colombia.
Another reason investors should look at Pentanova is that the company has three top natural gas prospects in Colombia. The Maria Conchita is a ready-to-drill gas field adjacent to a long-producing Chevron field. Maria Conchita could see peak production of over 22 million cubic feet per day (MMcf/d). Pentanova also has a low-risk exploration play, the Sinu-9, which could potentially exceed the output of the Maria Conchita. Then there is the Tiburon block, which could be more difficult, requiring heavier levels of investment ($430 million) but the company thinks the payoff could be astronomical, with potential peak production at 264 MMcf/d and an IRR in excess of 100 percent.
Beyond Colombia, Pentanova is also looking to get in on the oil rush in Argentina. But while the oil majors flock to Neuquén to drill for shale gas in the Vaca Muerta, Pentanova is looking for heavy oil in Patagonia in Southern Argentina. To that end, on July 24, Pentanova announced it was taking over Patagonia Oil Corp., a small oil company exploring in Southern Argentina.
All told, Pentanova (PNO.V; PENYF) is a company with a market cap of just $190 million but has assets under its control that are potentially worth up to $10 billion.
#3 Schlumberger (NYSE: SLB)
Schlumberger posted strong financials for the second quarter, with both revenue and earnings beating expectations. The oilfield services giant was hit hard by the oil market downturn, but will be one of the biggest beneficiaries of the rebound.
Schlumberger makes money when drilling activity picks up, as it has for much of 2017. The surge in drilling in North America, in particular, is working in Schlumberger's favor. Meanwhile, the oilfield services sector will be able to demand higher prices for their rigs and services as the market tightens.
On top of that, the international market is set to improve, meaning Schlumberger will profit on the shale drilling frenzy, but also on more drilling around the world.
Interestingly, Schlumberger is pursuing a new growth model under its Schlumberger Production Management (SPM), which means participating in upstream projects using its own capital, sort of like private equity. Rather than simply charging for services, Schlumberger would become an equity partner in projects. The margins are higher than the rest of the company's business units. The model earned Schlumberger $1.4 billion in revenue last year, a figure that the company expects to double in two years.
#4 Anadarko Petroleum (NYSE: APC)
Anadarko Petroleum became the first major shale company to cut spending in response to the most recent downturn in prices. Unlike some of the other picks on this list, Anadarko is a more conservative choice based on preserving cash flow and reducing expenditures.
Anadarko said it would slash 2017 capex by $300 million, and its share price initially jumped more than 4 percent the day after the announcement. Unlike in years past, Wall Street no longer exclusively rewards companies with high growth rates, but also those that focus on cash flow and profitability.
If the initial response from the Street is anything to go on, it looks like investors were pleased with Anadarko's more conservative approach to the year. That means it could outperform its peers if it hangs back and lets others drill themselves into oblivion.
#5 Continental Resources (NYSE: CLR)
One of the largest Bakken shale drillers, Continental Resources is headed up by the omnipresent Harold Hamm, who carries a lot of weight with market watchers. Hamm's company also has a strong presence in Oklahoma's Anadarko Woodford play.
Continental has been slammed over the past year by low oil prices, with its share price trading at the lower end of its 52-week range. But at just $33 per share, the risk is on the upside.
Goldman Sachs recently made Continental one of its top shale E&Ps in a note to investors, citing the company's 'favorable combination of growth/deleveraging/valuation.' The investment bank argued that Continental is oversold at this point.
Goldman also said that it expects Continental to end the year with a growing volume of drilled but uncompleted wells, which might impact production this year, but lead to more potential in 2018 as those wells come online.
BHP Billiton Ltd. (NYSE: BHP): This giant not only mines metals, it also extracts oil and natural gas and has a diverse set of assets to that end in the Gulf of Mexico, Australia, Trinidad and Tobago. If natgas continues to rise, this will be a good play.
Phillips 66: This is a major natural gas player, and it's been around forever. Last year wasn't kind to it, but its shares are now trading sideways and there may be some upside in the near future.
PDC Energy: PDC an independent exploration and production company. With operations in Colorado, Texas, and Ohio, the company is well represented throughout the United States. Operating through two segments, oil and gas exploration and production, and gas marketing, the company's assets are diverse. As of December 31, 2016, the company owned interest in nearly 2,900 productive gross wells, solidifying PDC Energy's position as a notable producer in the States.
RSP Permian, Inc: is an independent oil and natural gas company based in, you guessed it, Texas. The company's corporate headquarters are located in Dallas while its primary operations are located in the Permian Basin of West Texas. No stranger to the scene, RSP is well established in one of the hottest drilling locations on the planet. RSP also has a strong commitment to its shareholders and an experienced and talented management team that will continue to guide the company forward for years to come.
Cabot Oil & Gas Corp.: This shale exploration company reached a high in May but has given up a little ground since then. We note, however, that its operating income has been trending upwards and it also pays a dividend of 0.82 percent.
By Joao Peixe
Legal Disclaimer/Disclosure from OilPrice.com: This piece is an advertorial and has been paid for. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. No information in this Report should be construed as individualized investment advice. A licensed financial advisor should be consulted prior to making any investment decision. We make no guarantee, representation or warranty and accept no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Oilprice.com only and are subject to change without notice. Oilprice.com assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this Report. All content contained herein is subject to the terms and conditions set forth in the original article posted on Oilprice.com and subject to the terms and conditions therein.
DISCLAIMER: OilPrice.com is Source of all content listed above. FN Media Group, LLC (FNM), is a third party publisher and news dissemination service provider, which disseminates electronic information through multiple online media channels. FNM is NOT affiliated in any manner with OilPrice.com or any company mentioned herein. The commentary, views and opinions expressed in this release by OilPrice.com are solely those of OilPrice.com and are not shared by and do not reflect in any manner the views or opinions of FNM. FNM is not liable for any investment decisions by its readers or subscribers. FNM and its affiliated companies are a news dissemination and financial marketing solutions provider and are NOT a registered broker/dealer/analyst/adviser, holds no investment licenses and may NOT sell, offer to sell or offer to buy any security. FNM was not compensated by any public company mentioned herein to disseminate this press release.
FNM HOLDS NO SHARES OF ANY COMPANY NAMED IN THIS RELEASE.
This release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E the Securities Exchange Act of 1934, as amended and such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. "Forward-looking statements" describe future expectations, plans, results, or strategies and are generally preceded by words such as "may", "future", "plan" or "planned", "will" or "should", "expected," "anticipates", "draft", "eventually" or "projected". You are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances, events, or results to differ materially from those projected in the forward-looking statements, including the risks that actual results may differ materially from those projected in the forward-looking statements as a result of various factors, and other risks identified in a company's annual report on Form 10-K or 10-KSB and other filings made by such company with the Securities and Exchange Commission. You should consider these factors in evaluating the forward-looking statements included herein, and not place undue reliance on such statements. The forward-looking statements in this release are made as of the date hereof and FNM undertakes no obligation to update such statements.
Media Contact e-mail:
U.S. Phone: +1(954)345-0611