Oil prices could see an upward trajectory due to a complex interplay of geopolitical tensions, surprise production cuts, and uncertainties tied to conflicts such as the Israel-Hamas situation, adding an intriguing layer to the dynamics influencing the oil market in the foreseeable future.
Given this landscape, it could be wise to add fundamentally robust energy stocks Baker Hughes Company (BKR), Koninklijke Vopak N.V. (VOPKY) and NGL Energy Partners LP (NGL) to your portfolio, potentially yielding significant returns. Let us understand this in detail.
In the wake of the onset of the Israel-Hamas conflict on October 7, global oil market prices surged for two consecutive weeks. The lethal attack reverberated through oil markets, propelling prices to $94 per barrel and rekindling concerns among oil traders and economists of breaching the $100 per barrel threshold.
Fears mounted as concerns grew that escalating tensions in the region could significantly elevate oil prices. The anxiety stemmed from the potential disruption of a vital transit route for seaborne shipments of oil and gas from the Middle East to the global market.
Adding to the complexities, OPEC+ jolted the markets in April with an unexpected announcement of a production cut exceeding 1 million barrels per day. Saudi Arabia pledged half of this reduction, while Russia concurrently declared a 500,000 barrel-per-day decrease, further impacting global oil dynamics.
Following the cuts, Andy Lipow, President of Lipow Oil Associates, underscored, “OPEC+ needs higher prices to meet their domestic budget spending considerations.” He added, “OPEC+ will continue to take preemptive action when prices fall.”
Furthermore, the U.S. Energy Information Administration (EIA) highlights that uncertainties related to the Israel-Hamas conflict and other global oil supply conditions may exert upward pressure on crude oil prices in the months ahead.
The EIA’s forecast anticipates an increase in Brent crude oil prices, projecting a rise from an average of $90 per barrel in the fourth quarter of 2023 to an average of $93 per barrel in 2024. This underscores the potential for a gradual uptrend in oil prices amid geopolitical factors and supply-related uncertainties.
Investors’ interest in energy stocks is evident, with the ProShares Ultra Bloomberg Crude Oil ETF (UCO) showcasing a 24% return over the past six months.
In light of these trends, let us dive into the fundamentals of these three energy stocks.
Baker Hughes Company (BKR)
BKR offers technologies and services to the energy and industrial domains. Within its Oilfield Services & Equipment (OFSE) segment, the company manufactures and services products for onshore and offshore oilfield operations. The Industrial & Energy Technology (IET) division manufactures and installs gas technology equipment.
On September 5, BKR and Tellurian Inc. (TELL) sealed a pivotal deal to supply eight crucial refrigerant compression packages, fortifying Phase 1 of the Driftwood LNG project. The agreement ensures the timely delivery of LM6000PF+ gas turbines, main refrigerant compressors, and control units, which is imperative for Phase 1 operations.
The collaboration signifies BKR’s commitment to technological excellence and underscores the gains anticipated through its integral role in supporting Driftwood’s ambition to initiate Liquefied Natural Gas (LNG) production by 2027. Such strategic partnerships are poised to contribute positively to the BKR’s growth.
On September 4, BKR and Venture Global LNG expanded their master equipment supply agreement, ensuring the delivery of additional liquefaction train systems and power island systems for Venture Global’s upcoming LNG export endeavors.
With a successful track record in LNG projects like Calcasieu Pass and Plaquemines, BKR is set to deliver proven technology solutions to Venture Global. The strategic collaboration could enhance BKR’s financial prosperity through critical contributions to Venture Global’s thriving projects.
For the third quarter that ended September 30, 2023, BKR’s revenue increased 23.7% year-over-year to $6.64 billion. Its adjusted EBITDA rose 29.7% from the year-ago value to $983 million. Also, adjusted net income attributable to BKR grew 61.7% from the prior year’s period to $427 million, while adjusted EPS came in at $0.42, up 61.5% year-over-year.
The consensus EPS estimate of $6.94 billion for the fiscal fourth quarter ending December 2023 reflects a 17.6% year-over-year improvement. Likewise, the consensus EPS estimate of $0.48 for the ongoing quarter exhibits a 26% rise from the prior year’s period. Moreover, the company surpassed the consensus revenue and EPS estimates in three of four trailing quarters.
Shares of BKR have gained 18.4% over the past six months to close the last trading session at $33.58.
BKR’s positive fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
BKR has an A grade for Growth and a B for Momentum and Sentiment. It has ranked #10 out of 85 stocks within the Energy – Oil & Gas industry.
In addition to the POWR Ratings I’ve just highlighted, you can see BKR’s Value, Stability, and Quality ratings here.
Koninklijke Vopak N.V. (VOPKY)
Headquartered in Rotterdam, the Netherlands, VOPKY is an autonomous tank storage company that stores and manages liquid chemicals, gases, and oil products. It operates terminals equipped with storage tanks, jetties, truck and rail loading stations, and pipelines, facilitating comprehensive access to road, rail, and pipeline networks.
On November 21, VOPKY and IHI Corporation solidified their collaboration through a Memorandum of Understanding (MOU), embarking on a joint venture to establish efficient, high-value-added ammonia terminals in Japan. Strategically positioned for cost-effective distribution, these terminals are pivotal in reducing carbon emissions and serving as hydrogen carriers.
The alliance aligns with emerging market demands by exploring large-scale ammonia storage terminals. The synergy between VOPKY and IHI pledges innovative solutions, enhancing VOPKY’s influence in shaping future energy and feedstock supply chains and thereby fostering gains in the dynamic and sustainable energy sector.
On August 23, with shareholders Gasunie and VOPKY, Gate terminal declared the final investment decision for expanding storage and regasification capacity. The augmentation includes a new 180,000 cubic meters LNG storage tank and a 4 BCM per year increase in regasification capacity.
As founders and owners of the Gate terminal, which has been operational since 2011, VOPKY and Gasunie strategically align this investment with VOPKY’s broader LNG infrastructure growth strategy.
For the fiscal third quarter, VOPKY’s revenues increased 1% year-over-year to €352 million ($383.84 million). Its EBIT rose 12.8% from the prior year’s period to €158.20 million ($172.51 million).
In addition, the company’s net profit attributable to holders of ordinary shares and EPS grew 25.2% and 24.2% from the prior year’s period to €97.30 million ($106.10 million) and €0.77, respectively.
Analysts expect VOPKY’s revenue to increase 4.1% year-over-year to $1.52 billion for the fiscal year ending December 2023. The stock has gained 23% over the past year to close the last trading session at $33.17.
VOPKY’s robust prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
VOPKY has an A grade for Stability and a B for Momentum and Growth. It is ranked #8 within the 43-stock A-rated Foreign Oil & Gas industry.
Click here to access the additional VOPKY ratings (Value, Sentiment, and Quality).
NGL Energy Partners LP (NGL)
NGL is a versatile midstream energy partnership that transports, treats, recycles, and disposes of produced water from energy production. Additionally, it provides comprehensive services for crude oil and liquid hydrocarbons. The company’s segments include Water Solutions; Crude Oil Logistics; and Liquids Logistics.
In its fiscal 2024 second-quarter release, NGL reported that the Water Solutions segment surpasses expectations. Consequently, the company has revised its fiscal 2024 adjusted EBITDA guidance for this segment to above $500 million.
This adjustment and a significant reduction in total leverage are expected to enhance NGL’s financial flexibility for effectively managing its capital structure.
NGL’s operating income rose 25.1% year-over-year to $86.03 million for the fiscal 2024 second quarter that ended September 30, 2023. Its adjusted EBITDA grew 23.9% from the year-ago value to $176.21 million. Also, the company’s net income increased 684.2% from the prior year’s period to $28.29 million.
As of September 30, 2023, the company’s current assets amounted to $1.56 billion, compared to $1.29 billion as of March 31, 2023.
Analysts expect NGL’s revenue to marginally increase year-over-year to $7.88 billion for the fiscal year ending March 2025. NGL has gained 34.1% over the past six months and 224.6% over the past year, closing the last trading session at $4.09.
NGL’s strong outlook is apparent in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
NGL has an A grade for Growth and a B for Value, Momentum, and Sentiment. It is ranked #3 out of 26 stocks within the A-rated MLPs – Oil & Gas industry.
Click here to access additional NGL ratings for Stability and Quality.
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BKR shares were trading at $34.10 per share on Friday morning, up $0.52 (+1.55%). Year-to-date, BKR has gained 18.30%, versus a 20.33% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns. More...
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