The Covid‑19 outbreak triggered an unprecedented and precipitous crude oil demand shock, resulting in a 40% decline in prices in the first quarter of 2020. According to EIA, consumption of natural gas in the U.S. averaged 83.1 billion cubic feet per day (Bcf/d) in 2020, down 2.5% compared to 2019. This collapse was further intensified by a short-lived, yet aggressive, Saudi Arabia-Russia price war.
However, after a 4% decline in 2020, natural gas demand has been returning steadily and is now close to its pre-crisis level with the resumption of industrial activity globally.
The Asia Pacific region accounts for more than half of global gas consumption, driven principally by the development of gas in China and India. With growing optimism surrounding a coronavirus-vaccine-driven economic recovery this year, demand from the industrial and power generation sectors is gradually rebounding. Moreover, experts expect generally upward price pressures in 2021 amid relatively low natural gas production to balance the supply and demand. EIA expects combined U.S. residential and commercial natural gas consumption to average 22.4 Bcf/d in 2021, up 5.8% from 2020.
Though the Biden-led U.S. Presidential administration’s clean energy drive is a potential threat to this industry, the demand for natural gas and oil is expected to hold steady in the near future because the cost of renewable energy infrastructure is substantial.
With a nationwide vaccination drive and V-shaped economic recovery, companies like Cabot Oil & Gas Corporation (COG), EQT Corporation (EQT) and Range Resources Corporation (RRC) are expected to deliver decent returns in the coming months given their disciplined capital allocation and sustainable balance sheets.
Cabot Oil & Gas Corporation (COG)
COG is an independent oil and gas company engaged in the development, exploitation and marketing of oil and gas properties throughout the continental United States. The company serves primarily industrial customers, local distribution companies, gas marketers, and power generation facilities through gathering systems and pipelines.
COG’s daily equivalent production increased 7.9% sequentially to 2,406 million cubic feet equivalent per day of 100% natural gas in the third quarter ended September 30, 2020. Despite a historically low natural gas price environment, the company has demonstrated its ability to deliver profits. Its adjusted EPS has increased 80% from the prior quarter to $0.09, while its free cash flow has improved 99.5% over the same period.
Analysts expect its revenue to grow 42.8% year-over-year to $551.86 million in the current quarter (ending March 31, 2021). A consensus EPS estimate of $0.43 for the current quarter represents a 207.1% improvement year-over-year. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 25.6% over the past year.
How does COG stack up for the POWR Ratings?
A for Trade Grade
B for Peer Grade
B for Overall POWR Rating.
The stock is currently ranked #15 of 111 stocks in the Energy – Oil & Gas Industry.
EQT Corporation (EQT)
Based in the Marcellus and Utica shales of the Appalachian Basin, EQT operates as a natural gas production company producing natural gas, natural gas liquids (NGLs), and crude oil.
On December 10, EQT Infrastructure, a global investment organization under EQT corp. acquired a Denmark passenger ferry company, Molslinjen, to decarbonize its ferry fleet and accelerate its transition to renewable fuel sources. Given the shared goals of both the entities, the acquisition is expected to generate positive returns in coming years.
EQT’s total sales volume has increased 5.9% sequentially to 366,138 million cubic feet in the third quarter ended September 30, 2020. Its adjusted EBITDA has increased slightly from the prior quarter to $334.21 million, while its free cash flow has improved 157% to $46.72 million over the same period. Moreover, EQT reported year-end (December 31) total proved reserves of 19.8 Tcfe, an increase of 13% year-over-year.
Analysts expect EQT’s revenues to grow 12.8% year-over-year to $1.08 billion in the current quarter (ending March 31, 2020). A consensus EPS estimate of $0.18 for the current quarter represents a 28.6% improvement year-over-year. The stock has gained 140.2% over the past year.
EQT’s POWR ratings reflect this promising outlook. It has an overall rating of “Buy” with an “A” for Trade Grade and Peer Grade, and a “B” for Buy & Hold Grade. It is currently ranked #17 of 111 stocks in the same industry.
Range Resources Corporation (RRC)
Focused in the Appalachian and North Louisiana regions of the United States, RRC is engaged in the exploration, development and acquisition of natural gas and crude oil properties. The company serves primarily marketing and midstream companies, industrial users, petrochemical end users, NGL distributors, and natural gas processors.
This month, U.S. Well Services, Inc. (USWS) extended its contract to provide electric hydraulic fracturing services to RRC in the Appalachian Basin. This will enable RRC to dramatically decrease emissions and sound pollution while generating exceptional operational efficiencies and significant customer fuel cost savings.
RRC’s non-GAAP total revenues have increased 1.5% sequentially to $509.86 million in the third quarter ended September 30, 2020. Total oil and gas sales have increased 9.2% from the prior quarter to $381.55 million, while its non-GAAP EPS has improved 50% sequentially over the same period.
Analysts expect revenues to grow 31.1% year-over-year to $566.35 million in the current quarter (ending March 31, 2020). A consensus EPS estimate of $0.27 for the current quarter represents a 575% improvement year-over-year. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 167.2% over the past year.
RRC is rated a “Buy” in our POWR Ratings system. It has an “A” for Trade Grade and Peer Grade. In 111 stocks of the same Industry, it is ranked #21.
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COG shares were trading at $19.05 per share on Wednesday afternoon, up $0.66 (+3.59%). Year-to-date, COG has gained 17.65%, versus a 0.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...
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