The coronavirus-driven demand shock severely affected the oil drilling market. However, the industry has made an impressive comeback over the last year thanks to a recovery in crude oil prices. Current crude oil prices are being supported by deep supply cuts by oil exporting countries. Earlier this month, members of OPEC+ and its allies agreed to continue their reduced production levels of this month through the end of April. Prior to the meeting, Saudi Arabia had announced that it would unilaterally cut its production by an additional one million barrels per day in April. These moves have had a positive impact on crude oil prices.
Furthermore, because the industrial sector is reopening on the success of worldwide mass COVID-19 vaccinations, the demand for oil is increasing. This bodes well for oil and gas drilling projects. For example, the offshore drilling rigs market is expected to grow at a CAGR of more than 1% by 2026. In addition, the rising viability of deep-water and ultra-deep-water projects due to critical technological breakthroughs is further driving growth in the oil drilling market.
Against this backdrop, drilling companies EOG Resources, Inc. (EOG), PDC Energy, Inc. (PDCE) and Oasis Petroleum Inc. (OAS) are expected to deliver promising returns. These companies have greatly reduced their costs and are working on improving their operating efficiencies.
EOG Resources, Inc. (EOG)
Based in Texas, EOG is a leading crude oil and natural gas exploration and production company. The company’s principal producing areas with proved reserves are in the United States, Tobago, China and Oman.
EOG has formulated a 2021 capital plan in which it aims to achieve zero routine flaring by 2025 and expects to reach net zero scope 1 and scope 2 GHG emissions by 2040. The company believes that achieving its net zero ambition is consistent with the broader framework of the Paris Agreement, which could significantly increase EOG’s long–term value.
During the fourth quarter, EOG sustainably reduced well costs and operating costs with the objective of increasing its capital efficiency and returns while lowering its production decline rate. EOG’s total revenues have increased 32% sequentially to $2.97 billion in the fourth quarter ended December 31, 2020. Its total crude oil equivalent volume has risen 11.9% from the previous quarter to 801.50 MBoed, while its adjusted EPS has improved 65.1% to $0.71 over the three-month period.
A consensus revenue estimate of $14.17 billion for the current year (ending December 31, 2021) represents a 28.5% improvement from the previous year. Its EPS of $5.09 for the current year is expected to grow by 248.6%. The stock has gained 95% over the past six months.
EOG’s strong fundamentals are reflected 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 with each factor weighted to an optimal degree.
EOG has an A grade for Momentum and a B for Quality, Growth, and Sentiment. Of the 95 stocks in the Energy – Oil & Gas industry, the stock is ranked #8.
In total, we rate EOG on eight different levels. Beyond what we’ve stated above, we have also given EOG grades for Value and Stability. Get all EOG’s ratings here.
PDC Energy, Inc. (PDCE)
Based in the Wattenberg Field and the Delaware Basin, PDC is an independent exploration and production company that acquires, develops, and explores for crude oil, natural gas and natural gas liquids (NGLs). The Company operates through two segments: Oil and Gas Exploration and Production, and Gas Marketing.
PDCE’s commitment to significantly reduce its absolute debt levels, coupled with a stock repurchase program represents an unrivaled shareholder-friendly approach to sustainable value-creation. In late February, PDCE reduced its debt balance to below its near-term target of $1.5 billion and subsequently reinstated its stock repurchase program. As part of its long-term strategy, the company is targeting 2021 debt reduction of more than $200 million and shareholder returns of at least $120 million.
Analysts expect PDCE’s revenues to grow 26.2% year-over-year to $1.69 billion in the current year (ending December 31, 2021). A consensus EPS estimate of $3.48 for the current year represents a 154.7% improvement from the year-ago value. 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 177.1% over the past six months.
PDCE’s total revenues have increased 5.1% year-over-year to $278.56 million in the fourth quarter, ended December 31, 2020. Its adjusted EBIDAX has risen 20.8% from its year-ago value to $285.50 million, while its adjusted EPS has improved 83.3% to $1.10 over the three-month period.
PDCE has an overall rating of B, which equates to Buy in our POWR Ratings system. PDCE has an A grade for Growth and Momentum, and a B for Quality. It is currently ranked #6 of 95 stocks in the same industry.
Click here to see the additional POWR Ratings for PDCE (Sentiment, Stability and Value).
Oasis Petroleum Inc. (OAS)
OAS is an independent exploration and production company with long-lived assets in the Williston and Delaware Basins. The company is focused on the acquisition and development of onshore unconventional oil and natural gas resources. It operates through three segments: Exploration and Production, Well Services, and Midstream Services.
On March 22, OAS announced sale of its remaining interests in Bobcat DevCo LLC and Beartooth DevCo LLC to Oasis Midstream Partners LP (OMP), along with the elimination of its incentive distribution rights in exchange for $229 million in cash and 14.8 million OMP common units for a total consideration of approximately $510 million. These moves should allow the company to enhance its financial profile, while strengthening its competitive position.
OAS generated significant free cash flow during the fourth quarter (ended December 31, 2020), and reduced its net borrowings by approximately $80 million since November 19, 2020. For November 20–December 31, 2020 period, OAS reported total revenues of $119.92 million. The company also reported operating income of $38.78 million over the same period.
Analysts expect OAS to report an EPS of $9.86 in the current year (ending December 31, 2021), up 508.6% year-to-year. The stock has gained 66.2% year-to-date.
Under POWR Ratings, OAS has been accorded a B rating for both Growth and Value, and an A for Momentum. It is ranked #12 in the same industry.
Click here to see the additional POWR Ratings for OAS (Stability, Quality, and Sentiment).
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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EOG shares were trading at $74.06 per share on Monday morning, down $0.82 (-1.10%). Year-to-date, EOG has gained 49.43%, versus a 5.80% 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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