More than 140 countries have set net-zero emission targets, accelerating the transition to renewable energy sources. Despite adopting renewable energy sources, the demand for oil and gas is unlikely to slow down anytime soon. Moreover, an expected tight supply will likely drive prices higher,
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the oil & gas industry’s prospects.
Last year, Russia’s invasion of Ukraine led to a jump in oil prices due to fears of supply shortages arising out of the embargo on Russian gas and oil supplies. However, with supply stabilizing toward the end of last year, oil prices declined. Oil prices resumed their upward trend again, breaking the $90 per barrel level for the first time since November 2022.
However, oil prices have been in a steady decline since then, despite the production restrictions declared by Russia and the OPEC+ countries and the continuous hostilities between Israel and the terrorist organization Hamas.
Oil prices have been falling as China’s recovery does not appear to be progressing as expected, as seen by a drop in its most recent manufacturing activity figures. Moreover, concerns about supply disruption from the Middle East have dissipated, and with higher global production, the International Energy Agency (IEA) said that the oil market will be less tight than expected earlier. All these factors have impacted oil prices.
However, crude and condensate production rose to a record 13.1 million barrels per day (bpd) in August. According to the EIA, U.S. oil inventories rose by 3.6 million barrels for the week ended November 10. The OPEC believes that Chinese crude imports are set to rise to record annual highs in 2023. Chinese oil demand rose to a record high of 17.1 mb/d in September.
The IEA has boosted its 2023 oil demand growth forecast to 2.4 million bpd. It also raised its growth forecast to 930,000 bpd in 2024, up from the previous forecast of 880,000 bpd. Meanwhile, OPEC has boosted its global oil demand growth by 20,000 bpd to 2.46 million bpd in 2023. In 2024, it expects demand to rise by 2.25 million bpd.
At the end of October, U.S. natural gas inventories totaled 3,835 billion cubic (Bcf), 6% higher than the five-year average. According to the EIA, U.S. natural gas inventories will end the winter heating season 21% above the five-year average.
Additionally, OPEC+ will likely initiate oil supply cuts next year. Amid tighter supplies, oil prices could move higher. JPMorgan expects a stable market next year and has forecasted an average Brent crude oil price of $83 per barrel. JP Morgan believes world oil demand will reach 106.9 mbd by 2030, a 5.5 mbd rise from 2023.
Let’s take a closer look at the fundamentals of the featured stocks.
Enterprise Products Partners L.P. (EPD)
EPD provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, petrochemicals, and refined products. The company’s segments include NGL Pipelines & Services; Crude Oil Pipeline & Services; Natural Gas Pipelines & Services; and Petrochemical & Refined Products Services.
On October 31, 2023, EPD announced four new capital projects to support growing production growth in the Permian Basin. The partnership also announced it has begun initial steps to return the Seminole Pipeline, which has a capacity of 210,000 barrels per day of crude oil, to natural gas liquid transportation service in December 2023.
The four projects include two natural processing plants, the Bahia NGL pipeline, NGL fractionator 14, and an associated deisobutanizer at its Texas complex, with expected service commencement in 2025. EPD believes crude oil, natural gas, and NGL production in the Permian Basin will continue to grow throughout the decade.
On May 31, 2023, EPD announced the completion of the expansion of its Acadian Haynesville Extension natural gas pipeline, the first of $3.8 billion of organic growth capital projects scheduled to be completed and begin service in 2023.
The expansion adds approximately $400 million cubic feet per day of Haynesville natural gas takeaway capacity to meet rising industrial demand in the Mississippi River Corridor and the Louisiana liquefied natural gas export market.
In terms of the trailing-12-month levered FCF margin, EPD’s 6.36% is 9.4% higher than the 5.81% industry average. Likewise, its 19.94% trailing-12-month Return on Common Equity is 3.2% higher than the industry average of 19.32%. Furthermore, the stock’s 0.71x trailing-12-month asset turnover ratio is 28.8% higher than the industry average of 0.55x.
EPD’s reported revenues for the third quarter ended September 30, 2023, came in at $12 billion. Its adjusted EBITDA rose 3.1% over the prior-year quarter to $2.33 billion. The company’s adjusted cash flow from operations (CFFO) increased 3.6% year-over-year to $2.02 billion. Its non-GAAP total gross operating margin rose marginally year-over-year to $2.33 billion.
In addition, its net income stood at $1.35 billion. Also, its EPS came in at $0.60.
Analysts expect EPD’s EPS for the quarter ending December 31, 2023, is expected to increase 6.3% year-over-year to $0.69. Its revenue for the quarter ending June 30, 2024, is expected to increase 10% year-over-year to $11.71 billion. The stock has gained 8.9% year-to-date to close the last trading session at $26.26.
EPD’s POWR Ratings reflect its solid prospects. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #5 out of 26 stocks in the A-rated MLPs – Oil & Gas industry. It has a B grade for Value, Momentum, and Stability. Click here to see the other ratings of EPD for Growth, Sentiment, and Quality.
Cheniere Energy, Inc. (LNG)
LNG is an energy infrastructure company that is engaged in LNG-related businesses. The company provides clean, secure LNG to integrated energy companies, utilities, and energy trading companies worldwide. The company owns and operates two natural gas liquefaction and export facilities at the Sabine Pass LNG and Corpus Christi LNG terminals. It also owns the Creole Trail pipeline.
On November 2, 2023, LNG announced that its subsidiary, Cheniere Marketing, LLC, entered into a long-term liquefied natural gas sale and purchase agreement with Foran Energy Group Co. Ltd. Under the SPA, Foran will purchase approximately 0.9 million tonnes per annum of LNG for 20 years from Cheniere Marketing on a free-on-board basis for a purchase price indexed to the Henry Hub price, plus a fixed liquefaction fee.
“We are pleased to build upon our existing long-term relationship with Foran, one of the fastest growing natural gas companies in China, with the signing of our second 20-year SPA that secures increased LNG volumes for Foran for the long term,” said Jack Fusco, LNG’s President and CEO.
On June 26, 2023, LNG announced that its subsidiary Cheniere Marketing, LLC, entered into a long-term liquefied natural gas sale and purchase agreement with ENN LNG (Singapore) Pte. Ltd., a wholly-owned subsidiary of ENN Natural Gas Co., Ltd. ENN agreed to purchase approximately 1.8 million tonnes per annum of LNG under the sale and purchase agreement.
In terms of the trailing-12-month EBIT margin, LNG’s 81% is 257.4% higher than the 22.67% industry average. Likewise, its 85.84% trailing-12-month EBITDA margin is 131.7% higher than the industry average of 37.05%. Furthermore, the stock’s 39.76% trailing-12-month levered FCF margin is 584% higher than the industry average of 5.81%.
LNG’s revenues for the third quarter ended September 30, 2023, came in at $4.16 billion. Its consolidated adjusted EBITDA stood at $1.66 billion. The company’s net income attributable to common stockholders came in at $1.70 billion, compared to a net loss of $2.39 billion in the prior-year quarter. Also, its EPS came in at $7.03, compared to a net loss per share of $9.54 in the year-ago quarter.
Street expects LNG’s revenue for the quarter ending June 30, 2024, to increase 4.9% year-over-year to $4.30 billion. Its EPS for fiscal 2023 is expected to increase 540.8% year-over-year to $36.14. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 23.1% to close the last trading session at $173.72.
LNG’s POWR Ratings reflect this positive outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
Within the same industry, it is ranked first out of 85 stocks in the Energy – Oil & Gas industry. It has a B grade for Value, Momentum, Sentiment, and Quality. To see the other ratings of LNG for Growth and Stability, click here.
CVR Energy, Inc. (CVI)
CVI engages in petroleum refining and nitrogen fertilizer manufacturing activities in the United States. It operates in two segments: Petroleum and Nitrogen Fertilizer.
In terms of the trailing-12-month Return on Common Equity, CVI’s 104.15% is 439% higher than the 19.32% industry average. Likewise, its 17.87% trailing-12-month Return on Total Assets is 142.9% higher than the industry average of 7.36%. Furthermore, the stock’s 2.25x trailing-12-month asset turnover ratio is 311.9% higher than the industry average of 0.55x.
For the fiscal third quarter ended September 30, 2023, CVI’s net sales came in at $2.52 billion. Its adjusted EBITDA remained flat over the prior-year quarter to $313 million. Its net income attributable to CVI stockholders rose 279.6% year-over-year to $353 million. Also, its adjusted EPS came in at $1.89.
CVI has surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 37.9% to close the last trading session at $31.84.
CVI’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It is ranked #6 in the Energy – Oil & Gas industry. It has an A grade for Quality and a B for Value. Click here to see the other ratings of CVI for Growth, Momentum, Stability, and Sentiment.
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EPD shares were trading at $26.42 per share on Tuesday morning, up $0.16 (+0.61%). Year-to-date, EPD has gained 18.02%, versus a 19.66% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...
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