2020 has been an unprecedented year in the history of the global oil market. The outbreak of the pandemic triggered a major collapse in oil prices, intensified by a short-lived, yet aggressive Saudi Arabia-Russia price war. This accompanied by an excessive oil supply created by American companies that sustained for years on debt-fueled growth, had triggered a crisis that drove them into bankruptcy. Some of the companies were propelled to slash capital spending as a way to preserve their balance sheets. A simultaneous negative demand and positive supply shock left the market drowning in supply. WTI futures plunged into the negative territory.

However, after a period of extraordinary turbulence, oil prices stabilized in mid-2020. The prices picked up strongly as optimism grew around a COVID vaccine. Furthermore, on the supply side, the OPEC+ alliance agreed to extend production cuts until the vaccine-led rebound in oil demand fully materializes. In early December, the group agreed to extend 7.2 million barrels per day production cuts through January 2021, which should drive up global prices.

With a gradual normalization of economic activities, oil fundamentals are on the right track for higher oil prices. Companies like Halliburton Company (HAL), Hess Corporation (HES) and Cheniere Energy, Inc. (LNG) are expected to leverage this optimism and gain from a vaccine-led rebound in oil demand.

Halliburton Company (HAL)

HAL provides a range of products and services related to exploration, development, and production of oil and natural gas. It operates through two segments: Completion and Production, and Drilling and Evaluation. Its operations include locating hydrocarbons, managing geological data, drilling and formation evaluation, well construction, and optimizing production.

Earlier this month, HAL teamed up with Accenture (ACN) to transform its digital supply chain and accelerate digitalization within its manufacturing function. This was done to increase process efficiency and increase productivity, thereby leading to economies of scale.

HAL reported operating income of $275 million in the third quarter that ended September 2020, up 16.5% sequentially. Non-GAAP EPS rose 120% sequentially to $0.11. Its Free Cash Flow increased 733% to $733 million for the nine months period ended September 2020, owing to significant decrease in capital expenditure.

The company has an impressive earnings surprise history, as it beat the street EPS estimates in the trailing four quarters. The consensus EPS estimate of $0.67 for next year represents an 8.1% improvement year-over-year. HAL has gained 46.9% over the past six months.

How does HAL stack up for the POWR Ratings?

B for Trade Grade

B for Peer Grade

B for Overall POWR Rating.

It is currently ranked #8 of 60 stocks in the Energy – Services Industry.

Hess Corporation (HES)

HES is an exploration and production company. It is engaged in exploration, development, production, transportation, purchase and sale of crude oil, natural gas liquids (NGLs) and natural gas through its two segments: Exploration and Production, and Midstream. It is also involved in storing and terminaling propane, as well as providing water handling services.

Earlier in November, HES sold a 28% working interest in the Shenzi Field in the deep-water Gulf of Mexico to BHP Group Limited (BHP) for $505 million. This transaction has strengthened the company’s liquidity position. The proceeds of this transaction is expected to be used to fund an investment opportunity in Guyana.

During the same period, HES was included in the Dow Jones Sustainability Index (DJSI) North America for the eleventh consecutive year.

HES also sanctioned the development of Payara, the third oil development on the Stabroek Block, and is expected to become functional from 2024. This will have the capacity to produce up to 220,000 gross barrels of oil per day.

HES reported revenues of $1.16 billion in the third quarter that ended September 2020, up 39.1% sequentially. Net Income increased 24.1% sequentially from the negative values in the prior quarter.

The consensus EPS estimate for the current quarter ending December 2020 represents a 56.7% improvement from the year-ago value. The stock has gained slightly over the past six months.

HES is rated a “Buy” in our POWR Ratings system. It has an “A” for Peer Grade and a “B” for Trade Grade. In 97-stock Energy – Oil & Gas Industry, it is ranked #3.

Cheniere Energy, Inc. (LNG)

LNG is an energy infrastructure company primarily engaged in liquefied natural gas (LNG)-related businesses in the United States. It owns and operates liquefaction projects through its two segments: LNG terminal business, and LNG and natural gas marketing business.

Earlier in October, LNG was added to the 30-stock Cushing MLP High Income Index. The index tracks the performance of higher-yielding publicly traded midstream energy infrastructure companies, including master limited partnerships (MLPs) and non-MLP energy midstream corporations.

LNG’s operating income increased 75.1% year-over-year to $2.36 billion for the nine months ended September 2020, primarily due to increased total margin. Its EBITDA rose 48.5% year-over-year to $2.91 billion over the same period owing to increased revenues from cargoes delivered to customers and also due to slightly increased margins per MMBtu of LNG delivered and recognized in income.

Analysts expect LNG’s revenues to rise 18.6% to $11.01 billion for next year. The company has an impressive earnings surprise history, as it beat the street EPS estimates in the trailing three out of four quarters. The consensus EPS estimate of $3.04 for the next year represents an 82% improvement from the year-ago value. LNG has gained 17.7% over the past six months.

LNG’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 #4 out of 97 stocks in the Energy – Oil & Gas Industry.

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HAL shares were trading at $19.17 per share on Thursday morning, down $0.31 (-1.59%). Year-to-date, HAL has declined -20.10%, versus a 16.57% 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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