The energy sector, broadly considered a weak space for investing less than two years ago, has significantly outperformed the rest of the market this year. Despite the recent retreat in crude oil prices, the eventual reopening of the Chinese economy and increased demand from Europe and North America due to the peak winter season are expected to help this sector keep outperforming.

According to Ninepoint Partners’ Eric Nuttall, “What we’ve seen this year is the continuation of the largest drop in history in global oil inventories, meaning the market has been and remains undersupplied, despite the price action of the past month.”

Given that oil and gas companies have a clear mandate to secure supply in the short term while transitioning to cleaner energy in the long term, Nuttall further adds that the pressures on oil supply growth are only getting stronger.

Amid this backdrop, fundamentally sound energy stocks, Shell plc (SHEL), and TotalEnergies SE (TTE), APA Corporation (APA) could be ideal investments to breathe life into your portfolio amid the winter in broader markets.

Shell plc (SHEL)

SHEL, erstwhile The Royal Dutch Shell plc, is an international energy and petrochemical company headquartered in London, United Kingdom. The company’s businesses include Upstream, Integrated Gas, Renewables and Energy Solutions, and Downstream.

On December 15, SHEL and Eneco won the tender to build an offshore wind farm at Hollandse Kust (west). The project will have an installed capacity of approximately 760 MW and generate enough renewable power to decarbonize about 3% of the Dutch electricity demand.

The new wind farm, which fits well with SHEL’s Powering Progress strategy to deliver more and cleaner energy to its customers, will be delivered through a joint venture called Ecowende and is due to be operational in 2026.

On December 13, SHEL announced that it has agreed to sell its stake in two offshore production sharing contracts (PSC) in the Baram Delta to Petroleum Sarawak Exploration & Production Sdn. Bhd. (“PSEP”).

The base consideration for the sale is $475 million, with additional payments of up to US$50 million between 2023 to 2024, contingent on commodity prices. The transaction has an effective date of January 1, 2023, and is targeted to be completed in early 2023.

On November 28, SHEL announced the acquisition of Nature Energy Biogas A/S, the largest Renewable Natural Gas (RNG) producer in Europe, after reaching an agreement with Davidson Kempner Capital Management LP, Pioneer Point Partners, and Sampension. Based in Denmark, Nature Energy produces RNG from agricultural, industrial, and household wastes.

This acquisition will further increase SHEL’s ability to work with its established customer base across multiple sectors to accelerate its transition to net-zero emissions.

During the fiscal third quarter, which ended September 30, 2022, SHEL’s total revenue and other income increased 60.4% year-over-year to $98.76 billion. During the same period, the company’s adjusted EBITDA increased 59.8% year-over-year to $21.51 billion, while its adjusted earnings grew 128.9% year-over-year to $9.45 billion. This translated to an adjusted EPS of $1.30, up 145.3% year-over-year.

SHEL’s revenue and EPS for the current fiscal year ending December 31, 2022, are expected to increase 49.6% and 116.2% year-over-year to $391.20 and $10.77, respectively. Moreover, the company has impressed by surpassing the consensus EPS estimates in each of the trailing four quarters.

The stock has gained 2.7% over the past month and 5.9% over the past six months to close the last trading session at $55.52.

SHEL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

SHEL has an A grade for Momentum and a B for Sentiment. It is ranked #26 of 92 stocks in the B-rated Energy – Oil & Gas industry.

Click here to see the other ratings of SHEL for Growth, Value, Stability, and Quality.

TotalEnergies SE (TTE)

TTE operates globally as an integrated oil and gas company. It operates through four segments: Integrated Gas, Renewables & Power; Exploration & Production; Refining & Chemicals; and Marketing & Services.

On December 19, TTE announced that it had won the Agua Marinha block today in the Open Acreage under Production Sharing Regime. Agua Marinha is a large block of 1,300 km2, about 140 km from onshore, located in the pre-salt Campos Basin.

TTE will participate in the block with a 30% interest alongside Petrobras operator (30%), QatarEnergy (20%), and PPBL (20%). According to Kevin McLachlan, Senior Vice President of Exploration at TTE, this development is in line with the company’s strategy to focus exploration on selected high-potential basins which can deliver material at low cost, low carbon intensity resources.

On December 15, TTE and The Saudi Arabian Oil Company (“Aramco”) announced their decision to construct a world-scale petrochemical facility in Saudi Arabia. The “Amiral” complex will be owned, operated, and integrated with the existing SATORP refinery located in Jubail on Saudi Arabia’s eastern coast.

The facility will enable the pre-existing SATORP refinery to convert internally produced refinery off-gases and naphtha, as well as ethane and natural gasoline, into higher value chemicals, thereby helping both organizations’ ascent in the petrochemical value chain while advancing liquids to chemicals strategy.

On December 5, TTE announced that it had signed a Memorandum of Understanding (MoU) with Air France-KLM to deliver more than one million cubic meters/800,000 tonnes of Sustainable Aviation Fuel (SAF) over ten years from 2023. TTE will produce the fuel at its bio-refineries.

This agreement between TTE and Air France-KLM marks a significant step in their shared goal of supporting aviation sector decarbonization.

On December 1, TTE updated on the implementation of its energy transition strategy in Kazakhstan. On November 28, 2022, the company signed an agreement for the sale of its affiliate Total E&P Dunga GmbH to the Kazakh company Oriental Sunrise Corp Ltd. for an amount of $330 million.

On the other hand, TTE has also strengthened its presence in renewable energy in the country. In addition to its two solar power plants in operation (with a capacity of 128 MW), Total Eren has signed an agreement with its partners Samruk-Kazyna and KazMunayGas to develop the Mirny project, the largest wind energy project ever initiated in Kazakhstan.

For the third quarter ended September 30, 2022, TTE’s revenue increased 32.3% year-over-year to $64.92 billion, while its adjusted EBITDA increased 73.7% year-over-year to $19.42 billion. During the same period, the company’s adjusted net income increased 106.8% year-over-year to $9.86 billion, driven by higher oil and gas prices, refining margins, and the good performance of trading activities. TTE’s adjusted quarterly EPS increased 117.6% year-over-year to $3.83.

Analysts expect TTE’s EPS and revenue for the fiscal year 2022 (ending December 2022) to come in at $14.27 and $257.69 billion, indicating growth of 113.7% and 39.6% year-over-year, respectively. Moreover, the company has an impressive earnings surprise history, as it has topped the consensus EPS estimates in each of the trailing four quarters.

TTE’s stock has gained 5.7% over the past month and 19.6% year-to-date to close the last trading session at $59.95.

TTE’s overall B rating translates to a Buy in our proprietary rating system. It has an A grade for Momentum and a B for Quality.

TTE is ranked #23 of 92 stocks in the Energy – Oil & Gas industry.

Click here to see additional POWR Ratings for TTE’s Growth, Value, Stability, and Sentiment.

APA Corporation (APA)

As an independent energy company, APA explores, develops, and produces natural gas, crude oil, and natural gas liquids (NGLs). The company operates in the United States, Egypt, and the offshore United Kingdom in the North Sea, Suriname, and other international locations.

On December 13, APA declared its quarterly cash dividend of $0.25 per share on the corporation’s common stock, payable on February 22, 2023, to stockholders of record on Jan. 23, 2023. The company pays $1 annually as a dividend, which translates to a yield of 2.28% at the current price, comparable to the 4-year average dividend yield of 2.82%.

On November 28, APA updated drilling operations had concluded at the Awari exploration prospect in the previously untested northwest portion of Block 58 of Suriname. APA holds a 50% working interest, while TotalEnergies (TTE) is the operator on the block with a 50% working interest.

On November 14, APA announced the achievement of a compensation-linked environmental, social, and governance (ESG) goal to reduce upstream routine flaring across Egypt operations by 40%. The goal was reached ahead of schedule and is the result of numerous emissions reduction projects executed in Egypt throughout 2022.

For the third quarter of fiscal 2022 ended September 30, 2022, APA’s total revenues came in at $2.89 billion, up 40.2% year-over-year. During the same period, APA’s adjusted earnings came in at $651 million or $1.97 per share, up 75% and 101% year-over-year.

Analysts expect APA’s revenue and EPS for the current fiscal year (ending December 31, 2022) to increase 32.2% and 112.9% year-over-year to $10.48 billion and $8.30, respectively.

The stock has gained marginally over the past month and 56.2% year-to-date to close the last trading session at $43.84.

APA has an overall POWR Rating of B, which translates to a Buy in our proprietary rating system. The stock has grade A for Momentum and Quality.

APA is ranked #19 in the same industry. Click here for additional POWR Ratings for APA’s Growth, Value, Sentiment, and Stability.

SHEL shares were trading at $56.16 per share on Tuesday afternoon, up $0.64 (+1.15%). Year-to-date, SHEL has gained 34.13%, versus a -18.90% rise in the benchmark S&P 500 index during the same period.

About the Author: Santanu Roy

Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities. More...

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