Oil and gas prices reached multi-year highs this year. Moreover, oil prices rose more than 50% this year, with demand outpacing supply as countries came out from lockdowns and travel restrictions imposed last year. In an effort to bring down prices, President Biden announced that the federal government would be releasing 50 million barrels of crude oil from its strategic oil reserves. However, desired effects may not be achieved, and analysts anticipate the strategy could drive prices to $100 per barrel.
According to JPMorgan Chase & Co. (JPM) analysts, Brent prices can reach $120 per barrel in 2022 and $150 per barrel in 2023, with the OPEC+ cartel keeping a tight supply. Moreover, the recent drop in oil prices is tied to concerns over the omicron coronavirus variant and is expected to be short-lived.
Therefore, it could be wise to buy the dip in the fundamentally strong oil and gas stocks China Petroleum & Chemical Corporation (SNP), APA Corporation (APA), SilverBow Resources, Inc. (SBOW), and VAALCO Energy, Inc. (EGY).
China Petroleum & Chemical Corporation (SNP)
SNP operates as an energy and chemical company that engages in oil & gas and chemical operations in China. The company operates in the broad five segments of Exploration and Production; Refining; Marketing and Distribution; Chemicals; and Corporate and Others.
On November 30, SNP announced that its 10,000 tons photovoltaic green hydrogen pilot project had started construction. Upon construction, the project is expected to produce 20,000 tons of green hydrogen and might add substantially to SNP’s revenue as a clean energy source.
On November 17, the company declared the successful testing of its key project, the technology that converts crude oil into ethylene, propylene, and other chemicals directly. The approach is expected to lower production costs and reduce carbon emissions.
SNP’s revenue increased 42.8% year-over-year to RMB741.64 billion ($116.11 billion) in the fiscal third quarter that ended September 30. For the nine months that ended September 30, SNP’s net cash generated from operating activities improved 37.4% from the same period last year to RMB115.72 billion ($18.12 billion), while its EPS improved 148.5% year-over-year to RMB0.502.
The consensus EPS estimate of $3.35 for the current quarter (ending December 2021) indicates a 181.5% year-over-year rise. Likewise, the consensus revenue estimate for the ongoing quarter of $128.62 billion reflects an improvement of 72.1% from the prior-year quarter. In addition, SNP has topped consensus EPS estimates in three out of the trailing four quarters, which is impressive.
Over the past five days, the stock has declined 5.9% to close yesterday’s trading session at $44.81. The stock has gained marginally year-to-date. It is currently trading 23.3% below its 52-week high of $58.40.
SNP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall grade of A, which equates to a Strong Buy rating in our proprietary ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
SNP has a Value grade of A and a Growth, Momentum, Stability, and Sentiment grade of B. In the 84-stock Energy – Oil & Gas industry, it is ranked #4. The industry is rated B. Click here to see additional grades for SNP (Quality).
APA Corporation (APA)
APA operates as an oil and gas exploration company in the United States, Egypt’s Western Desert, and the United Kingdom’s North Sea. The company also operates explorations in Suriname. In 2021, Apache Corporation came under APA in a holding company structure.
On November 16, APA announced results from its flow testing at the Sapakara South well and drilling results from the Bonboni exploration well, both in Suriname. The results from the Sapakara South well show the presence of a high-quality black oil reservoir, while the Bonboni drilling results confirm the presence of high-quality reservoir sands and the generation of black oil. The wells are expected to add considerably to APA’s revenue.
On November 3, the company increased the quarterly dividend rate to 12.5 cents per share from 6.25 cents per share. The dividend is payable to shareholders on February 22, 2022, reflecting APA’s commitment to pay back a higher percentage of cash flows to shareholders.
For the third fiscal quarter that ended September 30, APA’s total revenues increased 61.1% year-over-year to $1.69 billion. Adjusted earnings after tax and adjusted EPS stood at $372 million and $0.98, respectively, up substantially from their negative year-ago value. Adjusted EBITDAX increased 105.7% year-over-year to $1.16 billion.
Street EPS estimate of $1.43 for the ongoing quarter (ending December 2021) reflects a 2,960% year-over-year increase. Likewise, Street revenue estimate of $1.93 billion for the current quarter indicates a rise of 49.7% from the prior-year quarter. Moreover, APA has an impressive earnings surprise history as it has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 92.7% over the past year but declined 5.9% over the past five days to close yesterday’s trading session at $26.83. It is currently trading 13.8% below its 52-week high of $31.14.
It’s no surprise that APA has an overall grade of A, which translates to a Strong Buy rating in our POWR Rating system. APA has an A grade for Momentum and Quality and a B grade for Growth and Value. It is ranked #3 in the Energy – Oil & Gas industry.
To see grades for Stability and Sentiment, click here.
SilverBow Resources, Inc. (SBOW)
SBOW is an oil and natural gas exploration and production company primarily focused on the Eagle Ford Shale developments in South Texas.
On November 22, SBOW declared the closing of its acquisition of oil and gas assets in the Eagle Ford shale, from anonymous sellers, at an aggregate purchase price of $75 million, payable in cash and common stock. The acquisition is expected to enhance the company’s productive capability.
On November 15, the company announced its entry into an amendment to its revolving credit facility, increasing its borrowing base from $300 million to $460 million and an amendment to its Second Lien Notes Purchase Agreement, extending its maturity date to December 2026. The amendments should increase the company’s liquidity and enable it to enter into strategic mergers and acquisitions.
For the fiscal third quarter that ended September 30, SBOW’s oil and gas sales revenues increased 117.2% year-over-year to $99.25 million. Operating income improved 359.6% from the prior-year quarter to $59.64 million. Adjusted EBITDA went up 60.1% from the same period last year to $57.63 million.
The consensus EPS estimate for the ongoing quarter (ending December 2021) of $3.23 reflects an increase of 144.7% year-over-year. Likewise, the consensus revenue estimate of $115 million for the current quarter indicates a rise of 115.1% from the same period last year.
SBOW’s stock has gained 310% over the past year to close yesterday’s trading session at $25.34. It has declined 3.6% over the past five days. SBOW is currently trading 27.2% lower than its 52-week high of $34.83.
SBOW’s POWR Ratings reflect this promising outlook. The stock has an overall grade of A, which translates to a Strong Buy rating in our POWR Ratings system. SBOW has an A grade for Growth, Momentum, and Sentiment and a B grade for Value and Quality. It is ranked #2 in the Energy – Oil & Gas industry.
To see the SBOW grade for Stability, click here.
VAALCO Energy, Inc. (EGY)
EGY operates as an independent energy company and a crude oil and natural gas explorer, developer, and producer. The company holds the Etame production sharing contract in the Etame Marin block in the Republic of Gabon and has interests in the undeveloped offshore block in Equatorial Guinea.
On November 1, EGY announced the completion of two workovers in the Etame field in offshore Gabon that added a total of 1,050 gross barrels of crude oil per day (BOPD), out of which 540 net BOPD accrues to EGY. This additional production can prove to be profitable for the company.
In October, EGY entered into a consortium with oil and gas exploration companies BW Energy and Panoro Energy that awarded EGY two blocks in the 12th Offshore Licensing Round in Gabon, subject to the production sharing contract (PSC) with the Gabonese government. About this consortium, George Maxwell, EGY’s Chief Executive Officer, said, “This consortium is uniquely positioned with the knowledge, experience, and expertise of progressing world-class discoveries in Gabon adjacent to these awarded blocks. Our goal will be to efficiently and effectively explore, develop and potentially produce additional resources in Gabon. Our strategy remains unchanged, to maximize shareholder return opportunities in the area we know best, West Africa.”
EGY’s crude oil and natural gas sales increased 206.2% year-over-year to $55.90 million in the fiscal third quarter that ended September 30. Adjusted net income and adjusted net income per share stood at $9.96 million and $0.17, respectively, up 324.6% and 325% from the prior-year quarter. Adjusted EBITDAX rose 232.6% from the same period last year to $23.26 million.
Street expects EPS to increase 74.2% year-over-year to $0.43 in the next quarter (ending March 2022). Likewise, Street expects EGY’s revenue to improve 62.7% from the prior-year quarter to $64.70 million in the upcoming quarter.
EGY’s stock has gained 89.9% over the past year but declined 6.7% over the past five days to close yesterday’s trading session at $3.19. It is currently trading 26% below its 52-week high of $4.31.
EGY has an overall grade of A, which equates to a Strong Buy rating in our proprietary ratings system. The stock has a Momentum, Sentiment, and Quality grade of A and a Growth and Value grade of B. It is ranked #1 in the same industry.
In addition to grades we’ve stated above, one can see EGY’s grade for Stability here.
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SNP shares were trading at $43.75 per share on Tuesday afternoon, down $1.06 (-2.37%). Year-to-date, SNP has gained 6.04%, versus a 23.04% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...
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