The oil and natural gas industry has made an impressive comeback from historical lows in April last year. With China resuming its industrial activity since the May-July quarter last year, and other major economies now trying to follow suit, the demand for crude oil is rebounding worldwide. Moreover, the OPEC+ oil producing countries have signed agreements with to reduce oil production to fortify price levels.

The Biden presidency is expected to place  a ceiling on shale production, which should boost the price of crude oil in the short term. JP Morgan & Chase expects a potential oil supercycle by 2023. The bank sees $60/b oil as a long-term base case scenario.  It turned bullish in 2020 after being long-time bearish. And according to the U.S. Energy Information Administration’s latest forecast, U.S. crude production will average 11.10 million b/d in 2021, down from 11.30 million b/d in 2020 and 12.30 million b/d in 2019. This reduced production in a reviving world economy should create significant upward price pressures on oil in the near future.

While the clean energy drive is a potential threat to this industry, the demand for crude oil and energy is not expected to be largely affected in the near future because the cost of renewable energy infrastructure is still substantial.  So, we think companies like The Williams Companies, Inc. (WMB), Cheniere Energy, Inc. (LNG) and PDC Energy, Inc. (PDCE) will deliver promising results.

The Williams Companies, Inc. (WMB)

WMB operates as an energy infrastructure company primarily in the United States. WMB is an industry-leading corporation with operations across the natural gas value chain, including gathering, processing, interstate transportation and storage of natural gas and natural gas liquids. The company’s segments include Transmission & Gulf of Mexico, Northeast G&P, and West.

On December 18, WMB announced that it achieved early in-service capacity for key natural gas infrastructure expansion projects that will  serve growing demand for clean energy in the U.S. . As a result, the company expects earlier-than-expected cash inflow in the fourth quarter. This recognizes WMB’s proactive stakeholder engagement and its swift and COVID-safe project execution of major projects ahead of schedule and under budget.

WMB also announced that it has received a bankruptcy court ruling  in which it will receive $112 million payment from Chesapeake that is  related to all pre-petition and past due receivables associated with midstream expenses per existing contracts. These proceeds will enable WMB to realize the full potential of Chesapeake’s natural gas reserves and to enhance the value of its significant midstream infrastructure by bringing in adequate capitalization.

WMB’s net income has increased 40% year-over-year to $308 million in the third quarter ended September 30, 2020, yielding EPS of $0.25, which is up 38.9% from the year-ago value. Its adjusted EBITDA has increased 2.2% sequentially to $1.27 billion over the same period.

Analysts estimate that WMB’s EPS will  grow at a rate of 5% per annum over the next five years. A consensus EPS estimate of $0.31 for the about-to-be-reported quarter (ended December 31, 2020) represents a 29.2% improvement year-over-year. The stock has gained 13.7% over the past six months.

How does WMB stack up for the POWR Ratings?

A for Trade Grade

A for Buy & Hold Grade

A for Peer Grade

A for Overall POWR Rating

You cannot ask for better. The stock is also ranked #1 of 113 stocks in the Energy – Oil & Gas Industry.

Cheniere Energy, Inc. (LNG)

LNG is an energy infrastructure company engaged primarily in the liquefied natural gas (LNG)-related businesses in the U.S.  It owns and operates liquefaction projects through its two segments: terminal business and natural gas marketing. It has a combined terminal pipeline length of 117 miles across the U.S. LNG is currently planning to expand its marketing division to Singapore, Chile, and the U.K.

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.

There has been a reduction in demand for natural gas and related production because of depressed industrial production, which has affected LNG’s operations. However, the company’s operating income has increased 75.1% year-over-year to $2.36 billion for the nine months ended September 30, 2020, due primarily to increased total margins. 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 to slightly increased margins per MMBtu of LNG delivered and recognized in income. Its net income for the nine months period was $109 million, 137.5% higher than the negative year-ago value.

Analysts expect LNG’s revenues to rise 15.4% year-over-year to $10.75 billion for fiscal 2021 ended December 31. A consensus EPS estimate of $3.45 for the current year represents a 92.7% 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. LNG has gained 30.1% 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 #10 of 113 stocks in the same industry.

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.

In September and October 2020, PDC received approval from the Colorado Oil and Gas Conservation Commission (COGCC) for an additional 32 future drilling locations. The company expects approximately 23 approved surface permits comprising approximately 275 future locations as well as an additional 200 DUCs by year-end 2020.

PDCE’s adjusted EBITDA has increased 29.9% year-over-year to $278.80 million in the third quarter ended September 30, 2020. Its adjusted EPS has increased 366.7% from the year-ago value to $1.43, while adjusted free cash flow rose 487.6% to $228 million over the three-month period.

Analysts expect PDCE’s revenues to grow 46.5% year-over-year to $388.14 million in the about-to-be-reported quarter (ended December 31, 2020). A consensus EPS estimate of $0.87 for the fourth quarter represents a 45% improvement year-over-year. 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 60.4% over the past six months.

PDCE is rated a Buy in our POWR Ratings system. It has an A for Trade Grade and Peer Grade and a B for Buy & Hold Grade. In 113 stocks of the same Industry, it is ranked #16.

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WMB shares were unchanged in after-hours trading Friday. Year-to-date, WMB has gained 5.89%, versus a -1.02% 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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