As oil prices continue to maintain the latest trajectory above the psychologically significant $ 50 / barrel level, investors are increasingly recalibrating their investment prisms for beaten-down oil and gas companies.
WTI has traded 12.8% at $ 53.02 per barrel in the last 30 days while Brent is up 12.3% to $ 56.49, the level they last touched a year ago, in line with the OPEC-Plus deal that Saudi Arabia The latter was thanks to an unexpected bonus. Unilaterally announced plans to cut oil production by 1M barrels.
Enter Shell 3.0.
For a region that should have been at its death, the US shale oil could be the biggest beneficiary of the rally as higher crude prices provide a much-needed reimbursement for a tense balance sheet. The US shale patch bears some of the highest production costs in the world, with most companies in the region needing oil prices between $ 50 and $ 55 per barrel, even to break even.
This is highly significant as it implies that another 5–10% climb in oil prices from here could mean the difference between cash and bleeding profits for the shell sector.
But not all oil and gas companies need higher oil prices, even at current prices, to break even a handful.
There are 3 such companies here.
# 1 Suncor Energy
Source: CNN Money
Warren Buffett lowered his energy bet by 2020. In particular, back in May, Berkshire Hathaway (NYSE: BRK.B) sold its final stake Phillips 66 (NYSE: PSX) despite repeatedly avoiding the company’s management team as one of the best in the business, particularly as far as capital management is concerned. Related: Google wants to turn data centers into energy storage
However, it didn’t take long for Buffett to repurchase – this time picking up 19.2 million shares Suncor Energy Inc (TSX: SU) (NYSE: SU) is priced at ~ US $ 217 million. It is a small stake, in fact, when you consider the firm’s previous energy. Nevertheless, it may be one of its smartest people.
At first glance, Buffett’s purchase of Suncor stock appears to have been driven by his long-term ethos of buying Companies that are lower than their intrinsic values. after all, Suncor never really recovered from the 2014 oil crisis and has been on a particularly sharp decline over the past two years. The Kovid-19 epidemic and the oil price war only served to increase the stock’s unfortunate trend.
But there can be something deeper than this.
It appears that Warren Buffett is a big fan of Suncor’s wealth, especially its long-lived oil fields with a lifespan of about 26 years. Suncor’s trusted assets have helped the company generate steady cash flow and pay consistently high dividends. Suncor had consistently increased dividends since the distribution began in 1992, following the 2008 financial crisis. Although the company reported a 55% drop in dividends due to the epidemic in April, it still has a respectable yield of 4.6%. Thankfully, the deep dividend cuts actually helped shore up Suncor’s balance sheet, which is now the most flexible among its peers.
In fact, Suncor revealed that WTI prices should be north of $ 35 / barrel to meet capex and dividend payouts. WTI prices are hovering in the low-50s after many Kovid-19 vaccines enter the fray, with Suncor well placed to sustain that dividend and perhaps even raise it in the not-too-distant future Can.
SU has rallied around 50% and 10.5% YTD in the last 3 months.
# 2. EOG Resources
Source: CNN Money
EOG Resources (NYSE: EOG) is not only the largest shale producer, but also one of the largest oil producers in the United States.
EOG is also one of the lowest-cost shale producers, even needing crude oil at about $ 36 a barrel to break even.
The EOG spans six different shale basins, giving a much greater diversity than its rivals who operate in one or two basins. The multi-basin approach also allows the company to grow each property at an optimal pace to maximize profitability and long-term value. Related: Big Oil is a Unsung Hero in the Fight Against COVID
In addition, such as being smaller than oil majors ExxonMobil (NYSE: XOM) more Purlin (NYSE: CVX) makes EOG nimbler and adapt to rapid changes in oil demand during these uncertain times.
With oil prices above the company’s broken levels, EOG has used its free cash flow to pay down debt, buy shares and possibly boost dividends.
# 3. Pioneer Natural Resources
Source: CNN Money
Of the major oil and gas majors, Pioneer Natural Resources (NYSE: PXD) distinguishes itself as the only top 10 producer with zero international interests. In addition, Pioneer Eagle is selling most of its assets at Ford to better focus on the Midland Basin side of Permian, where it dominates.
In addition, Pioneer has announced plans to acquire Parsley energy In an all-stock transaction valued at ~ $ 4.5 billion. Pioneer states that the merger would bring the annual synergy to $ 325 million and be favorable for cash flow, free cash flow, earnings per share, and corporate returns in the first year after the merger.
The superior cost structure of Pioneer Natural Resources is capable of providing impressive free cash flow at low oil prices, and should keep it in good condition even though low energy prices persist.
This is great for the company’s bottom line, as the company’s breakthrough is already low, somewhere in the mid-30s. If oil prices remain at a high level, then additional free cash flow is likely to flow into investors’ pockets as Pioneer seeks to adopt a variable dividend model. Many oil companies are turning to variable dividends, which reward high-income investors during higher oil prices during more lean times without fully cutting them.
By Alex Kimani for Oilprice.com
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