After bottoming near $30/barrel in early 2016, crude oil prices have been on a steady climb upward, and thanks to several worldwide factors, the rally shows no sign of abating.
Strong global growth has raised baseline demand for energy in general, especially oil, while several geo-political developments have helped keep supply in check, pushing prices higher.
OPEC has been successful at limiting production among its members, targeting a market price north of $80/barrel. Iran is the subject of renewed U.S. sanctions on exports, thanks to the breakdown of the nuclear deal. Venezuela is embroiled in a significant domestic economic crisis and after a disputed election last week in which President Nicholas Maduro appears to have installed himself in office for another six years, is now the subject of increased U.S. sanctions as well.
Filling in for potentially reduced global oil supply, the United States now produces a record high 10.26 million barrels a day – a record high. Shale oil production is less expensive than ever – and much less expensive that traditional drilling, so U.S producers actually have a competitive advantage, especially when prices rise.
Having learned from lean times two years ago, U.S. petroleum companies have improved operating results with leaner expense structures and considerably less debt.
Occidental Petroleum (OXY - Free Report) is the largest operator in the Permian Basis in Texas, a region that currently produces 40% of U.S. oil. With diversified revenue streams including not only oil, but natural gas and chemical manufacturing, OXY has reached large-cap status with a current market cap of $66B, yet remains smaller and more nimble than large scale oil companies like Exxon Mobil (XOM - Free Report) and Chevron (CVX - Free Report) .
With 2018 sales estimated at $16B, a 22% increase over 2017 and the Zacks Consensus Earnings Estimate for the full year having risen to $3.79/share, up from $2.64/share just 90 days ago, OXY is clearly capitalizing on the rise in oil prices and is a Zacks Rank #2 (Buy).
Notably, Occidental has also taken steps to be less dependent on high prices. They currently have $8.7B in net debt, and a debt to EBITDA ratio of less than 1.5, indicating that they could actually pay off all debt in a year and a half of operations.
The dividend is $3.09, or close to 4% annually at the current share price, and last week CEO Vicki Hollub stated that OXY had endeavored to ensure that they were cash flow breakeven with oil prices at $50/bbl. and that the current dividend was safe all the way down to $40/bbl.
Anadarko Petroleum Corporation (APC - Free Report) is also a U.S. company engaged in petroleum and natural gas gathering, processing, treating and transportation. Though it also operates internationally, 86% of Anadarko’s revenues come from the U.S. in Texas, Colorado, Utah and Wyoming.
Anadarko has recently invested in significant new infrastructure projects and expects to have tow new Regional Oil Treatment Facilities (ROTFs) online and operational later in 2018. The company describes this strategy as “capital-efficient growth, while generating free cash flow to drive the return of capital through shares repurchases, increased dividends and debt retirement.”
Earnings estimates for Anadarko have grown significantly this year and they are now expected to net $2.54/share in 2018, a 75% increase over the estimate of $1.44/share 90 days ago. The stock is a Zacks Rank #1 (Strong Buy).
Select Energy Services (WTTR - Free Report) is a specialty company, providing water solutions to the drilling and hydraulic fracking industries. They handle a full range of need to the industry, including containment, monitoring, treatment and disposal. With higher revenues available in extraction, Select Energy’s service are in high demand.
Shares have rallied 35% since the beginning of April highlighted by a significant earnings beat in Q1, when the company reported $0.15/share versus estimates of $0.06/share. Five recent analyst upgrades earn WTTR an Zacks Rank #1 (Strong Buy).
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