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Tap the Crude Rally With These 3 Promising Upstream Firms

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There are a few sectors that thrive when oil prices move upward. The oil and gas exploration and production sector has recovered massively from the last year, as big oil producers are recovering financially due to the upward march in oil prices.

Oil Price Hike

The West Texas Intermediate crude price, approaching the $120-per-barrel mark, has risen significantly over the past year. Crude oil continues to surge due to the Russia-Ukraine crisis, which might lead to a bumper year for the upstream energy players.

Declining crude inventories are also backing the crude price rally. Per the data released by U.S. Energy Information Administration, crude oil inventories for the week ending May 20 declined by 1 million barrels to 419.8 million barrels.

With refiners returning to operations amid the resumption of economic and social activities, the oil demand is expected to increase further. There will not be enough supply of the commodity to meet the increased fuel demand, as U.S. explorers and producers are not focusing primely on production growth but on returning more capital to shareholders.

Thus, improving fuel demand amid a tight supply will keep the crude pricing scenario favorable for exploration and production companies operating in the prolific U.S. resources.

3 Stocks in Focus

Since selecting the right companies with promising upstream operations from the stock universe is not an easy task, we employed our proprietary Stock Screener to zero down on three names. All the stocks currently sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Marathon Oil Corporation (MRO - Free Report) boasts almost 10 years of North American unconventional inventory at a breakeven price of less than $40 per barrel. This extends to almost 20 years if the breakeven points are in the $40-$50 range.

For 2022, the company expects total production of 340,000-350,000 barrels of oil equivalent (Boe/d), with oil volumes of 168,000-176,000 barrels per day. The company will be increasing volumes from its high-margin U.S. resource plays — Eagle Ford, Bakken, Oklahoma and Permian.

Marathon Oil lowered its gross debt by $1.4 billion in 2021, which was comfortably covered by the year’s free cash flow of $2.2 billion. It is also important to remember that the company’s major debt maturities mostly fall after 2025. Thus, there is not much near-term risk on this front.

Owing to the positives, Marathon Oil has gained 90.4% so far this year and is likely to increase further.

Upstream operator PDC Energy (PDCE - Free Report) is one of the biggest producers in Colorado’s DJ Basin, with output from the acreage representing 85% of the total volume. For 2022, the company expects oil production of 78,000-83,000 Boe/d, marking an increase from the prior mentioned 74,000-81,000 Boe per day.

PDC Energy has also hedged a portion of its 2022 oil production at attractive prices. At that price, the company’s hedges are expected to add robust positive value in revenues and considerably soften the blow, if there is another meltdown in oil prices.

The exploration and production company, having gained 60.5% so far this year, is likely to gain further.

Callon Petroleum Company (CPE - Free Report) boasts an impressive footprint throughout the core of the Permian Basin. For 2022, the company expects total production of 101-105 thousand barrels of oil equivalent per day (MBoe/d), suggesting an improvement from the 95.6 MBoe/d reported last year. Of the total, 64% will likely be crude oil. The rising oil price is likely to aid CPE’s bottom line since the majority of its production comprises crude oil.

The management’s decision to shed non-core assets, while focusing on more profitable ones, is a major positive. In 2021, the company received $153 million in proceeds through the divestment of non-core assets in the Eagle Ford and Midland Basins, as well as water infrastructure assets. This is likely to help reduce its debt burden.

Owing to the positives, Callon has gained almost 24% so far this year and is likely to increase further.


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Marathon Oil Corporation (MRO) - free report >>

PDC Energy, Inc. (PDCE) - free report >>

Callon Petroleum Company (CPE) - free report >>

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