Oil prices edged toward $80 per barrel on Wednesday, December 29, with Brent Crude at $78.94 a barrel and had climbed up to $79.20 per barrel earlier in the day. The United States West Texas Intermediate (WTI) is trading at $75.85 per barrel. Both contracts are near this month’s high, which can be attributed to the fall in the U.S. inventories and reduced worries concerning the omicron variant of the coronavirus.
The Canadian investment bank, BMO Capital Markets, expects oil demand to hit a record in the upcoming year and remain strong over the next few years. Additionally, gasoline prices are expected to surge to a national average of $4 per gallon next year.
On the other hand, oil and gas investors might face some volatility as oil demand normalizes. Moreover, the CBOE Crude Oil Volatility Index (^OVX) rose 14.2% over the past three months. Also, the demand uncertainties related to the omicron variant cannot be phased out completely. Thus, it might be reasonable to bet on oil and gas stocks ConocoPhillips (COP), EOG Resources, Inc. (EOG), and Suncor Energy Inc. (SU), which yields more than 2.5%.
COP engages in the exploration, production, transportation, and marketing of crude oil, Natural gas, and natural gas liquids (NGLs). The company’s portfolio comprises conventional and tight oil reservoirs, shale gas, heavy oil, LNG, oil sands, and other operations.
On December 8, COP announced that it had agreed to sell its subsidiary, which owns its 54% interest in the Indonesia Corridor Block Production Sharing Contract and a 35% shareholding interest in the Transasia Pipeline Company MedcoEnergi, for $1.36 billion. The transactions are expected to power up the Asia-Pacific segment in its global portfolio. In addition, the company’s Australian subsidiary declared that it would exercise its preemptive right to purchase up to an additional 10% shareholding interest in Australia Pacific LNG (APLNG) from Origin Energy for $1.65 billion.
On December 1, the company announced that it had acquired the Delaware basin position of Shell Enterprises LLC for $9.50 billion in cash. The acquisition should expand the company’s operational capability.
On September 20, COP announced an increase in its quarterly dividend from 43 cents to 46 cents per share, which was to be paid on December 1. The company’s annual dividend of $1.84 yields 2.52% on current prices. The dividend payouts have increased at a CAGR of 27% over the past three years and at a CAGR of 11.8% over the past five years. COP has three years of consecutive dividend growth. Additionally, on December 6, the company declared a variable return of cash (VROC) payment of $0.20 per share payable on January 14, 2022.
For the fiscal third quarter ended September 30, COP’s total revenues and other income increased 165.2% year-over-year to $11.62 billion. This can be attributed to a rise of 158.2% from the prior-year quarter to $11.33 billion in sales and other operating revenues. Adjusted earnings after tax and adjusted earnings per share of common stock came in at $2.37 billion and $1.77, up substantially from their negative year-ago values.
The consensus EPS estimate of $2.16 for the current quarter (ending December 2021) indicates a 1,236.8% year-over-year increase. Likewise, the consensus revenue estimate for the ongoing quarter of $13.61 billion reflects an improvement of 125% from the prior-year quarter. Moreover, COP has an impressive surprise earnings history as it has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 86.1% over the past year and 82.9% year-to-date to close yesterday’s trading session at $73.12.
COP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
COP has a Momentum grade of A and a Growth and Sentiment grade of B. In the 79-stock Energy – Oil & Gas industry, it is ranked #12. The industry is rated B. Click here to see the additional POWR Ratings for COP (Value, Stability, and Quality).
EOG Resources, Inc. (EOG)
EOG operates as a company exploring, developing, producing, and selling crude oil, natural gas, and NGLs. The company’s primary producing areas are located in New Mexico, Texas, in the United States, the Republic of Trinidad and Tobago, China, and Oman.
On October 5, EOG published its 2020 Sustainability Report that highlighted the company’s commitment toward the environment and social engagement. The company reported a reduced emission intensity rate, increased water reuse, its plans of zero routine flaring by 2025, and net-zero ambitions.
On November 4, EOG announced a dividend of $0.75 per share payable on January 28, 2022. The new dividend reflects an 82% rise from the previous level to an indicated annual rate of $3.00 per share. EOG also declared a special dividend of $2.00 per share payable on December 30. Its annual dividend of $3.00 yields 3.33% on prevailing prices. The company’s dividend payouts have increased at a 28.6% CAGR over the past three years and a 19.2% CAGR over the past five years. It has had four years of consecutive dividend growth.
EOG’s total operating revenue and other increased 112.2% year-over-year to $4.77 billion in the fiscal third quarter ended September 30. Operating income came in at $1.47 billion, up considerably from its negative year-ago value. Adjusted net income and adjusted net income per share rose 401.6% and 402.3% from the same period last year to $1.26 billion and $2.16, respectively.
Analysts expect EOG’s EPS to increase 349.3% year-over-year to $3.19 in the current quarter (ending December 2021). Likewise, Street expects revenue to rise 98.4% from the prior-year quarter to $5.88 billion in the ongoing quarter. In addition, EOG has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
Over the past year, EOG’s shares have gained 84.4% to close yesterday’s trading session at $90.22. It has gained 80.9% year-to-date.
It’s no surprise that EOG has an overall B rating, which translates to Buy in our POWR Rating system. The stock has an A grade for Momentum and a B grade for Growth, Sentiment, and Quality. It is ranked #8 in the Energy – Oil & Gas industry. To see the additional POWR Ratings for Value and Stability for EOG, click here.
Suncor Energy Inc. (SU)
SU, headquartered in Calgary, Canada, is an integrated energy company primarily focused on developing petroleum resource basins in Canada’s Athabasca oil sands. The company engages in the exploration, acquisition, production, and transport of crude oil in Canadian and international markets.
On October 1, SU confirmed that it had assumed operatorship in the Syncrude Joint Venture. The venture is expected to drive greater efficiencies in the SU assets located in the Regional Municipality of Wood Buffalo (RMWB).
On October 27, SU approved accelerating increased returns to shareholders by reinstating its 2019 dividend levels of CAD0.42 ($0.33) per common share which was to be paid on December 24 and indicates a 100% increase in its quarterly dividend. The company’s annual dividend of $1.31 yields 5.24% at current prices. The company has a four-year average yield of 4.15%.
For the third fiscal quarter ended September 30, SU’s revenues, net of royalties, and other income increased 58.2% year-over-year to CAD10.21 billion ($7.98 billion). Funds from operations rose 126.5% from the prior-year quarter to CAD2.64 billion ($2.06 billion). Net earnings and net earnings per common share stood at CAD877 million ($684.99 million) and CAD0.59, registering a substantial increase over their negative year-ago values.
Street EPS estimate of $3.17 for the next year (fiscal 2022) indicates a 41.5% year-over-year increase. Likewise, Street revenue estimate for the upcoming year of $35.13 billion reflects an improvement of 11.9% from the current year.
The stock has gained 46.6% over the past year to close yesterday’s trading session at $24.99. It has gained 48.9% year-to-date.
SU’s POWR Ratings reflect this promising prospect. The stock has an overall B rating, which equates to Buy in our proprietary rating system. SU has an A grade for Growth and Momentum and a B grade for Quality. It is ranked #23 in the same industry.
In addition to the POWR Rating grades we’ve stated above, one can see SU ratings for Value, Stability, and Sentiment here.
COP shares were unchanged in after-hours trading Wednesday. Year-to-date, COP has gained 87.99%, versus a 29.41% 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…