U.S. energy production has transformed since technology has allowed exploration and production (E&P) firms — aka, upstream oil firms — to use unconventional drilling methods to access oil reserves that were previously unreachable, or far too expensive to access.
Also, these new techniques have allowed firms to get more out of each well and even recover oil left in conventionally drilled wells.
The U.S. is No. 1 exporter of gasoline in the world.
And by 2024, according to IEA, it’s projected that if the U.S. keeps up its oil export growth, it will surpass Russia and Saudi Arabia as the world top oil exporter.
And the Permian Basin in Texas is leading the way.
Seven energy stocks to buy to light up your portfolio are featured below. Most are focused firms in one sector of the business; they’re not the big diversified firms. This gives them even more growth potential.
Energy Stocks to Buy: National Fuel Gas Co (NFG)
National Fuel Gas Co (NYSE:NFG) is a diversified natural gas company. It is not only an E&P firm, but also has storage, marketing and even utility operations.
Generally you don’t find a natural gas firm that does it all, unless you’re looking at one of the big integrated energy firms. But NFG has been around since 1902, so it has had plenty of time to refine it business model. Most of its operations are in New York and Pennsylvania, where most of its customers are.
It just reported Q1 earnings, which were in line with expectations. But the prospects for the sector are improving, and as more and more companies and consumers transition to natural gas from coal or oil (especially in NFG’s service area) this will help boost demand. Also, as liquefied natural gas (LNG) export terminals start coming online, that will also boost business for NFG’s various divisions.
Its 2.9% dividend is a nice addition and its $5 billion market cap means it has a reliable business, come what may with the economy.
CNOOC Ltd (CEO)
CNOOC Ltd (NYSE:CEO) is a Chinese E&P with operations all around the world.
As China began to emerge as a world power, it began to expand its ability to sustain its growth. CEO was launched in 1999 and is now a major energy firm, with a nearly $80 billion market cap.
Recently, its fortunes have been lackluster since the Chinese economy has been sputtering. But as recent economic numbers reveal, China’s economy is recovering, and that means growing demand for energy.
Also, as global demand ramps up, China will be one of the beneficiaries and that also equates to greater energy demand. Year to date the stock is up 15% and it delivers a 5%-plus dividend on top of that.
It recently signed a deal with the Russians to drill for and transport natural gas from a Russian site in the Arctic. And also formed a JV with PetroChina (NYSE:PTR) to drill in the South China Sea.
Black Stone Minerals LP (BSM)
Black Stone Minerals LP (NYSE:BSM) is in the minerals and royalty business. This is kind of like a real estate investment trust (REIT) for energy and minerals.
Basically BSM buys properties — it has properties in over 40 states — and then leases them to E&P firms to develop and takes a royalty for the minerals (including oil and gas) taken from the properties.
This means it doesn’t have to spend a lot of money on all the manpower and equipment to explore for the oil, it’s merely a landlord. And it’s set up as a limited partnership, so investors are also part of the ownership and get paid their share of net income as a dividend payment. Right now, that dividend is paying out more than 8%.
As this energy boom heats up in the U.S., demand for quality properties that aren’t already bid to the moon to explore will increase. Because BSM has been acquiring properties for quite a while, it’s now enjoying the fruits of decades-long labor.
This can be a cyclical industry, and right now, BSM’s time is arriving. It’s also a tempting acquisition for larger integrated energy firms.
ConocoPhillips (NYSE:COP) is the largest E&P company operating today. With operations all around the world, it has diversified its portfolio to take advantage of any inefficiencies in the market.
The old saying “make hay while the sun shines” is especially appropriate for upstream firms today, as oil prices rise. This is their time, and it’s no surprise that ConocoPhillips is looking to increase production 5% this year.
A strong global economy means widespread demand increases for COP’s customers.
It recently reported Q1 earnings that beat expectations. Q4 was a stronger quarter for COP, but Q1 earnings this year still beat Q1 from last year, which is encouraging. Plus, energy prices are on the move so far in 2019, and that trend is likely to stay in place. Even if energy prices stay flat from here that will be good for COP.
Its dividend comes in just under 2%, but with a $70 billion market cap, this is a blue-chip E&P that will deliver during an upcycle, but won’t be a heart-stopping ride compared to smaller E&Ps.
Chesapeake Energy (CHK)
Chesapeake Energy (NYSE:CHK) was started by Tom Ward and the larger than life Aubrey McClendon. The latter also was part owner of the NBA’s Oklahoma City Thunder, which he brought to his home city from Seattle.
Chesapeake was founded when both owners were in their late 20s, and they were some of the first people to take on unconventional drilling at their fledgling E&P firm. And as an MLP in the heyday of MLPs, CHK stock was a high-flier.
But those days transitioned into a much tougher energy market and structural issues regarding MLPs and CHK business operations in general. When McClendon unexpectedly died in 2016, it also marked a slow decline in CHK stock’s fortunes.
But the company has endured and is now at bargain prices as oil and natural gas prices continue to rise. The stock is up 32% year to date. And given the consolidation in the upstream sector, this is a potential takeover candidate at this point.
Berry Petroleum (BRY)
Berry Petroleum (NYSE:BRY) is a unique E&P firm in the sense that it primarily focuses its efforts in California and Utah. While there’s plenty of talk about the shales in Texas, Montana and the Appalachians, Berry has the West.
But there is a lot of oil and natural gas in California. It’s just that the state has been more regulated about extraction techniques and that has made it tough to drill freely.
Recent legislation has passed to alleviate some of the regulatory hurdles, and that has been to the great benefit of BRY. The stock is up nearly 32% in the past year, which shows that it has been a strong grower, even when prices collapsed at the end of 2018.
Now, it’s a much brighter picture and this would surely be a great acquisition at a premium. It will also continue to succeed on its own as well. And the 4.3% dividend is also a nice kicker.
Cabot Oil & Gas (COG)
Cabot Oil & Gas (NYSE:COG) an E&P firm that primarily focuses on the Marcellus Shale that runs from New York to Tennessee. COG concentrates most of its efforts in Pennsylvania.
This is one of the most productive shales in the U.S., but its geography is a bit more challenging than the shales in west Texas like the Permian Basin. But that being said, there is plenty of opportunity and COG stock is taking full advantage.
The stock has a slim 1.4% dividend, but the real opportunity here is rising energy prices and a decent sized company that is leverage to that price growth. Add to that the consolidation in the E&P sector right now and you have a good stock priced very well for the growth that is coming over the next quarters.
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Source: Investor Place