With pressure from oil consumers in the United States, the OPEC+ cartel’s decision to increase oil supply seems to have paid off, as oil prices are stabilizing. Oil has steadied around $75 per barrel this week as fears about the COVID-19 omicron variant subsided and demand is growing. But the rebounding oil prices are partly due to market participants’ skepticism that OPEC+ can reach its new output target. Indeed, JP Morgan analysts expect oil prices to head even higher in 2022.
Oil prices are currently on track to post their biggest weekly gain since late August. Brent Crude and the West Texas Intermediate are both on the way to registering 7% growth this week. Brent Crude Futures rose 0.9% to reach $75.08 per barrel, while WTI posted a gain of 1% to $71.68 per barrel on Thursday, December 9.
The United States Energy Information Administration (EIA) has predicted that global consumption of petroleum and liquid fuels will increase by 3.5 million b/d to average 100.5 million b/d in 2022. Given this backdrop, we think fundamentally strong oil and gas stocks of ConocoPhillips (COP) and Suncor Energy Inc. (SU) might be the ideal bets. These stocks have an overall B (Buy) rating in our proprietary POWR Rating system.
ConocoPhillips (COP)
COP explores for, produces, transports, and markets crude oil, natural gas, and natural gas liquids (NGLs). The Houston, Tex.-based 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 that owns the company’s 54% interest in the Indonesia Corridor Block Production Sharing Contract and a 35% shareholding interest in the Transasia Pipeline Company to MedcoEnergi for $1.355 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 right to purchase up to an additional 10% shareholding interest in Australia Pacific LNG (APLNG) from Origin Energy for up to $1.645 billion.
On December 1, COP 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.
For its 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 158.2% rise from the prior-year quarter to $11.33 billion in sales and other operating revenues. Its adjusted earnings after tax and adjusted earnings per share of common stock came in at $2.37 billion and $1.77, respectively, up substantially from their negative year-ago values.
A $2.16 consensus EPS estimate for the current quarter (ending December 2021) indicates a 1,236.8% year-over-year increase. And the $13.65 billion consensus revenue estimate for the current quarter reflects a 125.7% improvement from the prior-year quarter. Furthermore, COP has an impressive surprise earnings history; it has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 69.9% in price over the past year and 81.4% year-to-date to close yesterday’s trading session at $72.55.
COP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
COP has a Momentum and Sentiment grade of A and a Growth and Quality grade of B. In the 81-stock Energy – Oil & Gas industry, it is ranked #14. The industry is rated B. Click here to see the additional POWR Ratings for COP (Value and Stability).
Suncor Energy Inc. (SU)
Headquartered in Calgary, Canada, SU is an integrated energy company that is focused primarily on developing petroleum resource basins in Canada’s Athabasca oil sands. The company explores for, acquires, produces, and transports crude oil in Canadian and international markets.
On October 27, SU approved reinstating its 2019 dividend levels to CAD0.42 per common share, which indicates a 100% increase in its quarterly dividend. The decision reflects upon the company’s confidence in the execution of strategic plans.
Earlier in October, SU confirmed that it had assumed operatorship in the Syncrude Joint Venture. The venture is expected to drive greater efficiencies in SU assets located in the Regional Municipality of Wood Buffalo.
SU’s revenues, net of royalties, and other income, increased 58.2% year-over-year to CAD10.21 billion ($8.05 billion) in its third fiscal quarter, ended September 30. Its funds from operations rose 126.5% from the prior-year quarter to CAD2.64 billion ($2.08 billion). Its net earnings and net earnings per common share stood at CAD877 million ($691.40 million) and CAD0.59, respectively, registering a substantial increase over their negative year-ago values.
The Street’s $3.14 EPS estimate for the next year (fiscal 2022) indicates a 40.2% year-over-year increase. Likewise, the Street’s $35.39 billion revenue estimate for the coming year reflects a 12.4% improvement from the current year.
The stock has gained 36% in price over the past year to close yesterday’s trading session at $24.47. It has gained 45.8% 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 a B grade for Momentum and Quality. It is ranked #12 in the Energy – Oil & Gas industry.
In addition to the POWR Rating grades we have stated above, one can see SU ratings for Value, Stability, and Sentiment here.
COP shares were trading at $71.93 per share on Friday morning, down $0.62 (-0.85%). Year-to-date, COP has gained 85.44%, versus a 26.40% 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.
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