The oil and gas industry is experiencing strong growth amid elevated prices and strong demand. Given the industry’s bright prospects, investors could consider buying fundamentally sound oil and gas stocks APA Corporation (APA), Obsidian Energy Ltd. (OBE), and VAALCO Energy, Inc. (EGY), which are currently trading at a discount.
Global oil demand increased by 870 kb/d in the second quarter of 2024, and the demand is projected to rise by less than 1 mb/d in both 2024 and 2025. Also, world supply rose 230 kb/d to 103.4 mb/d in July as the substantial OPEC+ increase offset losses from non-OPEC+. The Brent crude oil spot price totaled $85 per barrel in July, up $3/b from the average in June.
Also, with solid dealmaking activities observed in the oil and gas industry in 2023, the industry’s prospects are robust. M&A activities increased by 57% last year, with energy companies increasing their development spending, driven by higher cash flows from profits in prior years.
Moreover, the oil and gas market is expected to grow to $9.35 trillion by 2028, exhibiting growth at a CAGR of 5.2%, driven by rapid expansion in resource exploration, supportive government initiatives, adoption of digital technologies, and investments in oil drilling activities.
Considering the favorable market trends, let’s delve into the fundamentals of the top Energy – Oil & Gas stocks, beginning with the third choice.
Stock #3: APA Corporation (APA)
APA explores, develops, and produces natural gas, crude oil, and natural gas liquids. The company has oil and gas operations internationally. It has exploration and appraisal activities in Suriname, and it holds interests in projects located in Uruguay and internationally.
In terms of forward non-GAAP P/E, APA is trading at 6.44x, 45.1% lower than the industry average of 11.72x. Likewise, the stock’s forward EV/Sales multiple of 1.94 is 3.7% lower than the industry average of 2.01. Also, its forward Price/Sales of 1.12x is 20.1% lower than the industry average of 1.40x.
On May 22, APA’s board of directors declared a regular cash dividend of $0.25 per share on the company's common shares. The dividend on common shares was paid on August 22, 2024, to stockholders of record on July 22, 2024.
APA pays an annual dividend of $1, which translates to a yield of 3.52% at the current share price. Its four-year average dividend yield is 1.83%. Moreover, the company’s dividend payouts have increased at a CAGR of 115.4% over the past three years.
On April 1, APA acquired Callon Petroleum Company (CPE). The strategic acquisition bodes well with APA as Callon’s assets bring scale to its Delaware position and balance its overall Permian asset base.
The acquisition is expected to bring APA's daily reported production to approximately 500,000 barrels of oil equivalent (BOE), approximately two-thirds from the Permian Basin.
APA’s total revenues amounted to $2.54 billion in the second quarter that ended June 30, 2024, with a 41.6% year-over-year uptick. The company’s adjusted earnings came in at $434 million and $1.17 per share, reflecting increases of 64.4% and 37.6% from the prior year’s quarter, respectively. Its adjusted EBITDAX of $1.58 billion indicates a growth of 29.5% year-over-year.
As of June 30, 2024, APA’s total assets stood at $20.19 billion, compared to $15.24 billion as of December 31, 2023.
Street expects APA’s revenue and EPS to increase 30.2% and 7.5% year-over-year to $2.46 billion and $1.24 for the fourth quarter (ending December 2024). APA’s stock has declined 5.9% over the past six months to close the last trading session at $28.43.
APA’s bright prospects are reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a B grade for Quality and Value. APA is ranked #19 among 78 stocks in the Energy – Oil & Gas industry.
Click here to access additional APA ratings for Sentiment, Momentum, Growth, and Stability.
Stock #2: Obsidian Energy Ltd. (OBE)
Headquartered in Calgary, Canada, OBE is engaged in the exploration, production, and development of oil and natural gas properties in Western Canada.
OBE’s forward Price/Sales of 0.89x is 36.4% lower than the industry average of 1.40x. Further, the stock’s forward Price/Cash Flow multiple of 1.76 is considerably lower than the industry average of 5.42. Similarly, its forward EV/EBITDA of 2.31x is 61.5% lower than the industry average of 6x.
On June 27, OBE closed its previously announced acquisition of around 1,700 boe/d of Clearwater production and 148 net sections of land in the Peace River area. The acquisition, along with other smaller acquisitions made in 2024, brings the company's holdings to over 680 net sections of land with Clearwater and Bluesky heavy oil rights.
The strategic acquisition allows OBE further upside and optionality within its Peace River operating area.
In the second quarter that ended June 30, 2024, OBE’s total production increased 15.2% year-over-year to 35,773 boe/d. The company’s net income was CAD 37.10 million ($27.55 million) and $0.46 per share, up 101.6% and 109.1% from the previous year’s quarter. In addition, the company’s free cash flow increased 20.9% year-over-year to CAD 52 million ($38.61 million).
Street expects OBE’s revenue for the fiscal year (ending December 2024) to increase 13.3% year-over-year to $605.55 million. The company’s EPS for the same period is expected to grow 52% year-over-year to $1.44.
OBE’s stock has surged 0.7% over the past six months and 7.9% over the past year to close the last trading session at $7.07.
OBE’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.
The stock has a B grade for Value. Within the same industry, OBE is ranked #9 out of 78 stocks.
In addition to the POWR Ratings I’ve just highlighted, you can see OBE’s ratings for Momentum, Growth, Stability, Quality, and Sentiment here.
Stock #1: VAALCO Energy, Inc. (EGY)
EGY is an independent energy company that engages in the acquisition, exploration, development, and production of crude oil, natural gas, and natural gas liquids in Gabon, Egypt, Equatorial Guinea, and Canada. It holds a 58.8% interest in Etame commercial production.
In terms of forward EV/EBIT, EGY is trading at 4.81x, 52.7% lower than the industry average of 10.18x. Similarly, the stock’s forward Price/Cash Flow multiple of 2.69 is 50.3% lower than the industry average of 5.42. Also, its forward EV/Sales of 1.42x is 29.4% lower than the industry average of 2.01x.
On May 29, EGY announced the successful drilling campaign results. The company drilled, completed, and brought into production four wells in Canada. All wells were 2.75-mile lateral development wells. It expects strong initial production rates of about 500 barrels of oil per day (BOPD) for three of the four wells, with nearly 350 BOPD production for the fourth well.
On April 30, EGY acquired the Svenska Petroleum Exploration AB, an exploration and production company based in Stockholm, Sweden. Svenska's primary asset is a 27.39% non-operated working interest in the deepwater producing Baobab field in Block CI-40, offshore Cote d'Ivoire in West Africa. The net purchase price was $40.20 million, fully funded by cash on hand.
For the second quarter that ended on June 30, 2024, EGY’s revenues increased 6.9% year-over-year to $116.78 million. Its income before income taxes rose 104.2% from the year-ago value to $37.45 million. The company’s net income came in at $28.15 million and $0.27 per share, up 316.9% and 350% year-over-year, respectively.
In addition, the company’s adjusted EBITDAX of $72.47 million indicates growth of 11% from the prior year’s quarter.
Analysts expect EGY’s revenue for the third quarter (ending September 2024) to increase 28.8% year-over-year to $149.79 million, and its EPS is expected to grow 242.9% year-over-year to $0.24 in the same quarter. Moreover, the company surpassed the consensus EPS estimates in three of the four trailing quarters.
The stock has soared 46.9% over the past six months and 40.5% over the past year to close the last trading session at $6.42.
EGY’s promising outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has a B grade for Sentiment, Quality, and Value. Within the Energy – Oil & Gas industry, EGY is ranked #6 out of 78 stocks.
Click here to access additional ratings of EGY for Growth, Momentum, and Stability.
What To Do Next?
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APA shares were trading at $28.36 per share on Wednesday afternoon, down $0.07 (-0.25%). Year-to-date, APA has declined -19.06%, versus a 17.75% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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