How To Play The Selloff In Oil And Gas Stocks

After ending the week as the worst-performing sector amid rising recession fears, the energy sector pared losses again, with WTI crude up 1.7% to $79.79/barrel, while Brent rose 1.3% and traded at $87.42/barrel on Wednesday. Risk-off sentiment also hit US natural gas futures Front month October contract fell almost 10% over the past week and traded at $6.54/MMBtu. Oil prices are a long way off their peak in mid-June when Brent was trading at $129/barrel. Since those highs, stocks of companies that are sensitive to underlying commodity prices have performed poorly relative to those that are less sensitive to oil prices. The popular benchmark of the energy industry, the Energy Select Sector SPDR Fund (NYSEARCA:XLE) is down 25% from its early June peak. Unsurprisingly, the majority of oil majors have given up much of their prior gains, demonstrating their sensitivity to oil prices. Here’s how the oil majors have performed since peaking in June:

Exxon Mobile Inc. (NYSE:XOM) – 18.0%, chevron inc (NYSE:CVX) – 22.0%, Marathon Petroleum Corp. (NYSE:MPC) -18.3%, Philip 66 (NYSE:PSX) – 29.6%, Valero Corp. (NYSE:VLO) -29.6%, Shell Plc (NYSE:SHEL) -21.9%, BP Plc (NYSE:BP) -19.4%, total energies (NYSE:TTE) -25.6%, Eni SpA (NYSE:E)-34.1%.

See Also: Oil Prices Are About To Reverse Course

On a positive note, the sale has produced some real bargains in the Oil Patch. The energy sector is currently trading at a PE ratio of 9.9x significantly cheaper than April’s multiple of 23.9x. Here are some even cheaper oil and gas stocks.

Market Cap: $10.21 billion

P/E (Fwd): 4.23

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YTD return: 17.7%

Ovintiv Inc. (NYSE: OVV) is a Denver, Colorado-based energy company engaged, together with its subsidiaries, in the exploration, development, production and marketing of natural gas, oil and natural gas liquids.

The Company’s principal assets include Permian in western Texas and Anadarko in western Oklahoma; and Montney in northeast British Columbia and northwest Alberta. Its other upstream assets include Bakken in North Dakota and Uinta in central Utah; and Horn River in northeastern British Columbia and Wheatland in southern Alberta.

Back in July, Mizuho raised the OVV from $54 to $78 (good for an 88% uptrend from the current price), citing increasing tailwinds.

Market Cap: $4.49 billion

P/E (Fwd): 3.78

YTD Returns: 12.3%

Another E&P company in Denver, Colorado, Civitas Resources, Inc.(NYSE:CIVI) is focused on the acquisition, development and production of oil and natural gas in the Rocky Mountain region, primarily in the Wattenberg Field of the Denver-Julesburg Basin in Colorado.

As of December 31, 2021, it had proven reserves of 397.7 MMBoe, including 143.6 MMbbls Crude Oil, 106.0 MMbbls Liquid Natural Gas and 888.5 Bcf Natural Gas.

Benjamin Halliburton, chief investment officer at Building Benjamins, has recommended buying Civitas, saying the company’s strong balance sheet and rising free cash flow could propel the shares to $110 next year, a nearly 100% uptrend and the annual dividend payout could reach $6 from the current $1.63.

Market Cap: $2.91 billion

P/E (Fwd): 4.10

YTD return: 19.6%

Energy Corporation (NYSE: ERF) (TSX: ERF), together with its subsidiaries, is engaged in the exploration and development of crude oil and natural gas in the United States and Canada. The Company’s oil and natural gas properties are primarily located in North Dakota, Colorado and Pennsylvania; and Alberta, British Columbia and Saskatchewan.

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As of December 31, 2021, the Company had proven plus probable gross reserves of approximately 8.2 million barrels (MMbbls) of light and medium crude oil; 20.7 MMbbls heavy crude oil; 299.3 MMbbls dense oil; 56.2 MMbbls natural gas liquids; 19.7 billion cubic feet (Bcf) of conventional natural gas; and 1,367.9 Bcf shale gas.

Jason Bouvier, an analyst at Scotiabank, told the Financial Post chose Enerplus as one of the Canadian energy companies with the lowest capex breakevens (including hedging profits).

Market Cap: $53.77 billion

P/E (Fwd): 5.45

YTD return: 91.8%

headquartered in Houston, Texas, Occidental Petroleum Corporation (NYSE: OXY), together with its subsidiaries, is engaged in the acquisition, exploration and development of oil and gas properties in the United States, the Middle East, Africa and Latin America. The Company also owns a Chemicals segment which manufactures and markets basic chemicals including chlorine, caustic soda, chlorinated organics, potassium chemicals, ethylene dichloride, chlorinated isocyanurates, sodium silicates and calcium chloride; Vinyls including vinyl chloride monomer, polyvinyl chloride and ethylene.

Already in May eco fuel (NYSE:EC) announced an agreement develop four deep water blocks off the coast of Colombia with Occidental Petroleum. Ecopetrol announced that it will take a 40% interest in the blocks, while Occidental subsidiary Anadarko Colombia will hold a 60% interest and act as operator.

  • Canadian Natural Resources

Market Cap: $50.26 billion

P/E (Fwd): 4.96

YTD returns: 8.2%

Canadian Natural Resources Limited (NYSE: CNQ) acquires, explores, develops, produces, markets and sells crude oil, natural gas and natural gas liquids (NGLs).

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As of December 31, 2020, the Company had total proven crude oil, bitumen and NGL reserves of 10,528 million barrels (MMbbl); total proven plus probable crude oil, bitumen and NGL reserves were 13,271 MMbbl; proven SCO reserves were 6,998 MMbbl; total proven plus probable SCO reserves were 7,535 MMbbl; proven natural gas reserves were 12,168 billion cubic feet (Bcf); and total proven plus probable natural gas reserves were 20,249 Bcf.

In August, Canadian Natural Resources reported better than expected adjusted Q2 results as it delivered record quarterly average gas production. Net income for the second quarter more than doubled from CA$1.55 billion, or CA$1.30/share, to CA$3.5 billion (US$2.72 billion), or CA$3.00/share, as the Cash flow from operations more than doubled to nearly $5.9 billion from $2.9 billion year earlier.

Q2 production rose to 1.2m boe/d from 1.1m boe/d last year, while natural gas production was up 5% q/q and 30% y/y to a quarterly record of 2.1 mn boe/d .boe/day rose. Meanwhile, Canadian Natural Resources increased its investment guidance to CA$4.92 billion from its previous plan of CA$4.345 billion, mainly due to inflationary pressures.

By Alex Kimani for Oilprice.com

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