Sustained global demand for oil and gas, accompanied by tight supplies due to the ongoing conflict between Israel and Hamas and extended production cuts by OPEC+ and Russia, are expected to drive oil prices higher, providing solid tailwinds for the energy industry.
Amid this backdrop, quality energy stocks Exxon Mobil Corporation (XOM), Shell plc (SHEL), and Imperial Petroleum Inc. (IMPP) could be ideal picks with steady long-term momentum.
Global oil prices have jumped since the conflict erupted between Israel and Hamas amid growing fears about how escalated geopolitical instability could affect energy production in the Middle East. U.S. West Texas Intermediate (WTI) crude futures surged to above $89 per barrel and were on track to rise for the second straight week, primarily due to the Israel-Hamas war.
Also, oil prices remained supported by expectations of a broader market deficit during the fourth quarter after major oil producers Saudi Arabia and Russia extended output cuts by another three months. Last month, Saudi Arabia announced an extension of its voluntary oil production cut of 1 million barrels per day (bpd) through the end of 2023.
Fellow heavyweight oil producer Russia also extended its 300,000 b/d reduction of exports until the year-end.
On the other hand, OPEC left its demand forecast for 2023 and 2024 unchanged. Its forecast suggests the global oil demand will increase by 2.44 million bpd in 2023 and by 2.25 million bpd next year. Developing economies, led by China, will account for most of this year’s demand growth, OPEC said in its Monthly Oil Market Report (MOMR).
U.S. crude exports reached an all-time high during the first six months, fueled by robust global demand. The Energy Information Administration (EIA) reported that U.S. crude oil exports in the first half of 2023 averaged 3.99 million bpd, a record high for the first half of a year since 2015.
Moreover, U.S. natural gas output and demand will likely hit record highs this year. EIA projected dry gas production to grow to 103.72 billion cubic feet per day (bcfd) in 2023 and 105.13 bcfd next year compared to a record of 99.60 bcfd in 2022. The agency also forecasted domestic gas consumption to increase to 89.17 bcfd this year from a record 88.46 bcfd in 2022.
With these favorable trends in mind, let’s delve into the fundamentals of the three Energy - Oil & Gas stock picks with robust momentum attributes, beginning with the third choice.
Stock #3: Exxon Mobil Corporation (XOM)
XOM engages in the exploration and production of crude oil and natural gas internationally. The company operates through Upstream; Energy Products; Chemical Products; and Specialty Products segments. It is also involved in the manufacture, trade, transport, and sale of petroleum products, petrochemicals, and other specialty products.
On October 11, XOM announced a merger with Pioneer Natural Resources Co. (PXD) in an all-stock transaction. The merger combines Pioneer’s nearly 850,000 net acres in the Midland Basin with ExxonMobil’s 570,000 net acres in the Delaware and Midland Basins, creating the industry’s leading high-quality undeveloped U.S. unconventional inventory position.
Together, the companies will have an estimated 16 billion barrels of oil equivalent resource in the Permian. Combining two companies would create a diversified energy company with the largest footprint of high-return wells in the Permian Basin and provide long-term value creation.
On July 13, XOM announced the acquisition of Denbury Inc. (DEN), an experienced developer of carbon capture, utilization, and storage (CCS) solutions and enhanced oil recovery. This acquisition would provide ExxonMobil with one of the largest owned and operated CO2 pipeline networks in the U.S. at 1,300 miles, most of which is located along the U.S. Gulf Coast.
The acquisition also includes ten strategically located onshore sequestration sites and Denbury’s 20-plus years of expertise in transporting and storing CO2.
XOM’s revenues and other income decreased 28.3% year-over-year to $82.91 billion for the second quarter that ended June 30, 2023. Net income attributable to ExxonMobil was $7.88 billion, a decline of 55.9% year-over-year. However, its cash inflow from operations totaled $9.40 billion, and free cash flow was $5 billion, which includes a net working capital impact of $3.6 billion.
Street expects XOM’s revenue and EPS for the fiscal year (ending December 2023) to decline 14% and 32.9% year-over-year to $355.86 billion and $9.44, respectively. However, the company topped the consensus EPS estimates in three of the trailing four quarters.
Shares of XOM have gained 6.1% year-to-date and 8.9% over the past year to close the last trading session at $113.02. Moreover, the stock is trading above its 50-day and 200-day moving averages of $112.45 and $109.88, respectively, indicating an uptrend.
XOM’s mixed fundamentals are apparent in its POWR Ratings. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
XOM has an A grade for Momentum and Quality. It also has a C grade for Sentiment. It has ranked #42 out of 88 stocks in the Energy - Oil & Gas industry.
Click here to see the other ratings of XOM for Growth, Value, and Stability.
Stock #2: Imperial Petroleum Inc. (IMPP)
Headquartered in Athens, Greece, IMPP offers international seaborne transportation services to oil producers, refineries, and commodities traders. It carries refined petroleum products, such as gasoline, diesel, fuel oil and jet fuel; edible oils and chemicals; crude oils, iron ore, coal and grains; and minor bulks, such as bauxite, phosphate, and fertilizers.
On September 7, IMPP’s Board of Directors approved a share repurchase program and authorized the officers of the company to repurchase up to $10,000,000 of the company’s common stock. Through share repurchases, IMPP could create value for its shareholders.
Also, the company entered into an agreement to acquire two tanker vessels, the Aframax tanker Stealth Haralambos, built in 2009, and the product tanker Aquadisiac built in 2008, with an aggregate capacity of approximately 163,716 dwt. Both vessels will be delivered on a charter-free basis by the end of January 2024.
During the second quarter ended June 30, 2023, IMPP’s revenues increased 420.3% year-over-year to $59.04 million. Its income from operations came in at $16.56 million, compared to $272.90 thousand in the prior year’s quarter. Its adjusted EBITDA rose 920.7% from the year-ago value to $30.82 million.
Furthermore, the company’s adjusted net income and adjusted EPS were $26.61 million, compared to an adjusted net income and adjusted loss per share of $85.72 thousand and $0.44 for the same period of 2022.
IMPP’s stock has gained 15.2% over the past month to close the last trading session at $1.59. Also, the stock is trading above its 50-day moving average of $1.53, indicating an uptrend.
IMPP’s POWR Ratings reflect this robust outlook. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system.
The stock has an A grade for Momentum and Value. It also has a B grade for Growth. It has a C grade for Quality. IMPP is ranked #15 out of 88 stocks in the Energy - Oil & Gas industry.
In addition to the POWR Ratings I’ve just highlighted, you can see IMPP’s ratings for Sentiment and Stability here.
Stock #1: Shell plc (SHEL)
SHEL operates as an energy and petrochemical company in Europe, Asia, Oceania, Africa, the U.S., and the rest of the Americas. The company operates through Integrated Gas; Upstream; Marketing; Chemicals and Products; and Renewables and Energy Solutions segments. It is headquartered in London, the United Kingdom.
On September 4, SHEL’s Board announced the pounds and sterling and euro equivalent dividend payments in respect of the second quarter 2023 interim dividend, announced on July 27, 2023, at $0.331 per share. The company’s annual dividend of $2.31 translates to a yield of 3.40% at the current price level. Its four-year average yield of 2.72%.
On July 27, SHEL commenced a $3 billion share buyback program covering an aggregate contract term of nearly three months. The maximum number of ordinary shares that may be purchased or committed to be purchased by the company under the program is 692,000,000. The program’s purpose is to reduce the issued share capital of the company.
For the second quarter that ended June 30, 2023, SHEL’s adjusted EBITDA from the Marketing segment increased 10.5% year-over-year to $1.60 billion. The segment’s cash inflow from operating activities was $1.41 billion, compared to an outflow of 454 million in the prior year’s period.
Additionally, the company’s Renewables and Energy Solutions segment’s cash inflow from operating activities came in at $3.19 billion, compared to an outflow of $558 million in the same period last year. As of June 30, 2023, its cash and cash equivalents stood at $45.09 billion versus $40.25 billion as of December 31, 2022.
Analysts expect SHEL’s revenue for the fiscal year (ending December 2024) to increase 4.6% year-over-year to $362.95 billion. The company’s EPS for the next year is expected to grow 1.4% from the prior year to $8.68. Also, the company surpassed the consensus revenue and EPS estimates in three of the trailing four quarters, which is impressive.
Shares of SHEL have gained 10.7% over the six months and 31.6% over the past year to close the last trading session at $68.10. Moreover, the stock is currently trading above its 50-day and 200-day moving averages of $63.80 and $60.88, respectively, indicating an uptrend.
SHEL’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
SHEL has an A grade for Momentum and a B for Stability. It is ranked #10 in the same industry.
To access additional ratings of SHEL for Value, Growth, and Stability, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
XOM shares fell $0.12 (-0.11%) in premarket trading Friday. Year-to-date, XOM has gained 5.17%, versus a 12.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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