Oil stocks are in focus as a natural gas storage in Europe could see demand for crude surge this fall and winter.
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Goldman Sachs warned that a cold winter could spark an oil price spike as countries scramble to find alternatives to natgas. A Bank of America Global Research report Sept. 13 said that oil could hit $100 per barrel in the next six months.
While Europe faces a natural gas crisis, U.S. producers have snapped up shale assets that European oil majors have sold off to slash carbon emissions.
The producers could return to drilling new wells as oil prices remain above $70 per barrel and the backlog of drilled but uncompleted wells drops, according to a recent Reuters report.
When weighing oil stocks to buy and watch, investors should consider which ones are diversified and which are focused more on U.S. shale in particular regions like the Permian Basin. Crude oil prices have a big impact on oil stocks, especially pure-play shale producers.
For reference purposes here are the top stocks involved in U.S. shale as of Sept. 22.
Exxon Mobil, Chevron
Exxon Mobil (XOM) is the world’s largest publicly traded oil company by market cap ($227 billion), despite a sharp decline, with operations around the world from deepwater drilling off the Australian coast to conventional drilling in the Middle East.
The oil major also doubled its holdings in the Permian Basin, which accounts for one-third of U.S. production, with a $5.6 billion deal in 2017.
But the Covid-19 pandemic weighed on oil demand, sending oil prices lower and the company was booted off the Dow Jones Industrial Average in August 2020.
In July, Exxon reported second-quarter earnings and revenue that topped Wall Street estimates. Oil-equivalent production fell 2% to 3.6 million barrels per day. Production in the Permian Basin jumped 34% to 400,000 oil-equivalent bpd.
Exxon said it anticipates demand improvement in its downstream segment with a continued economic recovery. It expects to grow production by 40,000 barrels of oil equivalent per day in Q3.
XOM stock broke out of a flat base in June, according to MarketSmith analysis. But the breakout has since failed and the stock remains below its key 50-day and 200-day lines.
Meanwhile, global oil rival Chevron (CVX) is closing in on Exxon’s dominance with an $183 billion market cap and is the only oil major on the DJIA.
Chevron and Exxon reportedly engaged in preliminary merger discussions in 2020, sources told the Wall Street Journal. The talks aren’t currently ongoing but sources told the Journal the discussions could be revisited in the future.
Chevron reported Q2 results that beat Wall Street estimates in July. Chevron said it will resume buybacks in the third quarter, with annual repurchases of $2 billion to $3 billion.
CVX stock also failed to break out of its flat base but shares are now below their 50-day and 200-day lines.
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ConocoPhillips
ConocoPhillips is one of the biggest Permian Basin producers and the largest U.S. independent oil company following the $9.7 billion acquisition of Concho Resources in January. Conoco’s market cap is now $79 billion.
The independent producer has expanded its holdings further, agreeing on Sept. 21 to pay $9.5 billion for Royal Dutch Shell‘s (RDSA) approximately 225,000 net acres in Texas’ Delaware Basin, which is part of the Permian. Conoco sees estimated 2022 production from the averages to be 200,000 bpd.
On Aug. 3, Conoco reported Q2 earnings that beat Wall Street estimates.
COP stock has fallen out of buy range after breaking out of a cup with handle base with a 59.44 entry on June 4. On July 19, the stock triggered the 8% sell rule. The stock is consoldating again with a 63.67 entry point.
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EOG Resources
EOG Resources (EOG) is known as the “Apple of Oil” for its use of technology and big data to aid in drilling operations. The company has a $42 billion market cap.
The company has premium acreage in the Eagle Ford shale formation in south Texas and the Permian’s Delaware Basin.
EOG beat analyst expectations when it reported Q2 results on Aug. 4. The company maintained its 2021 capital spending guidance at $3.7 billion-$4.1 billion.
Shares are consolidating with an 89.09 entry point.
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Pioneer Natural Resources
Pioneer Natural Resources is a pure-play Permian Basin company after selling its Eagle Ford assets in 2019. It has a market cap of $36 billion.
In May, Pioneer closed its deal to buy DoublePoint Energy for $6.4 billion for nearly 100,000 acres in the core area of the Permian Basin. That followed a deal to buy Parsley Energy in an all-stock transaction valued at about $4.5 billion that closed early this year.
With both deals, Pioneer now has roughly 1 million net acres in the Permian and became the largest oil producer in the prolific basin, according to company officials. That will put it ahead of Occidental Petroleum (OXY) in the Permian.
Pioneer reported Q2 earnings and revenue below analyst expectations in August. But the company declared an inaugural variable dividend of $1.51 per share to be paid during Q3. That’s on top of its regular dividend.
PXD stock failed to break out of a cup-with-handle base in May and is consolidating again with a 175.47 entry. While shares have rebounded off their 200-day line but face resistance at their 50-day line.
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Occidental Petroleum
Like Exxon Mobil and Chevron, Occidental Petroleum is a global company but is also the largest acreage holder in the Permian. It has a market cap of $24 billion. Occidental expanded holdings in the prolific play after buying Anadarko for $27 billion in 2019.
To focus on the Permian, Occidental Petroleum sold off an oil field in Qatar to state-owned Qatar Petroleum in 2019. But it still has operations in Oman, Colombia and Libya. But some investors aren’t happy with the deal and activist investor Carl Icahn and other shareholders were upset they were denied a vote on the deal.
In August, Occidental Petroleum beat Q2 expectations.
OXY stock broke out of a cup with handle base with a 30.15 entry in June. The stock is now trading between its 200-day and 50-day line.
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Continental Resources
Unlike many of its shale peers, Continental Resources (CLR) didn’t rush to gain acreage in the Permian and instead kept its focus on North Dakota’s Bakken play. The company is the largest producer in the Bakken. It has also been aggressive recently in Oklahoma’s STACK and SCOOP shale plays. It has a market cap of $15 billion.
Continental Resources reported Q2 earnings and revenue that beat Wall Street expectations in August. It also increased its quarterly dividend to 15 cents from 11 cents.
CLR stock failed to break out of a cup base in June. The stock then formed a gap-up base with 34.40 as an alternate buy point. But the stock erased a gain of more than 20% from the buy point. It is now in buy range after breaking out of a consolidation with a 40.51 entry point.
Harold Hamm, Continental’s founder and CEO, stepped down last year and assumed the role of executive chairman. Former ConocoPhillips executive William Berry replaced Hamm.
Follow Gillian Rich on Twitter for energy news and more.
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