Thanks to the bump in crude oil prices and continued advances in geology data mining and drilling technology, the energy stock has started to use what’s called a “Double Premium” drilling model. Here, EOG has been able to target around 5,700 drilling locations in its portfolio that produce more output per well and keep that production high for longer. With crude oil prices still riding well above breakeven points for its model, EOG should continue to be one of the best energy stocks for investors in the new year. Thanks to low supplies coming out of the worst of the COVID-19 crisis and surging demand last year, fossil fuel prices surged over the past few quarters.
But in early 2021, a cold snap in Asia warned of what was to come as demand for gas started rising. A global gas-price crisis unfolded, with European consumers having to out-compete Asian buyers to attract LNG deliveries. UK spot prices reached a record £4.50 per therm just before Christmas, representing a ninefold increase on 12 months previously. UBS Global Research analyst Lloyd Byrne believes Chesapeake should be able to produce nearly $6 billion in free cash flows from 2022 to 2025. He also expects 60% of that to be returned to investors based on its new dividend model.
These solutions can optimize production, find new oil and lower costs. The key for PSX is that the firm isn’t just focused on producing gasoline for cars. It also has a hefty dose of Investing in the oil and gas chemicals production via its joint venture with Chevron . Here, Phillips is a major producer of high-density polyethylene plastic, polypropylene plastic and various other chemicals.
The average price for a barrel of Brent crude oil duly fell from US$64 (£47) in 2019 to US$42 in 2020. This strengthening reflects the success of oil-producer cartel Opec+ in managing production against rebounding global demand, helped also by only modest rates of recovery in supplies from the US shale industry. As a result, Conoco has been able to navigate subsequent oil crashes https://xcritical.com/ and downturns with relative ease – including in 2020. While COP did lose money along with the rest of the energy industry, it was still able to keep its dividend going through operating cash flows. In fact, it even hiked its quarterly dividend payment by 2.4% in October 2020. Ordinarily, demand and prices fall when the winter heating period ends in the northern hemisphere.
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But storage will require re-filling because facilities in many countries were not full even before this winter. And growing global demand, as economies switch away from coal to gas, may stretch supply. The good news is that the cost of clean energy and low carbon technologies continues to fall. At the same time, investments in fossil fuel production are declining as the financial community has less appetite to invest. As it has shed its debt and become stronger, Chesapeake has become an earnings and cash generation machine.
After natural gas cratered back in the late aughts, Devon Energy (DVN, $46.61) has been off the radar of many investors. But in that time, DVN has transformed itself from being a nearly 100% natural gas focused energy stock into one with plenty of diversification in its portfolio. The firm has managed to reduce its average refining costs by about a buck per barrel over the last two years.
As of the fourth quarter of 2020, the firm cranks out approximately 300,000 barrels of oil, 25,000 barrels of natural gas liquids and around 920 million cubic feet of natural gas per day. And DVN’s earnings are now split roughly between crude oil and natural gas/NGLs production. This position has provided MPC with a steady base of earnings since its spinoff from exploration and production firm Marathon Oil back in 2011. According to EOG, the company can break even with oil at just $30 per barrel.
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“Crude and oil product prices should benefit from oil demand moving above 2019 levels,” say UBS analysts. Baker is also getting out ahead of the transition to more sustainable forms of energy. This includes adopting and deploying new products and services for hydrogen, carbon capture and renewable energy use. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Stocks are listed by analysts’ consensus recommendation, from lowest to highest.
Prices have since fallen back as LNG deliveries have been diverted from Asia. But storage remains low, and a prolonged cold snap in Europe and/or Asia could see prices skyrocketing again . These growth ETFs offer exposure to higher-risk, higher-reward stocks while lessening the risk of a single stock torpedoing your returns.
In the third quarter of 2021, CHK managed to post adjusted net income of $269 million, or $2.38 per share. Devon estimates that, with oil at $80 per barrel, it should be able to produce a free cash flow yield of around 18% from its drilling activities. This should give it between $4.5 billion and $6 billion in free cash flows to hand out to investors – a greater than 40% improvement over 2020’s numbers. For one thing, MPLX – MPC’s master limited partnership – continues to see growth and makes sense from a tax perspective for the firm.
Thanks to its base plus variable dividend model, that extra cash should flow right into investors pockets through buybacks and special dividends. And again, oil would need to crash to $30 per barrel for investors to start to worry about the base dividend payment. This diversification has helped Devon ride the waves in the energy market over the last few years. Plus, DVN has a breakeven point of $30 per barrel and $2.50 per MMBtu. With oil prices well above that, Devon is a profit and cash flow machine.
Those are significant savings that go a long way to help improve the company’s profits. Thanks to those cost savings and overall higher demand, adjusted EBITDA at its refining operations improved by roughly $440 million sequentially in Q3. Before fracking and shale was a thing, EOG was a first mover into some of the more prolific shale fields in the U.S., including the Permian Basin, Eagle Ford and Bakken. This allowed the firm to amass some big-time acreage in these massive shale fields at rock-bottom prices. The win for EOG has been a low cost of production throughout its history. As the economy has started to recover and plastics demand has risen, PSX has been able to turn this focus into better earnings.
- Investors have been the ones to benefit, with EOG boosting its dividend twice this year and declaring a big $3.00 per share special dividend.
- Here, EOG has been able to target around 5,700 drilling locations in its portfolio that produce more output per well and keep that production high for longer.
- The combination of being in the right place with the right products for now and in the future has made BKR one of the best energy stocks to buy.
- Against this backdrop, politicians on both sides of the Atlantic have called for increased oil and gas production as a way of lowering prices.
- The same cannot be said of the gas market, where prices vary significantly by region.
- In fact, it even hiked its quarterly dividend payment by 2.4% in October 2020.
- Chesapeake Energy (CHK, $65.19) has had its fair share of drama over the years.
For PSX, this focus on chemicals production rather than just transportation fuels has paid benefits. This isn’t a big or well-known company, but Wall Street is starting to lean in its direction, with eight Buys and Strong Buys, seven Holds and no Sells. Over the past couple of years, Exxon has been cutting costs and selling assets in Asia, Europe and Africa, as well as in the Barnett Shale, allowing it to focus on its best-performing assets. Now, Exxon’s breakeven costs to cover capital expenditures and dividends over the next five years is a meager $35 per barrel – meaning anything past that is pure upside. In Europe, the challenge is to ensure adequate supply in the short-term as climate policy drives down demand in the long term.
The IPCC physical science report of 2021, described as code-red for humanity, made clear the severity of the situation. Fossil fuel producers have used this crisis to warn against a messy energy transition and a rapid move away from fossil fuels. For environmentalists, on the other hand, the crisis highlights the need to accelerate the move away from expensive and volatile fossil fuels. Against this backdrop, politicians on both sides of the Atlantic have called for increased oil and gas production as a way of lowering prices.
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The problem is the credibility gap that exists between ambition and action in importing economies. The producers simply do not believe that demand is going to disappear, that prices are going to fall permanently, or that their assets are going to get stranded. With energy prices rising, COP has continued to be quite successful in the current environment.
Using the most recent official Energy Information Administration data, global benchmark Brent crude oil averaged $81 per barrel during December – a $38-per-barrel increase from November 2020. The U.S. benchmark, West Texas Intermediate oil, followed a similar trajectory higher. It is true that financial markets are doing their bit to curb extra fossil fuel production by turning away from financing the sector, but the net result may simply be to hand market share to national oil companies. The real answer lies in fossil-fuel-importing nations – the largest of which are China and India – demonstrating credible plans to decarbonise their economies and delivering on them. Yet in general, few significant oil and gas producing economies are going to stop investing in new production anytime soon.
Chesapeake Energy (CHK, $65.19) has had its fair share of drama over the years. From secret hedge funds to lawsuits to a bankruptcy, the company has seen a lot. But like a phoenix rising from the ashes, CHK is nothing like its former self. Like the aforementioned Phillips 66, Marathon Petroleum (MPC, $68.24) is also a refiner of crude oil. In this case, MPC is the largest domestic independent refiner of crude oil, with 16 refineries across the U.S.
And speaking of those midstream assets, PSX is undergoing a major transformation. Last fall, the firm decided to swallow all the remaining public units of Phillips 66 Partners – its master limited partnership . For instance, back in 2019, when WTI averaged $60 per barrel, Magnolia recorded pre-tax net income of $100 million. Based on consensus estimates, with 2021’s average of $61.25 per barrel, Magnolia should record more than $570 million in pre-tax profits. Investors have been the ones to benefit, with EOG boosting its dividend twice this year and declaring a big $3.00 per share special dividend.
Finally, MPC’s sale of its Speedway convenience-store chain last year provided the company with plenty of extra cash on its balance sheet. The firm still has about $10.1 billion in leftover proceeds to spend, which it plans to use on extra buybacks, reducing its debt load and padding its dividend. The oil services firm has partnered with artificial intelligence software provider C3 AI to bring forth a whole series of services and data options for the oil patch.
With that, it’s also managed to increase its dividend nearly 71% since the start of this year. The combination of being in the right place with the right products for now and in the future has made BKR one of the best energy stocks to buy. During the first quarter of 2021 – when EOG first started to use this new model – adjusted net income nearly tripled and the firm managed to produce a record $1.1 billion in free cash flows. These gains have continued, with the company reporting a record adjusted net income and another all-time high in free cash flow in Q3 2021.
And at just $36 per barrel, the firm has enough positive cash flow to fully fund its regular dividend payment. Using the UK’s spot price as a European benchmark, gas was trading at around £0.35 to £0.40 per therm in early 2020, but by May 2020 it had fallen to £0.084. In the thick of the pandemic, liquefied natural gas cargoes in the US were being cancelled due to a lack of demand and Gazprom in Russia was having to scale back production from its fields in Siberia. With a forward P/E of just 6.5x, a healthy 2.6% dividend yield and plenty of potential, it’s easy to see why CHK is one of the best energy stocks to buy for 2022 and beyond.
Read on as we look at the nine best energy stocks to buy for a continuation of higher oil and gas prices in 2022. This lack of commitment helps to explain why demand for fossil fuels has driven prices back up. With governments apparently less willing to lock down in the face of the omicron variant, oil demand will likely continue to recover at least in the short term. The environmental consequences of fossil fuel consumption are ever more apparent.
With its focus on natural gas processing and gathering in key regions, MPLX is still paying plenty of dividends back in MPC. In fact, MPC received $829 billion in cash from its MLP last quarter. At the same time, Opec+ is hesitant to increase production significantly. Equally, the US shale industry is demonstrating financial discipline and may never again reach 2019 production levels. Other risks such as the Russia-Ukraine situation could further drive up prices if Russian oil were removed from the world market because of sanctions.
With today’s high oil prices and record gas prices, it is easy to forget that the situation was reversed as recently as two years ago. At the end of 2019, an over-supply of fossil fuels had left producers concerned about low prices. Saudi Arabia and Russia fell out over the need for further production cuts to support prices. Then the scale and impact of the pandemic became apparent, economies locked down, and energy demand plummeted – most significantly for oil, given its links to transport. Because of the jump in crude oil prices, Devon has managed to produce nearly eight times the amount of free cash flows than it did at the end of 2020.
Considering the company’s former bankruptcy and prior financial condition, this is a major turning point. This means focusing on prolific natural gas plays like the Haynesville and Marcellus shales. All in all, Chesapeake has roughly 960,000 net acres in these two core fields alone. And with its recent acquisition of Vine Energy, CHK will be the biggest producer in Haynesville by far. Given the shale field’s location to the Gulf Coast, as well as its refiners and new liquefied natural gas terminals, this is a big win for CHK.