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Time to make Bullish on these 2 oil supplies, says Raymond James
We are entering a new paradigm for the oil and gas industry, one far removed from the Trump presidency’s pro drilling policy. The Biden Admin is likely to cut oil and gas production in the US in favor of promoting renewable energy sources and reducing carbon pollution. In the short term, its policies are likely to drive up oil and gas prices – which could help the hydrocarbon sector in the coming year. But for the oil companies, the 2020 lessons appear in the balance sheets. The huge rise in prices last May, followed by a rapid recovery, to end just the year at about the same price as it started – all this means that producers want to cut spending, consolidate or reduce debt and free cash flow . In the words of Raymond James’ analyst of the oil industry, John Freeman: “[We] enters 4Q20 earnings and 2021 capital budget season with WTI trading, ironically, essentially the same low $ 50 range as we did this year. While crude oil is largely in the same place, the industry has certainly undergone a strategic shift with balance sheet and the provision of capital to shareholders by far the highest priorities. In addition to the general trend in the industry after a difficult year, Freeman has also updated his position on individual oil and gas supplies. Two in particular got Freeman’s attention. He sees at least 50% upward potential for each of them. We ran the two through TipRanks’ database to see what other Wall Street analysts have to say about it. Apache Corporation (APA) With headquarters in Houston, Texas, Apache is a major operator in the North American oil industry. The U.S. exploration and production of hydrocarbon activities is located in the Permian Basin, along the Gulf Coast and in the Gulf of Mexico. Apache is also active in the United Kingdom (in the North Sea), in Egypt (in the Western Desert) and in Suriname (abroad). The company’s Perm holdings contain 665.8 million barrels of oil equivalent, 66% of its proven reserves. The company beat quarterly revenue expectations in the third quarter, topping the $ 1.12 billion mark. Since Q3 revenue was reported, Apache’s inventory has risen 71%. The company reported 445,000 barrels of oil equivalent per day in Q3 production. Analyst John Freeman, who covers the stock for Raymond James, writes: “We still like Apache’s diversified portfolio of US rural and international assets (Egypt, the North Sea and Suriname), and gave Apache’s significant commodity exposure (only in 2021 on Waha base hedged.), The company is ideally located to capitalize on our projected rise in commodity prices in the period 2021/2022. In addition, the operator has an extremely robust FCF profile [and] proven commitment to capital discipline … ”In line with these comments, the analyst gives APA a strong buy rating and a price target of $ 24 which implies an upward potential of 60% over the next 12 months. (Click here to see Freeman’s record.) Freeman leads the Bulls on Apache. The stock has a moderate buy-in from the analyst consensus, based on 12 reviews that include 6 buys, 5 investments and 1 sell. The shares are selling for $ 14.94, and their average price target of $ 19.30 indicates room for upward growth of 29% this year. (See APA stock analysis on TipRanks) Diamondback Energy (FANG) Diamondback Energy is also based in Texas, and is also a player in the Perm Boom energy boom. The company boasts a market capitalization of $ 8.9 billion and achieved revenue of $ 720 million in the third quarter of 2020. The production in the quarter averaged 287.8 thousand barrels of oil equivalent per day. Diamondback’s reserves amount to more than 1.12 billion barrels of oil equivalent, of which 63% is oil and 37% natural gas and related fluids. Diamondback is expanding its operations through M&A activities. In December last year, the company announced that it would acquire QEP Resources, a natural gas drill in the Midland basin of the Permian Formation, along with operations in the Williston Formation in North Dakota. The acquisition is a total transaction, valued at $ 2.2 billion. QEP brings 49,000 acres into the Midland for potential development, an average production of 48,300,000 BOE per day and 48 ‘drilled but unfinished’ wells. These assets apply to Diamondback’s portfolio. In a related news, Diamondback announced that it will also acquire Guidon, another competing oil producer in Texas. Guidon brings additional Permian assets to Diamondback, and the acquisition is significant, with a value of $ 862 million in cash and inventory. Freeman sees the company in a strong position to address the challenges of both the energy environment and the Biden administration’s regulatory policy. “With the addition of QEP and Guidon surfaces, we expect the Midland account to account for approximately 75% of pro forma activity. Note that even after the QEP / Guidon acquisitions, FANG still has no federal surface exposure – a significant positive given uncertainty in the regulation is likely to continue after the expiration of the 60-day lease moratorium … We believe that FANG offers significant upside potential in the long run. and is confident in the company’s ability to withstand short-term commodity uncertainties, ”Freeman said. Not surprisingly, Freeman considers FANG a strong buy, coupled with a price target of $ 91. This figure indicates confidence in ~ 51% growth over the next 12 months. (Click here to see Freeman’s record.) There is broad agreement on Wall Street with Freeman’s position here. FANG stock has a strong buy rating from the analyst consensus, based on 13 recent Buy reviews against only 3 Holdings. The average price target is $ 67.37, which implies ~ 12% upside down from the current trading price of $ 67.37. (See FANG stock analysis on TipRanks) Visit TipRanks ‘best-selling stocks, a newly launched tool that unites all of TipRanks’ shares of the stock, to find great ideas for trading oil stocks at attractive valuations. Disclaimer: The opinions expressed in this article are those of the proposed analyst. The content is for informational purposes only. It is very important to do your own analysis before investing.