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Saudi Arabia Puts Oil Back Into the $50s: 5 E&P Stocks to Buy

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Nilanjan Choudhury
·5 min read
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WTI crude futures (the U.S. benchmark) pushed through the $50-a-barrel mark on Tuesday for the first time since February, boosted by OPEC-kingpin Saudi Arabia’s surprise production cut move. In New York, the commodity was up 4.85% (or $2.31) to settle at $49.93 a barrel, having previously touched an intraday high of $50.20. Evidently, yesterday’s closing was the best in 11 months and importantly, a price that most operators believe might be enough to drill profitably.

To nearly everyone’s surprise, Riyadh pledged to reduce oil output by 1 million barrels per day in February and March, thereby pumping for two months at levels below the production limit fixed under the OPEC+ agreement. The deeper cuts by the world’s largest oil exporter will also help to offset Russia and Kazakhstan’s combined addition of 75,000 barrels per day to the market, beginning in February and extending through March.

The bullish development pushed the Energy Select Sector SPDR — an assortment of the largest U.S. energy companies — up nearly 4.5% on Tuesday to be at the top of the S&P sector standings. It then came as no surprise that shares of oil-related companies were some of the biggest beneficiaries.

As a matter of fact, the top five gainers of the S&P 500 yesterday were all energy firms — Occidental Petroleum, Diamondback Energy, Apache, Marathon Oil and Halliburton.

As it is, oil has been rallying for the past few months on continued vaccine-related developments that offer hope for an earlier-than-expected pickup in the commodity’s demand. The renewed enthusiasm can be gauged from the fact that the Zacks Oil/Energy sector has gained 26.1% in the past three months, handily outperforming the S&P 500 Index’s 9.1% appreciation.

 


 

While all crude-focused stocks stand to gain from the oil rally, companies in the exploration and production (E&P) sector are the best placed, as they will be able to extract more value for their products. To guide investors to the right picks, we highlight five such stocks that carry a Zacks Rank of #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Bonanza Creek Energy BCEI: Bonanza Creek Energy is an oil and gas explorer focused on the Rocky Mountain region of the United States. The company’s impending acquisition of HighPoint Resources HPR will transform it into a premier DJ Basin player with a peer-leading expenditure pattern and a sizable rural footprint.

The 2021 Zacks Consensus Estimate for this Denver, CO-based company indicates 41.7% earnings per share growth over 2020. Bonanza Creek carries a Zacks Rank #1.

Diamondback Energy FANG: Diamondback Energy focuses on growth through a combination of acquisitions and active drilling in the Permian Basin. Diamondback's leading position in the unconventional play got another leg up with the proposed takeover of QEP Resources QEP. A low-cost structure and investment grade balance sheet are other positives in the Diamondback story.

The 2021 Zacks Consensus Estimate for this Midland, TX-based company indicates 57.7% earnings per share growth over 2020. Diamondback carries a Zacks Rank #1.

W&T Offshore, Inc. WTI: W&T Offshore is a leading oil and natural gas explorer with operations primarily focused on resources located off the coast of Gulf of Mexico. The domestic producer’s deepwater portfolio is diversified with low decline rates. Further, W&T Offshore has an excellent track of drilling success and synergistic acquisitions.

The 2021 Zacks Consensus Estimate for this Houston, TX-based company indicates 77.9% earnings per share growth over 2020. W&T Offshore carries a Zacks Rank #1

Centennial Resource Development CDEV: Centennial Resources Development is a pure-play Permian Basin oil and gas producer. It has a huge acreage position in the Delaware Basin, which should provide the company with years of production. With no near-term debt maturities, a strong liquidity position and successful cost control initiatives, Centennial is primed for a strong upside position.  

The 2021 Zacks Consensus Estimate for this Denver, CO-based company indicates 94.7% earnings per share growth over 2020. Centennial carries a Zacks Rank #2.

Evolution Petroleum EPM: Evolution Petroleum is a small upstream operator whose only primary resource is its working interest in the CO2-flooded Delhi Field in Northern Louisiana. The company’s top-quality, low-risk and long-lived asset base results in low production decline and positive cash flow generation. In addition to Evolution Petroleum’s downside protection with hedges, it has kept costs under control.  

Over 60 days, the Houston, TX-based company has seen the Zacks Consensus Estimate for fiscal 2021 improve 50%. Evolution Petroleum carries a Zacks Rank #2

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QEP Resources, Inc. (QEP) : Free Stock Analysis Report
 
W&T Offshore, Inc. (WTI) : Free Stock Analysis Report
 
Diamondback Energy, Inc. (FANG) : Free Stock Analysis Report
 
Bonanza Creek Energy, Inc. (BCEI) : Free Stock Analysis Report
 
Evolution Petroleum Corporation, Inc. (EPM) : Free Stock Analysis Report
 
Centennial Resource Development, Inc. (CDEV) : Free Stock Analysis Report
 
HIGHPOINT RESOURCES CORP (HPR) : Free Stock Analysis Report
 
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