With OPEC+ set to explore the option of additional cuts during their upcoming meeting, a majority of 18 surveyed analysts anticipate that OPEC+ is likely to extend or potentially enhance oil supply cuts into the next year. Furthermore, ongoing OPEC supply cuts, combined with geopolitical factors such as the Israel-Hamas conflict, may heighten the limitations on oil supply.
Given the backdrop, in this article, I have highlighted three oil and gas stocks: Equinor ASA (EQNR), Energy Transfer LP (ET), and Western Midstream Partners, LP (WES), which are well-equipped to capitalize on the industry tailwinds.
Despite not having any direct impact on the oil flows, the current conflict between Hamas and Israel poses a significant geopolitical risk to oil markets if the situation escalates. For instance, if Iran is implicated in the conflict, there is a possibility that the United States could tighten or intensify the enforcement of sanctions on Iran. This could further strain an already undersupplied oil market.
Moreover, the International Energy Agency (IEA) has upgraded its outlook for oil demand growth in 2023 to 2.4 million barrels per day (bpd). Additionally, it has adjusted its growth forecast for 2024 to 930,000 bpd, marking an increase from the previous projection of 880,000 bpd.
The dynamics of oil prices are further influenced by substantial supply cuts from major oil-producing nations. Saudi Arabia, Russia, and other OPEC+ members have collectively committed to reducing oil output by approximately 5 million bpd, equivalent to around 5% of the daily global demand.
According to J.P. Morgan, the global oil market could enter a wave of energy supercycle, facing a 1.1 mbd deficit in 2025, which could widen to a 7.1 mbd deficit in 2030. As a result of this, oil prices could top $150 per barrel over the near to medium term and $100 per barrel over the long term.
Considering the anticipated supply-demand mismatch eventually leading to elevated prices, companies operating within this space will likely reap the benefits. Thus, adding EQNR, ET, and WES to your portfolio could yield potential gains. With that being said, let us dig deeper into the fundamentals of these stocks:
Equinor ASA (EQNR)
Headquartered in Stavanger, Norway, EQNR is an energy company that engages in the exploration, production, transportation, refining, and marketing of petroleum and other forms of energy. It operates through Exploration & Production Norway; Exploration & Production International; Exploration & Production USA; Marketing, Midstream & Processing; Renewables; and other segments.
On October 30, EQNR and energy company RWE entered into a new supply contract covering a range of 10 to 15 terawatt hours (approximately 1-1.5 billion cubic meters) of natural gas annually, extending until 2028. This fresh bilateral agreement further strengthens the enduring partnership between RWE and EQNR.
On October 27, EQNR declared an ordinary dividend of $0.30 and an extraordinary dividend of $0.60, payable to its shareholders on February 27, 2024. The company’s annual dividend of $1.20 translates to a 3.73% yield on the prevailing prices, while its four-year average dividend yield is 5.62%. Its dividend payouts have grown at a CAGR of 15.7% over the past three years.
For the third quarter, which ended on September 30, 2023, EQNR’s total revenues and other income amounted to $25.92 billion, while its net operating income and net income came in at $7.45 billion and $2.50 billion, respectively. In addition, during the same period, its total comprehensive income stood at $2.21 billion.
Analysts expect EQNR’s revenue and EPS for the fiscal fourth quarter (ending December 2023) to be $29 billion and $1.01, respectively. Moreover, the company’s EPS is projected to improve by 5.8% per annum over the next five years.
Over the past six months, the stock has gained 21.5% to close the last trading session at $32.20.
EQNR’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality and a B for Momentum and Sentiment. In the 43-stock A-rated Foreign Oil & Gas industry, it is ranked #16. Click here to see EQNR ratings for Growth, Value, and Stability.
Energy Transfer LP (ET)
ET provides energy-related services. The company owns and operates approximately 11,600 miles of natural gas transportation pipeline, three natural gas storage facilities in Texas and two natural gas storage facilities located in the state of Texas and Oklahoma.
On November 20, ET paid its shareholders a quarterly dividend of $0.31. The company’s annual dividend of $1.25 translates to a 9.10% yield on the prevailing prices, while its four-year average dividend yield is 10.30%. Its dividend payouts have grown at a CAGR of 4.9% over the past three years.
On November 3, ET successfully finalized its acquisition of Crestwood Equity Partners LP as previously disclosed. As a consequence of the acquisition, ET has significantly bolstered its presence by now owning and operating more than 125,000 miles of pipelines and related assets.
These holdings are strategically positioned across major U.S.-producing regions, spanning 41 states, thereby strengthening ET’s leadership in the midstream sector.
Moreover, the amalgamated operations of the two companies are anticipated to generate initial annual cost and efficiency synergies of at least $40 million, with additional expected benefits from financial and commercial synergies.
In the fiscal third quarter, which ended on September 30, 2023, ET’s revenues amounted to $20.74 billion, while its operating income rose 13.4% year-over-year to $2.23 billion. During the same period, the company’s net income came in at $1.05 billion and $0.15 per share, respectively. In addition, its adjusted EBITDA grew 14.7% from the prior-year quarter to $3.54 billion.
Street expects ET’s revenue for the fiscal fourth quarter (ending December 2023) to increase 7.2% year-over-year to $21.98 billion, while its EPS for the ongoing quarter is projected to improve marginally year-over-year to $0.34. Additionally, its EPS is expected to increase by 9.3% annually over the next five years.
ET’s shares have surged 15.8% year-to-date to close the last trading session at $13.74.
ET’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has a B for Value and Momentum. Within the 85 stocks in the Energy - Oil & Gas industry, it is ranked #6. Click here to see the other ratings of ET for Growth, Stability, Sentiment, and Quality.
Western Midstream Partners, LP (WES)
WES operates as a midstream energy company primarily in the United States. The company is involved in gathering, compressing, treating, processing, and transporting natural gas.
On October 13, WES successfully completed the acquisition of Meritage Midstream Services II, LLC. The transaction was financed through cash reserves and a recent issuance of $600 million in investment-grade senior notes.
This acquisition marks a significant enhancement to WES' presence in the Powder River Basin, featuring expanded gathering and processing facilities, a more diverse customer base, and long-term contracts supported by minimum volume commitments and acreage dedications.
In the fiscal third quarter, which ended on September 30, 2023, WES’ total revenues and other income amounted to $776.01 million, while its operating income rose marginally year-over-year to $360.76 million. Moreover, the company’s net income and net income per unit increased 3.9% and 6.1% from the prior-year quarter to $284.39 million and $0.71, respectively.
The consensus revenue estimate of $873.92 million for the fourth quarter (ending December 2023) reflects a 14.6% increase year-over-year. The consensus EPS estimate for the same quarter is $0.80. Additionally, its EPS is projected to improve by 3.8% per annum over the next five years.
WES’ shares have soared 7.3% year-to-date and 8.1% over the past six months to close the last trading session at $28.44.
It’s no surprise that WES has an overall rating of B, which equates to Buy in our proprietary rating system. It has a B for Momentum, Stability, and Quality. Out of 26 stocks in the A-rated MLPs - Oil & Gas industry, it is ranked #6.
In addition to the POWR Ratings we’ve stated above, we also have WES’ ratings for Growth, Value, and Sentiment. Get all WES ratings here.
What To Do Next?
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EQNR shares were trading at $32.96 per share on Friday morning, up $0.76 (+2.36%). Year-to-date, EQNR has gained 1.58%, versus a 20.28% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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