The stock market is getting beaten up over recent days, but you wouldn’t know it if you had all your investment capital in the energy sector.
Oil is up and the XLE energy ETF is near 52-week highs. XLE even rallied on Wednesday, when the rest of the market saw its largest decline in months.
The question ahead for the crude oil market is about whether or not OPEC+ will change course abruptly once oil trades above the $70 level in the global Brent Crude market. It is currently knocking on that door.
However, given the tight market context, recent poor production growth, and the monstrous “reopening” demand factor lying in front of us, even the most bearish imaginable version of events above $70/bbl might not be enough to prevent a price spike in reaction to supply deficit fears as second-derivative demand growth rears its head and we close in on vaccine-induced herd immunity in major developed-world economies this summer.
In other words, it’s a good idea to keep glued to the energy sector on your screens right now because the oil patch continues to represent an area of persistent relative strength with clear driving factors.
This view is heightened by a recent call from Goldman Sachs for a demand boom of over 6 million barrels per day, which could drive WTI Oil prices above $80/bbl over the next six months, according to the leading firm on the Street.
Taken together, it may pay to have a disproportionate focus on promising small-cap energy stocks, such as SM Energy Co (NYSE: SM), PDC Energy Inc (NASDAQ: PDCE), Camber Energy Inc (NYSEAMERICAN: CEI), PBF Energy Inc (NYSE: PBF), and Southwestern Energy Company (NYSE: SWN).
With that in mind, we take a closer look at some of the most interesting names in the space, where recent catalysts promise growth and growing interest, and where we see incipient and demonstrable relative strength amid widespread distribution activity in the market this week.
PDC Energy Inc (NASDAQ: PDCE) is a domestic independent exploration and production company that acquires, explores and develops properties for the production of crude oil, natural gas and NGLs, with operations in the Wattenberg Field in Colorado and Delaware Basin in west Texas. Its operations in the Wattenberg Field are focused in the horizontal Niobrara and Codell plays and our Delaware Basin operations are primarily focused in the horizontal Wolfcamp zones.
PDCE most recently announced its 2021 first-quarter financial and operating results, including net cash from operating activities of approximately $355 million, adjusted cash flows from operations of approximately $300 million, and oil and gas capital investments of approximately $125 million. In addition, the company saw approximately $175 million of adjusted free cash flow and reduced total net debt by approximately $230 million, resulting in an undrawn revolving credit facility, cash balance of approximately $60 million and total liquidity of $1.7 billion as of March 31, 2021.
President and Chief Executive Officer Bart Brookman commented, “Once again, our results clearly reflect the company’s priorities: sustainable free cash flow, debt reduction and shareholder returns. Since closing the SRC merger in early 2020, PDC has generated nearly $600 million of free cash flow while reducing debt by approximately $500 million. The Company’s financial strength, combined with its focus on shareholder returns and operational excellence, make PDC’s story particularly compelling.”
If you’re long this stock, then you’re liking how the stock has responded to the announcement. PDCE shares have been moving higher over the past week overall, pushing about 6% to the upside on above average trading volume. Shares of the stock have powered higher over the past month, rallying roughly 10% in that time on strong overall action.
PDC Energy Inc managed to rope in revenues totaling $286M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of -11.3%, as compared to year-ago data in comparable terms. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($59.1M against $943.6M, respectively).
Camber Energy Inc (NYSEAMERICAN: CEI) is positioned well as a small but rapidly growing player with wide exposure to production capacity growth in the oil and gas space in the southern domestic US market.
The company is particularly interesting given its pending merger with its majority-owned subsidiary, Viking Energy Group Inc (OTCMKTS:VKIN). The strategic combination will give CEI investors strong exposure to historically rich oil and gas properties spread across Oklahoma, Texas, Louisiana, Mississippi, and Kansas, with significant exposure to the Gulf Coast.
CEI is moving toward the finalization of its merger with VKIN, and we would assume further M&A-based expansion of this production team in the oil and gas space could be forthcoming. In addition, VKIN’s performance metrics continue to show tremendous promise. According to its recent filing, Viking just posted record topline performance, posting 2020 revenues above $40 million, which is up over 400% from 2018.
James Doris, President and Chief Executive Officer of both Camber and Viking, commented, “We are pleased with Viking’s results given the challenges faced in 2020. In many respects the year was about survival for E&P companies given the unprecedented price environment and market conditions, and not only did we endure thanks to the commitment and perseverance of our entire team we also managed to improve in key areas, including increasing overall revenues and reducing debt at the Viking level. We remain focused on executing on our strategy and forging a path toward profitability.”
Camber Energy shares have been broadly strong, up as much as 75% in the past eight months. But the stock has pulled back over the past 2 months dramatically, which could offer an interesting opportunity to investors interested in unsung small caps with compelling narratives already in place under the radar.
PBF Energy Inc (NYSE: PBF) bills itself as one of the largest independent refiners in North America, operating, through its subsidiaries, oil refineries and related facilities in California, Delaware, Louisiana, New Jersey and Ohio. PBF Energy Inc. also currently indirectly owns the general partner and approximately 48% of the limited partnership interest of PBF Logistics LP (NYSE:PBFX).
PBF recently reported first quarter 2021 income from operations of $57.7 million as compared to loss from operations of $1,366.8 million for the first quarter of 2020. Excluding special items, first quarter 2021 loss from operations was $317.8 million as compared to loss from operations of $134.0 million for the first quarter of 2020. PBF Energy’s financial results reflect the consolidation of PBF Logistics LP (NYSE: PBFX), a master limited partnership of which PBF Energy indirectly owns the general partner and approximately 48% of the limited partner interests as of quarter-end.
Tom Nimbley, PBF Energy’s Chairman and CEO, said, “PBF’s first quarter results reflect the continuing challenges of lower demand brought on by the pandemic. Our refineries operated well and at rates which mirrored demand.” Mr. Nimbley continued, “We did see sequential improvement during the quarter. We ran higher in March than we did in January which reflects more favorable market conditions as the progressive vaccine rollout lead to improving demand. However, even with rising demand, the independent refining sector is facing unsustainable headwinds as a result of escalating compliance costs under the RFS program. If the program is not fixed, it will likely result in a reshaping of the U.S. refining industry and a greater reliance on foreign energy.”
Even in light of this news, PBF hasn’t really done much of anything over the past week, with shares logging no net movement over that period.
PBF Energy managed to rope in revenues totaling $4.9B in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of -6.7%, as compared to year-ago data in comparable terms. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($1.5B against $3.4B, respectively).
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