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3 Leading Shale Oil Drillers To Bet On As WTI Crude Nears $75

By (Jesse Cohen/ MarketsJun 30, 2021 11:02
3 Leading Shale Oil Drillers To Bet On As WTI Crude Nears $75
By (Jesse Cohen/   |  Jun 30, 2021 11:02
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The market for energy, at least in recent memory, has rarely been brighter. Energy stocks have been on a tear, with the latest boost coming from surging oil prices, which recently jumped to their highest levels in almost three years, soaring to the $75 per barrel area. This, as escalating demand—resulting from the post-pandemic reopening and U.S. summer drive season now in full force—faces reduced production and dwindling inventories.

Indeed, the ongoing rally in the commodity has sparked renewed bets that crude oil prices could once again reach the key psychological $100 per barrel mark—a level not seen since before the oil crash of late 2014.

WTI Monthly Chart
WTI Monthly Chart

Not surprisingly, one of the energy sector’s main ETFs—the SPDR S&P Oil & Gas Exploration & Production Fund (NYSE:XOP)—has rallied around 62% year-to-date to reach its best level since September 2019. Compare that to the S&P 500, which, for its part, is up just 14.2% over the same timeframe.

XOP Vs. S&P Chart
XOP Vs. S&P Chart

Given the current bullish energy environment, with crude prices set to test new highs, here are three oil stocks which are well-positioned to extend their march higher in the weeks and months ahead.

1. EOG Resources

  • Year-To-Date Performance: +65.1%
  • Market Cap: $48.1 Billion

EOG Resources (NYSE:EOG) is one of the biggest independent oil and natural gas companies in the United States. Its core business operations involve exploring, developing, producing, and marketing crude oil, natural gas, and natural gas liquids.

Shares of the Houston, Texas-based energy firm—which owns premium acreage in the Eagle Ford shale formation in south Texas and the Permian's Delaware Basin—have been riding high this year, rallying around 65% so far in 2021.

EOG stock ended Tuesday’s session at $82.30, not far from its recent 18-month peak of $87.99 reached on June 7. At current levels, it has a market cap of $48.1 billion, making it the fourth largest U.S. oil producer, behind ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX), and ConocoPhillips (NYSE:COP).

EOG Daily Chart
EOG Daily Chart

EOG is expected to continue to benefit from improving oil market fundamentals in the months ahead, considering that West Texas Intermediate, the U.S. crude benchmark, neared $75 per barrel earlier this week, for the first time in more than two years.

The low-cost shale oil producer has previously said that it only needs oil to average $39 per barrel to maintain its current production rate. With oil prices currently well above that level, EOG is primed to generate significant free cash flow, giving it the funds to boost its dividend, which currently yields almost 2%, buy back shares, and repay debt.

EOG, which reported mixed first quarter financial results in early May, but announced a special $1.00 dividend, next reports earnings on Aug. 5.

Consensus calls for EPS of $1.40 for the second quarter, improving substantially from a loss of $0.23 per share in the year-ago period. Revenue is forecast to clock in at $3.89 billion, soaring 253% from sales of $1.1 billion in the same quarter a year earlier, reaping the benefits of higher oil prices.

Beyond the top- and bottom-line figures, investors will keep an eye on EOG's update regarding its production targets for the year ahead and its plans to return more cash to shareholders.

2. Occidental Petroleum

  • Year-To-Date Performance: +80.8%
  •  Market Cap: $29.2 Billion

Occidental Petroleum (NYSE:OXY) is one of the largest oil and natural gas producers in the Permian basin, making it a major player in the U.S. energy sector. The region, which spans across western Texas and southeast New Mexico, accounts for approximately 30% of total domestic oil output.

The Houston, Texas-based energy company, which saw its shares plunge as the COVID-19 health crisis kicked into high gear last year, has capitalized on the recovery in oil prices, gaining about 81% year-to-date.

OXY stock, which reached a pre-pandemic high of $33.01 on June 25, closed at $31.30 on Tuesday, earning it a valuation of $29.2 billion.

OXY Daily Chart
OXY Daily Chart

Occidental is poised to continue to benefit from its stellar Permian operations, while taking advantage of strong oil prices, which will help fuel future earnings growth.

OXY—which reported better-than-expected first quarter financial results on May 10—next reports earnings and sales after the U.S. market closes on Aug. 9.  

Consensus calls for a loss of $0.15 per share in the second quarter, significantly narrowing from a loss of $1.76 in the year-ago period. Revenue, meanwhile, is forecast to jump nearly 87% year-over-year to $5.47 billion, boosted by strong oil prices and increased global energy demand.

In addition to the top- and bottom-line numbers, investors will keep an eye on OXY’s update regarding its outlook for oil and gas output throughout the rest of the year and beyond.

Investors will also be keen to hear if the energy firm, which borrowed heavily to finance the $38 billion acquisition of rival Anadarko Petroleum in 2019, plans to take further steps to reduce its high debt load and return more cash to shareholders in the form of dividend payouts and share buybacks.

3. Continental Resources

  •  Year-To-Date Performance: +127.5%
  •  Market Cap: $13.6 Billion

Continental Resources (NYSE:CLR) is one of the leading independent oil and natural gas companies in the country. Nearly all of its reserves are in the Bakken Shale Deposit in North Dakota and Montana, where the company is currently the largest shale producer in the region. It also has key drilling assets in the STACK and SCOOP shale plays in Oklahoma.

Shares of the Oklahoma City, Oklahoma-based energy corporation have outperformed the broader market by a wide margin this year, soaring by roughly 128% amid the ongoing rally in oil prices.

CLR stock—which rose to its best level since September 2019 at $39.73 late last week—settled at $37.03 yesterday. At current levels, the oil exploration and production company has a market cap of $13.6 billion.

CLR Daily Chart
CLR Daily Chart

Despite strong year-to-date gains, Continental remains one of the best stocks to buy for investors who want to play the ongoing recovery in the U.S. oil sector, especially as crude prices continue to charge towards fresh highs.

The Bakken-focused shale driller—which posted upbeat earnings and revenue in the last quarter and announced its dividend payments will resume—is slated to next report earnings after the U.S. market closes on July 28.

Consensus calls for earnings per share of $0.43 for its second quarter, compared to a loss of $0.71 per share in the year-ago period. Revenue is expected to surge 500% from the same quarter a year earlier to $1.06 billion, thanks in large part to the dramatic rebound in crude prices.

Additionally, shareholders will pay close attention to improvements on the company’s balance sheet, as it continues to reduce debt.

Continental’s full-year production outlook, as well as its guidance for free cash flow, will also be in focus. The shale oil producer previously projected $3.1 billion in cash flow from operations, up 30% from its prior guidance, providing it with a flush of cash to repay debt, boost its dividend which currently yields 1.20%, and repurchase shares.

3 Leading Shale Oil Drillers To Bet On As WTI Crude Nears $75

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3 Leading Shale Oil Drillers To Bet On As WTI Crude Nears $75

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