Energy sector increasingly seeks to end year on a high after U.S. crude oil succeeded at overcome early recession to close above $ 75 / bbl during the Monday trading session. Indeed, oil prices are now trading at their highest level in a month, with Brent crude trading near $ 80 as Omicron fears continue to subside. A new study conducted by South African scientists suggests that Omicron could displace the Delta variant of the coronavirus because infection with the new variant strengthens immunity against the old one. So far, people who contract Omicron have had milder symptoms than those infected with Delta and are also less likely to be hospitalized.
Oil stocks are soaring again, with the sector’s preferred benchmark being the ETF Energy Select Sector SPDR (NYSEARCA: XLE), climbing 2.2% to lead the Santa Claus rally.
APA Corp. (NYSE: APA) topped Monday’s S&P rankings after climbing 7.3% on the day, with Devon Corp. (NYSE: DVN), Diamondback Energy, Inc. (NASDAQ: FANG), EOG Resources (NYSE: EOG), Marathon Oil Company (NYSE: MRO), A pioneer in natural resources (NYSE: PXD), ConocoPhillips (NYSE: COP) and Western Oil Company (NYSE: OXY) all making big gains.
As the year draws to a close, it is time for investors to recalibrate their portfolios. The current year has been a annus mirabilis for energy investors thanks to high energy prices. But the oil markets remain volatile and turbulent thanks to the pandemic and the energy transition underway.
Fortunately, Wall Street remains largely bullish on the energy sector, with some analysts predicting even higher oil prices in 2022.
Barclays predicted that the price of the WTI contract will drop from the current rate of $ 73 to an average price of $ 77 in 2022, noting that the Biden administration’s sale of oil from the Strategic Oil Reserve is not a sustainable way to lower the prices. Barclays says prices could go even higher than this forecast if COVID-19 outbreaks are minimized and thus allow demand to grow more than expected.
Goldman Sachs shares this bullish outlook and has predicted a Brent price of $ 85 per barrel by 2023, up from $ 76.30 currently.
Here are our top 3 North American oil stocks for 2022.
# 1. ConocoPhillips
ConocoPhillips (NYSE: COP) is a leading shale player engaged primarily in conventional and tight oil reservoirs, shale gas, heavy oil, LNG, oil sands, and other production operations.
In the last quarter, Bank of America COP shares upgrades to buy Neutral with a price target of $ 67, labeling the company a “cash machine” with the potential for accelerated returns.
According to BofA analyst Doug Leggate, Conoco looks like “poised to accelerate cash yields at an earlier and greater rate than any E&P or pure play oil major.
Leggate COP shares returned to more attractive levels “but with a different macro perspective than at the moment [Brent] oil peaked at nearly $ 70. “
But best of all, the BofA analyst believes the COP is highly exposed to longer-term oil recovery.
But BofA isn’t the only Wall Street bettor talking about COP.
In one note to customersRaymond James says the company’s stock price is undervaluing the flow of cash the oil and gas company is about to generate.
Well, it looks like the analysts were right: Three weeks ago, Conoco unveiled its pre-projects for 2022, highlighting a three-tiered program that could see the company return around $ 7 billion in cash to investors in 2022.
COP is proposing a redesigned shareholder return plan with:
1) Base dividend of $ 2.4 billion (2.5% of market capitalization)
2) Variable dividend of 20c / s in the next quarter (1.1% of current market capitalization, annualized)
3) Share buyback of $ 3.5 billion (3.7% of market capitalization)
If this holds, it positions COP shareholders for a 7.3% payout with weak production growth. COP forecasts a 36% increase in investments for the year (22% adjustment for the purchase of the Permian) but a simple production growth of 3%. Indeed, Conoco is expected to return around $ 7 billion in cash to investors over the coming year.
The company is also making smart investments, including its Acquisition of $ 9.5 billion entirely in cash of Royal Dutch Shell‘s (NYSE: RDS.A) Permian Basin and is also investing around $ 200 million in green projects to reduce its carbon emissions.
COP shares have returned 83.1% year-to-date.
# 2. Cenovus Energy
Canadian Oil Sands Company Cenovus Energy (NYSE: CVE) develops, produces and markets crude oil, natural gas liquids and natural gas in Canada, the United States and the Asia-Pacific region. The Company operates in the oil sands, conventional, and refining and marketing industries.
Long-suffering Canadian energy stocks are starting to look like real bargains.
CVE shares hit a 52-week high after JP Morgan upgraded shares to Overweight Neutral with a price target of C $ 14.50 (potential up 45%), citing progress in execution of the takeover of Husky Energy last year (OTCPK: HUSKF).
Cenovus shares remain undervalued, but the company is in an excellent position to generate enough free cash flow to buy back its stake in ConocoPhillips.
Last week, Cenovus released its 2022nd forecast and 5-year outlook. The company said that at a WTI price of $ 75, it would be able to generate “excess free cash flow” of $ 33 billion over the next 5 years, or roughly 100% of the current market capitalization of the company. company.
More immediately, Cenovus expects to generate $ 5.5 billion in excess free cash flow in 2022 (16% of the company’s current market capitalization) and will allocate more than 50% to shareholders through buybacks and dividends.
Cenovus management is currently authorized to repurchase approximately 146 million shares or approximately 7% of the outstanding shares.
Over the 5-year forecast horizon, CVE plans to maintain 800kb / d of upstream production (up 4% vs. 2021, but stable from 2022e).
Perhaps more importantly, and in the face of the incidents in the company’s capital markets in 2019, Cenovus plans to reduce capital spending over the forecast period (while maintaining production and increasing returns on shareholders).
CVE shares have gained 106.6% year-to-date.
# 3. APA Corp.
Actions of APA Corp. (NYSE: APA) rose after the company signed an agreement with the Egyptian government to invest at least $ 3.5 billion in research, development and production in the western desert of the country.
According to APA management, the agreement consolidates 90% of gross production in a single concession and also updates the terms of existing development leases for 20 years.
Last month, the Egyptian parliament approved a deal to modernize and consolidate its production sharing contracts with the government.
APA’s joint venture with China Sinopec is expected to increase gross capital investment in Egypt by $ 235 million during 2022 and increase Egypt’s gross oil production by 13-15%. The company says the joint venture will be entitled to recover nearly $ 900 million in overdue costs over five years starting April 1, 2021.
Last year the APA announced a major oil discovery on its 1.4 million acre offshore Suriname area adjacent to Exxon Mobil Corp.’s (NYSE: XOM) historical discovery. APA said it made a world-class discovery at the Kwaskwasi-1 well located in the prolific Guyana-Suriname basin, where it encountered 278 meters (912 feet) of net oil and volatile oil / gas condensates.
Bank of America Merrill Lynch presented Suriname’s perspective as a potential game changer for APA:
“Suriname has the potential to reset the investment case”, Merrill Lynch’s veteran oil industry analyst Doug Leggate said.
APA shares have gained 97.1% year-to-date.
By Alex Kimani for Oil Octobers
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