Brent Crude, the international benchmark for crude oil prices, closed on Monday at $123.21 per barrel, registering a 27% increase from 12 days earlier when Russia’s invasion of Ukraine started. West Texas Intermediary oil, the United States benchmark, was up 30% over the same period. Gasoline prices hit $4.25 per gallon of regular gas, according to AAA’s survey Wednesday, with a $5 per gallon national average not implausible. Furthermore, WTI crude ended the last session 3.6% higher at $123.70 per barrel, while Brent Crude stood 4.3% higher at $123.21 per barrel.
RBC Capital Markets analyst Michael Tran has stated that it would not be too far-fetched for oil prices to hit $200 per barrel this summer, thereby hinting that the oil price rally might still have a long way to go. The Energy Information Administration (EIA), in its latest Short-Term Energy Outlook (STEO), has hiked its Brent Crude price forecast from $82.87 to an average of $105.22 per barrel this year.
Given this backdrop, we think oil and gas stocks Centennial Resource Development, Inc. (CDEV), Obsidian Energy Ltd. (OBE), VAALCO Energy, Inc. (EGY), and PHX Minerals Inc. (PHX), which are currently trading below $10, might be worth buying.
Centennial Resource Development, Inc. (CDEV)
CDEV in Denver, Colo., operates as an independent oil and natural gas company focused on developing crude oil and related liquid-rich natural gas reserves in the United States. The company’s assets are primarily focused on the Delaware Basin, a sub-basin of the Permian Basin.
On February 23, CDEV announced a $350 million stock repurchase program authorized for two years and representing approximately 15% of the company’s market capitalization. The program is supported by the company’s two-year outlook, which expects to generate $775 million in free cash flow and to grow its average crude oil production.
On December 1, CDEV announced the closing of the sale of non-core assets to affiliates of Henry Resources, LLC and Pickering Energy Partners, LP for a cash purchase price of $101 million. The company intends to use the proceeds from the sale to reduce borrowings on its revolver and enhance financial flexibility.
For its fiscal fourth quarter, ended December 31, CDEV’s oil and gas sales increased 113.7% year-over-year to $316.42 million. Its net income and income per share of Class A common stock came in at $160.75 million and $0.51, respectively, up substantially from their negative year-ago values. Its adjusted EBITDAX rose 136.4% from the prior-year quarter to $187.08 million.
The $0.30 consensus EPS estimate for its fiscal quarter ending March 31, 2022, indicates a 350% year-over-year increase. And the $280.89 million consensus revenue estimate for the same quarter reflects a 78.8% improvement from the prior-year period.
The stock has gained 84.7% in price over the past year and 41.5% year-to-date to close yesterday’s trading session at $8.46.
CDEV’s strong fundamentals are reflected in its POWR Ratings. The stock has a Momentum grade of A and a Growth and Quality grade of B. In the 86-stock Energy – Oil & Gas industry, it is ranked #30. The industry is rated B. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Click here to see the additional POWR Ratings for CDEV (Value, Stability, and Sentiment).
Obsidian Energy Ltd. (OBE)
OBE in Calgary, Canada, explores, produces, and develops oil and natural gas properties in the Western Canada Sedimentary Basin. The common shares of the company shifted trading to the NYSE American Stock Exchange on January 31, 2022.
On January 18, OBE announced the reconfirmation of its syndicated credit facility, with no changes made to its revolving period. The structure is expected to provide a stable capital source, operational liquidity, and a long-term maturity profile.
On Nov. 24, 2021, OBE closed its acquisition of the remaining 45% interest in the Peace River Oil Partnership through its subsidiary. Stephen Loukas, OBE’s Interim President and CEO, commented, “With full ownership and the current favorable commodity price outlook, we are executing a four-well development drilling program that is expected to be on production by the end of January 2022.”
OBE’s production revenues increased 105.8% year-over-year to CAD149.80 million ($116.63 million) in its fiscal fourth quarter ended Dec. 31, 2021. Its net income came in at CAD21.70 million ($16.90 million), while its net income per share stood at CAD0.27, up 10,750% and 2,600%, respectively, from the prior-year quarter.
Analysts expect OBE’s revenue to increase 35.5% year-over-year to $480.87 million for its fiscal year 2022.
The stock has gained 452.3% in price over the past year and 105.1% year-to-date to close yesterday’s trading session at $8.45.
It is no surprise that OBE has an overall B rating, which translates to Buy in our POWR Rating system.
OBE has an A grade for Momentum and a B grade for Value and Quality. It is ranked #15 in the Energy – Oil & Gas industry.
To see the additional POWR Ratings for Growth, Stability, and Sentiment for OBE, click here.
VAALCO Energy, Inc. (EGY)
EGY in Houston, Tex., is an independent energy company and a crude oil and natural gas explorer, developer, and producer. The company holds the Etame production sharing contract in the Etame Marin block in the Republic of Gabon and has interests in the undeveloped offshore block in Equatorial Guinea.
On March 1, EGY provided an update regarding its Etame field reconfiguration in conjunction with the replacement of the existing Floating Production, Storage, and Offloading unit (FPSO) with a Floating Storage and Offloading vessel (FSO) offshore Gabon. This move is expected to reduce storage and offloading costs by almost 50% and increase effective capacity for storage by more than 50%.
On January 28, EGY announced its inaugural quarterly cash dividend of $0.0325 per share of common stock for the first quarter of 2022, which aggregates to $0.13 on an annualized basis, and is payable to shareholders on March 18. This reflects the company’s balance sheet and ability to generate free cash flow.
EGY’s crude oil and natural gas sales increased 206.2% year-over-year to $55.90 million in its fiscal third quarter, ended Sept. 30, 2021. Its adjusted net income and adjusted net income per share stood at $9.96 million and $0.17, respectively, up 324.6% and 325% from the prior-year quarter. And its adjusted EBITDAX rose 232.6% from the same period last year to $23.26 million.
Wall Street expects its EPS to increase 211.8% year-over-year to $0.53 for the quarter ending March 31, 2022. The Street expects EGY’s revenue to improve 75% from the prior-year quarter to $69.60 million in the same quarter.
Over the past year, the stock has gained 112.3% in price to close yesterday’s trading session at $6.90. It has gained 178.2% over the past six months.
This promising outlook is reflected in EGY’s POWR Ratings. The stock has an overall B rating, which equates to Strong Buy in our proprietary rating system.
The stock has a Momentum and Sentiment grade of A and a Growth and Quality grade of B. It is ranked #3 in the Energy – Oil & Gas industry.
In addition to the POWR Rating grades we have stated above, one can see the EGY rating for Value and Stability here.
PHX Minerals Inc. (PHX)
PHX, formerly known as Panhandle Oil & Gas Inc., is an Oklahoma City, Okla.-based natural gas and oil mineral company with principal properties in Oklahoma, Texas, Louisiana, North Dakota, and Arkansas. The company produces and sells natural gas, crude oil, and natural gas liquids to pipeline and marketing companies, among other purchasers.
On December 9, PHX announced that it had amended its revolving credit facility, increasing the facility’s borrowing base to $32 million with its scheduled semi-annual redetermination. In addition, the company entered a purchase and sale agreement to acquire 426 total net royalty acres in Caddo Parish, Louisiana. The acquisition is expected to provide immediate cash flow to the company, and the expansion of the borrowing base is expected to strengthen its asset base.
On December 1, PHX reported the sale of assets totaling 193 non-operated legacy working interest wellbores in the Arkoma Shale and Western Anadarko Shale plays of Oklahoma. The company also announced that it had acquired approximately 172 net royalty acres located primarily in Carter and Stephens County in Oklahoma. The developments should upgrade PHX’s asset base reinvesting proceeds from areas of higher-margin minerals.
For its fiscal first quarter, ended Dec. 31, 2022, PHX’s revenues increased 169% year-over-year to $16.60 million. Its net income and earnings per common share came in at $6.68 million and $0.20, respectively, up substantially from their negative year-ago values.
The $0.27 consensus EPS estimate for its fiscal year 2022 indicates a 217.4% year-over-year increase. The $45.70 million consensus revenue estimate for the same year reflects a rise of 104.7% from the prior year.
The stock has gained 43.3% in price year-to-date and 48.1% over the past month to close yesterday’s trading session at $3.11.
PHX has a Momentum grade of A and a Growth and Sentiment grade of B. It is ranked #44 in the Energy – Oil & Gas industry.
Click here to see the POWR Ratings for Value, Stability, and Quality for PHX.
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CDEV shares were trading at $8.29 per share on Wednesday afternoon, down $0.17 (-2.01%). Year-to-date, CDEV has gained 38.63%, versus a -10.07% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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