On this date two years ago, West Texas Intermediate (WTI) crude oil traded at right around $40 a barrel, and Brent crude traded at around $41 a barrel. WTI crude traded at $83.40 a barrel Thursday morning, while Brent was at $90.25. Both are down by about a third from their peak levels in early March.
The global breakeven price for crude for 90% of extraction projects was projected to remain below $50 a barrel through 2040, according to a September 2021 report from IHS Markit/S&P Global. Nearly half (44%) break even at $40 or less per barrel.
Of course, IHS Markit’s analysts did not anticipate the Russian invasion of Ukraine, which sent crude prices soaring, nor did it anticipate soaring inflation, which has dampened demand for crude. According to the U.S. Energy Information Administration’s short-term outlook dated September 7, the average price for a barrel of WTI in 2022 will be $98.07, falling to $90.91 a barrel in 2023. Brent crude will average about $6 a barrel more in both years.
The EIA also forecasts that natural gas will average $15.40 per million BTUs this year and $16.36 in 2023. The Russian cutoff of natural gas supplies to Europe has driven prices there to around three to four times the U.S. price this year. Deliveries of liquefied natural gas (LNG) to Europe have reached record levels, up by 5.8 million tons year over year in August. European stockpiles heading into winter sit at around 86% of capacity, above the five-year average for this time of year.
For oil and gas producers, this cyclical upswing has generated bigger profits and shareholders have been among the primary beneficiaries as the companies raise dividends and increase share buybacks. While volatility in the energy markets is likely to continue, analyst Neil Mehta and his team at Goldman Sachs issued a new report Wednesday naming 10 small-cap and mid-cap oil and gas stocks that are “attractive relative and absolute opportunities” ideas for investors. All 10 are rated Buy.
Antero Resources
Antero Resources Inc. (NYSE: AR) is a supplier of natural gas and natural gas liquids (NGLs) and has at least 15 years of core inventory left in the Appalachian Basin. The key risks to Goldman’s view of the company are falling prices and rising costs chipping away at free cash flow. The firm’s 12-month price target on Antero is $48, and the average target of 15 analysts is $52.13.
The company’s market cap is about $11 billion, and June-quarter sales totaled $2.2 billion. The 52-week range is $15.38 to $48.80, and shares closed Wednesday at $35.83. Total shareholder return over the past 12 months is 118%, even though Antero does not pay a dividend. The buyback yield at the end of the June quarter was 3.3%, and the debt paydown yield was 8.3%.
Calumet Specialty Products
Calumet Specialty Products Partners L.P. (NASDAQ: CLMT) is a master limited partnership (MLP) that manufactures and sells a variety of oil-based and renewable products. Goldman recently upgraded its rating on the stock from Neutral to Buy based on Calumet’s renewable fuels projects and potential for future returns. Goldman’s six-month price target on Antero is $23, and the average target of six analysts is $27.80.
The company’s market cap is about $1.3 billion, and second-quarter sales totaled $1.42 billion. The stock’s 52-week range is $7.33 to $18.47, and shares closed Wednesday at $15.95. Calumet does not pay a dividend, but the one-year share price increase yielded a total shareholder return of nearly 118%.
HF Sinclair
HF Sinclair Corp. (NYSE: DINO) is an independent producer, refiner and marketer of oil and refined products. In Goldman’s view, the company’s refining margins are a major positive in the current macro environment, and Sinclair’s outlook for capital returns to shareholders is solid, especially through share repurchases. Mehta and his team expect $400 million in share buybacks next year and about $350 million in dividends. Goldman’s 12-month price target on Sinclair is $58, and the average target of 16 analysts is $58.79.
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