As economies emerge from lockdowns, crude oil prices are recovering from pandemic lows. In the last 6 months, the WTI spot futures reached pre-Covid19 price levels, jumping 41.8% year-to-date to $68.20.
Oil macroeconomics remain favorable going forward. Indeed, expectations for fuel demand are rising ahead of the U.S. summer driving season, a period prone to higher than normal fuel consumption. However, supply remains limited, as OPEC+ producers agreed last week to maintain supply discipline in order to continue to sustain oil prices.
In addition, weekly U.S. crude stocks are short of 7.8m barrels compared to the 5-year average, indicating that more upside is pending on crude oil futures.
Energy Transfer LP (ET):
ET is a midstream company, focusing on the transportation and storage of crude oil, natural gas liquids, and refined products. The company owns and operates natural gas transportation pipelines and three natural gas storage facilities in the state of Texas. Furthermore, ET also has an investment in Sunoco LP, a motor fuel retailer, and USAC, an independent provider of compression services in the United States.
Since the beginning of the year, ET gained 64.4% to $10.27 per share, surpassing the performance of oil markets, even if midstream companies are less beta sensitive than the oil & gas exploration and production sector.
Yet, ET’s net sales surged in 2021, nearly doubling compared to 2020 from $38.9m to $64.2m and posting a two-digit growth of 18.4% compared to 2019.
Most interestingly, the bottom-line grew even faster, up 62.8% compared to pre-Covid19 levels and is expected to reach $5.83m this year versus only $3.58m in 2019.
Devon Energy Corporation (DVN):
DVN is an independent oil & gas exploration and production company operating in four core U.S. oil-producing areas: the Delaware Basin, Eagle Ford, Powder River Basin, and Anadarko Basin. On the back of rising oil markets, DVN should also benefit from positive tailwinds. DVN shares jumped 90.9% year-to-date to $30.80 per share, marking a new 52-week high and confirming its strong bullish stance.
In terms of financials, DVN is expected to increase net sales by 28.4% to $7.9b in 2021, compared to pre-lockdown figures. According to analyst consensus, the company should turn its first profit in the last three years, reaching an expected amount of $1.3b.
Besides, DVN is also benefiting from a favorable analyst consensus, with 19 buy recommendations and an average target price of $33.06 per share.
HESS Corporation (HES):
HES specializes in crude oil and natural gas exploration and production. The company has an inventory of high return drilling locations and a proven track record of asset optimization, cost reduction, and value creation. HES has a privileged infrastructure position in the Bakken shale formation and is engaged in multiple offshore platforms in the U.S., Europe, and SouthEast Asia. In addition, HES continues to develop its Guyana Offshore assets and expects to double oil output in early 2022, reaching a total capacity of 220k barrels of oil per day.
HES shares surged 64.16% to $88.40 per share year-to-date, outpacing oil markets and are close to reaching the latest high of August 2014.
In terms of top-line, HES sales are expected to rise 30.2% year-on-year to $6.2b. This figure is slightly weaker than those posted before the pandemic, when sales reached $6.5m in 2019, representing a decline of 4.6%. Yet, the company did a great job in optimizing its costs, rationalizing its assets and limiting its CapEx expenditures. Indeed, the company’s bottom-line is now expected to generate a net income of $421m in 2021, compared to a loss of $3b in 2020 and $412m in 2019.