As oil prices continue to maintain the latest path above the psychologically significant level of $ 50 / barrel, investors are increasingly calibrating their investment prices to run-down oil and gas companies.
WTI has accumulated 12.8% over the last 30 days to trade at $ 53.02 per share. Barrel, while Brent has risen 12.3% to $ 56.49, levels they last touched on almost a year ago thanks to a renewed OPEC-plus deal as well as an unexpected bonanza after Saudi Arabia announced plans to unilaterally cut oil production by a further 1 million barrels.
Enter Slate 3.0.
For a sector that should be on the brink of death, American shale could possibly be the biggest recipient of the oil rally, as higher crude prices provide a much-needed respite to strained balances. The US slate patch bears some of the highest production costs in the world, with most companies in the sector needing oil prices between $ 50 and $ 55 per barrel. Barrel to break straight.
This is very important because it implies that a further 5-1
But not all oil and gas companies need such high oil prices to break even, with a handful of solid in the green, even at current prices.
Here are 3 such companies.
# 1. Suncor Energy
Source: CNN Money
Warren Buffett spent much of 2020 unleashing his energy efforts. Especially back in May Berkshire Hathaway (NYSE: BRK.B) sold its final stake in Phillips 66 (NYSE: PSX) despite repeatedly hailing the company’s management team as one of the best in the industry, especially in terms of capital management. Related: Google seems to be turning data centers into energy storage
However, it did not take long before Buffett went shopping again – this time he picked 19.2 million shares off Suncor Energy Inc. (TSX: SU) (NYSE: SU) worth US $ 217 million. It really is a small effort when you consider the company’s previous energy purchases. Nevertheless, it may be one of its smarter ones.
At first glance, Buffett’s purchase of Suncor shares appears to be driven by his long-term purchase rights. companies that are undervalued in relation to their inherent values. After all, Suncor did not recover very well after the oil crisis in 2014 and has been in a particularly sharp downward trend for the past two years. The Covid-19 pandemic and the oil price war only served to exacerbate the stock’s unfortunate trend.
But there could be something deeper than that.
It appears that Warren Buffett is a big fan of Suncore’s assets, especially its long-lived oil fields with a lifespan of approximately 26 years. Suncore’s reliable assets have helped the company generate stable cash flows and pay out consistently high dividends. Suncor had consistently increased dividends since it started distributing in 1992 until the financial crisis in 2008. However, the company cut dividends by 55% in April due to the pandemic, but boasts a still respectable forward rate of 4.6%. Fortunately, the deep cut of dividends really helped settle Suncor’s balance sheet, which is now among the most resilient among its peers.
In fact, Suncor revealed that it requires WTI prices to be north of $ 35 / barrel to meet capital gains and dividends. With WTI prices hovering in the low 50s after several Covid-19 vaccines entered the fray, Suncor looks set to maintain that yield and perhaps even raise it in the not-so-distant future.
SU has accumulated almost 50% over the last 3 months and 10.5% YTD.
# 2. EOG resources
Source: CNN Money
EOG resources (NYSE: EOG) is not only the largest shale producer, but also one of the largest oil producers in the United States.
EOG is also one of the cheapest slate manufacturers to need raw prices at around $ 36 per tonne. Barrel to break straight.
EOG is spread over six separate slate basins, giving it great diversification compared to its rivals operating in one or two basins. The multibasin approach also allows the company to grow each asset at the optimal pace to maximize profitability and long-term value. Related: Big Oil is an unsung hero in the fight against COVID
Also to be smaller than oil majors like ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) makes EOG smoother and able to adapt to rapid changes in oil demand – a big plus in these uncertain times.
With oil prices well above the company’s breakeven level, EOG plans to use its free cash flow to repay debt, buy back shares and possibly even increase dividends.
# 3. Pioneer natural resources
Source: CNN Money
Of the leading oil and gas industries, Pioneer natural resources (NYSE: PXD) stands out as the only top 10 producer with no international interests. In addition, Pioneer has sold most of its assets in Eagle Ford to better focus on the Midland Basin side of Perm, where it dominates.
In addition, Pioneer has announced plans to acquire Parsley energy in a transaction on all shares worth ~ $ 4.5 billion. Pioneer says the merger is expected to create annual synergies of $ 325 million and encourage cash flow, free cash flow, earnings per share. Equity and corporate returns beginning in the first year after the merger.
Pioneer Natural Resources’ improved cost structure is able to deliver impressive free cash flows at low oil prices, and this should hold up well even as low energy prices continue.
That’s good for the company’s bottom line because the company’s breakeven is already low somewhere around the mid-30s. All that extra free cash flow is likely to flow into investors’ pockets via dividends if oil prices remain high, as Pioneer wants to adopt a variable dividend model. Many oil companies turn to variable dividends, which reward income investors with higher dividends during periods of higher oil prices without completely cutting them off in smaller times.
By Alex Kimani for Oilprice.com
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