2018's Best- and Worst-Performing Upstream Energy Stocks

Transcription

1 2018's Best- and Worst-Performing Upstream Energy Stocks By Nic holas Chapman Mar 15, :36 PM How the Energy Sector Is Performing in 2018 Crude oil holding the upside Year-to-date in 2018, crude oil (USO) prices are up ~1.6% from their year-end 2017 close of $60.42 per barrel to $61.36 per barrel. Crude oil prices have been rising since June 2017 and are up by ~46% since then. In January 2018, crude oil hit a three-year high of $66.66 per barrel. Natural gas leading to the downside Year-to-date, natural gas (UNG) prices are leading the decline in energy commodities. Natural gas prices decreased from last year s close of $2.95 per MMBtu (million British thermal units) on December 29, 2017, to $2.78 per MMBtu a decrease of almost 6% so far. Energy equities With the mixed performance of crude oil (USO) and natural gas (UNG), the energy sector is trading down in Year-to-date, the Energy Select Sector SP DR Fund (XLE) which represents an index of stocks across the energy sector, fell ~5%. The SP DR S& P Oil & Gas Exploration & P roduction ETF (XOP) represents an index of stocks across the energy industry and has ~79.3% exposure to the Oil and Gas Exploration & P roduction industry. It has decreased

2 ~6% in The First Trust Natural gas ETF (FCG) is down ~7% in In this series Having analyzed the year-to-date performance of the broader energy sector in 2018, we ll now look at the best- and worst-performing stocks from the US oil and gas production, or upstream, sector for To compile the list of best and worst performers in 2018 from the upstream space, we used oil and gas producers with market capitalizations greater than $500 million and 30-day average trading volume greater than 1 million shares. We ll also analyze earnings and any developments behind the moves in these stocks. Let s start with the best-performing stock in 2018 from the upstream sector in the next part of this series. 2018's Best-Performing Oil and Gas Production Stock Whiting Petroleum: The top performer in 2018 so far In 2018 so far, Whiting Petroleum (WLL) is turning out to be the best-performing energy stock from the US oil and gas production, or upstream, sector. Year-to-date in 2018, WLL increased from its 2017 close of $26.48 to $30.40 a big increase of ~15%. Whiting P etroleum is outperforming the Energy Select Sector SP DR Fund (XLE) which represents an index of stocks across the energy sector. In 2018, XLE is down ~5%. Whiting Petroleum is even outperforming the SPDR S& P Oil & Gas Exploration & Production ETF (XOP) which represents an index of stocks across the energy industry. XOP has ~79.3% exposure to the oil and gas exploration and production industry. XOP is down ~6% in 2018 so far. Whiting Petroleum s revenues and earnings

3 In 2017, Whiting P etroleum reported revenues of ~$1.48 billion, which is ~15% higher than the 2016 revenues of ~$1.29 billion. In 2017, WLL reduced its losses by ~79% to about -$118 million from around -$549 million in On per share basis, Whiting P etroleum reported adjusted loss of -$1.32 per share in 2017 from -$8.72 per share in Next, we ll compare 2018 returns of W& T Offshore (WTI) with various energy ETFs (exchange traded funds) and energy commodities and will also analyze fundamental metrics. Why W&T Offshore Is Rising So Strongly in 2018 W&T Offshore: The second-best performer in 2018 In 2018 so far, W& T Offshore (WTI) is turning out to be the second-best-performing energy stock from the US oil and gas production, or upstream, sector. W& T Offshore is an offshore oil and gas production company with a primary focus on the US Gulf of Mexico. So far in 2018, WTI has risen ~14% from its 2017 close of $3.31 to $3.78. In 2018, the increase in WTI s stock price is easily outperforming the decline in the Energy Select Sector SPDR Fund (XLE) and the SPDR S& P Oil & Gas Exploration & Production ETF (XOP). Yearto-date, XLE and XOP are down ~5% and ~6%, respectively. XLE represents an index of stocks across the energy sector, whereas XOP represents an index of stocks across the energy industry and has ~79.3% exposure to the oil and gas exploration and production industry. W&T Offshore s revenues and earnings In 2017, W& T Offshore reported revenues of ~$487 million, which is ~22% higher than the 2016 revenues of ~$400 million. In 2017, W& T Offshore turned profitable after reporting losses in 2015 and In 2017, WTI posted adjusted profit of ~$80 million from its loss of around -$115 million in On a per share basis, W& T Offshore posted adjusted profit of $0.56 per share in 2017 from the loss of -$1.21 per share in 2016.

4 Next, we ll compare 2018 returns of Enerplus C orporation (ERF) with broader energy market and energy commodities and will also analyze fundamental metrics. Enerplus: 2018's Third-Best-Performing Upstream Stock Enerplus: The third-best-performing upstream stock in 2018 In 2018, Enerplus (ERF) is the third-best-performing US upstream stock. Enerplus mainly operates in North American resource plays. Year-to-date in 2018, ERF has increased ~12% from its 2017 close of $9.79 to $ Enerplus is outperforming the SP DR S& P Oil and Gas Exploration & P roduction ETF (XOP) in XOP is down ~6%. ERF is also outperforming crude oil (USO) and natural gas (UNG). In 2018 so far, crude oil is up ~2%, whereas natural gas is down ~6%. In comparison, the Energy Select Sector SPDR Fund (XLE) is down ~5% in Enerplus s revenues and earnings In 2017, Enerplus reported revenues of ~$935 million, which is ~35% higher than its earlier revenues of ~$693 million. In 2017, ERF reported a higher adjusted profit of ~$283 million from a loss of ~$529 million in On a per-share basis, ERF posted adjusted profit of $1.17 per share in 2017 versus a loss of $2.29 per share in Next in this series, we ll analyze the year-to-date performance of Anadarko P etroleum (AP C) and its fundamental metrics. Why Anadarko Petroleum s Losses Decreased in 2017

5 Anadarko Petroleum: The fourth-best-performing stock in 2018 In 2018 so far, Anadarko Petroleum (APC) is turning out to be the fourth-best-performing energy stock from the US oil and gas production, or upstream, sector. Anadarko Petroleum has oil and gas operations in the United States as well as Africa and South America. Year-to-date in 2018, APC has increased from its 2017 close of $53.64 to $58.98 a rise of ~10%. Anadarko P etroleum is outperforming crude oil (USO) and natural gas (UNG) prices. In 2018, crude oil prices are up ~2%, whereas natural gas prices are down ~6%. Anadarko P etroleum s production contains ~59% liquids (crude oil and natural gas liquids) and ~41% natural gas. Anadarko s stock is even outperforming the First Trust Natural gas ETF (FC G) in In comparison, the Energy Select Sector SPDR Fund (XLE) is down ~5% in Anadarko Petroleum s revenues and earnings In 2017, Anadarko P etroleum reported ~51% higher revenues of ~$11.9 billion, compared with revenues of ~$7.9 billion in In 2017, APC reduced its losses ~31% to around -$1.1 billion from -$1.6 billion in On a per-share basis, Anadarko P etroleum reported a lower adjusted loss of $1.96 per share in 2017 versus its loss of $3.11 per share in AP C s better earnings in 2017 could be due to the higher operating margin due to better realizations for crude oil and natural gas prices. APC s operating margin rose to -6.1% in 2017 from -32.6% in Next in this series, we ll compare 2018 returns for Denbury Resources (DNR) with various energy ETFs and energy commodities, and we ll also analyze its fundamental metrics. Why Denbury Resources Is Outperforming in 2018

6 Denbury Resources: The fifth-best-performer in 2018 In 2018 so far, Denbury Resources (DNR) is turning out to be the fifth-best-performing energy stock from the US oil and gas production, or upstream, sector. Denbury Resources is an EOR (enhanced oil recovery) upstream company with operations in the US Gulf C oast and Rocky Mountains. So far in 2018, DNR rose ~10% or from its 2017 close of $2.21 to $2.43. In 2018, the increase in DNR s stock price is outperforming the decline in the Energy Select Sector SPDR Fund (XLE) and the SPDR S& P Oil & Gas Exploration & Production ETF (XOP). Year-todate, XLE and XOP are down ~5% and ~6%, respectively. Denbury Resources production consists of ~97% crude oil (DWT) in its production mix, and it derives the majority of its revenues from crude oil sales. So far in 2018, with the gain of ~2%, crude oil (SC O) prices are outperforming other energy commodities which is helping DNR s stock price. Denbury Resources revenues and earnings In 2017, Denbury Resources reported revenues of ~$1.1 billion, which is ~16% higher than its revenues of ~$976 million in In 2017, Denbury Resources increased its profits by whopping ~293% versus In 2017, DNR posted an adjusted profit of ~$55 million versus its profit of ~$14 million in On a per-share basis, Denbury Resources posted an adjusted profit of $0.14 per share in 2017 versus a profit of $0.04 per share in Next in this series, we ll take a look at the worst-performing upstream companies in Halcon Resources' Performance Year-to-Date Halcon Resources: The worst-performing upstream stock in 2018

7 Year-to-date in 2018, Halcon Resources (HK) is turning out to be the worst-performing energy stock from the US oil and gas production, or upstream, sector. Halcon Resources is primarily a crude oil producer with operations in the liquids-rich Delaware Basin. In 2018, HK fell from its 2017 close of $7.57 to $5.45 a big decrease of more than 28%. In comparison, the SPDR S& P Oil and Gas Exploration & Production ETF (XOP) decreased ~6% in XOP represents an index of stocks across the energy industry. It has ~79.3% exposure to the oil and gas exploration and production industry. Halcon Resources is also underperforming the Energy Select Sector SP DR Fund (XLE) which represents an index of stocks across the energy sector. In 2018, XLE is down ~5%. Halcon Resources revenues and earnings In 2017, Halcon Resources reported revenues of ~$378 million, which is ~10% lower than its revenues of ~$420 million in In 2017, Halcon Resources turned non-profitable after reporting profits in In 2017, HK posted an adjusted loss of ~$19 million versus a profit of ~$186 million in On a per-share basis, Halcon Resources posted an adjusted loss of -$0.15 per share in 2017 versus its profit of $1.55 per share in Apart from lower earnings, HK had been on an asset-buying spree since December In the last three months, HK announced or closed acquisitions of more than $400 million. To fund these acquisitions, in 1Q18, HK completed a public offering of ~8 million common shares for gross proceeds of ~$55 million and also issued additional unsecured notes for an aggregate amount of ~$200 million. HK s growth strategy isn t going over well with investors, as the stock peaked in the third week of January and is down more than ~40% since then. Next in this series, we ll compare 2018 returns for Carrizo Oil & Gas (CRZO) with various energy ETFs and energy commodities and analyze its fundamental metrics. What's behind Carrizo Oil & Gas s Poor Performance in 2018?

8 Carrizo Oil & Gas: The second-worst-performer in 2018 In 2018 so far, Carrizo Oil & Gas (CRZO) is turning out to be the second-worst-performing energy stock from the US oil and gas production, or upstream, sector. C arrizo Oil & Gas is an unconventional resource play with operating areas in the Eagle Ford Shale in South Texas and the Delaware Basin in West Texas. Year-to-date in 2018, C RZO is down almost ~28%, and it s badly underperforming energy commodities like crude oil (UWT) and natural gas (UNG). Crude oil is up ~2% in 2018, whereas natural gas is down ~5%. In 2017, CRZO derived more than 84% of its revenues from crude oil sales. Carrizo Oil & Gas s revenues and earnings In 2017, C arrizo Oil & Gas reported revenues of ~$746 million, which is ~33% higher than its revenues of ~$563 million. C RZO even reported an increase in its adjusted profit to ~$106 million in 2017 versus an adjusted profit of ~$68 million in However, C arrizo Oil & Gas is suffering from a high debt load and negative free cash flows. Despite receiving ~$268 million from the proceeds of its divestitures of non-core assets in the DJ Basin and Appalachia in 2017, C RZO s total debt-to-equity ratio or leverage stood at ~439% at the end of Also, due to asset divestments in 2017, CRZO guided for 2018 total production ~5% lower than Next in this series, we ll compare the 2018 returns for Newfield Exploration (NFX) with energy equities and energy commodities, and we ll also analyze the fundamental metrics. Why Newfield Exploration Is Underperforming in 2018 Newfield Exploration: The third-worst-performing upstream stock

9 in 2018 In 2018 so far, Newfield Exploration (NFX) is the third-worst-performing US upstream stock. Newfield Exploration primarily operates in the Anadarko and Arkoma basins of Oklahoma, the Williston Basin of North Dakota, and the Uinta Basin of Utah. Year-to-date in 2018, NFX fell ~26% from its 2017 close of $31.53 to $ Newfield Exploration badly underperformed the SPDR S& P Oil and Gas Exploration & Production ETF (XOP). XOP is down ~6% in NFX has also underperformed crude oil (USO) and natural gas (UNG). In 2018 so far, crude oil is up ~2%, whereas natural gas is down ~6%. In comparison, the Energy Select Sector SPDR Fund (XLE) is down ~5% in Newfield Exploration s revenues and earnings In 2017, Newfield Exploration reported revenues of ~$1.77 billion, which is ~20% higher than its past revenues of ~$1.47 billion. In 2017, NFX reported an adjusted profit of ~$432 million, which is ~84% higher than its profit of ~$235 million in NFX has a high total debt-to-equity ratio, or leverage, of ~173% Next in this series, we ll analyze the year-to-date performance of C alifornia Resources (C RC) and analyze its fundamental metrics. Why California Resources Is Down Significantly in 2018 California Resources: The fourth-worst-performing upstream stock in 2018

10 Year-to-date in 2018, C alifornia Resources (C RC) is turning out to be the fourth-worst-performing energy stock from the US oil and gas production, or upstream, sector. C alifornia Resources is primarily a crude oil and natural gas producer, with operations exclusively in C alifornia. In 2018, C RC decreased from its 2017 close of $19.44 to $14.44 a significant decrease of almost 26%. In comparison, the SPDR S& P Oil and Gas Exploration & Production ETF (XOP) fell ~6% in XOP represents an index of stocks across the energy industry. It has ~79.3% exposure to the oil and gas exploration and production industry. C alifornia Resources is also underperforming the Energy Select Sector SP DR Fund (XLE), which represents an index of stocks across the energy sector. In 2018, XLE is down ~5%. California Resources revenues and earnings In 2017, C alifornia Resources reported revenues of ~$2.0 billion, which is ~33% higher than its revenues of ~$1.5 billion in In 2017, C alifornia Resources reduced its losses by ~41% versus In 2017, CRC posted an adjusted loss of ~$187 million versus its adjusted loss of ~$317 million in On a per-share basis, C alifornia Resources posted an adjusted loss of $4.40 per share in 2017 versus its adjusted loss of $7.85 per share in However, C alifornia Resources revenues and earnings growth in 2017 was driven by higher crude oil and natural gas prices. The lack of production growth is a big concern for the stock. In fact, C RC s quarterly production has been in a continuous decline since 1Q15. As of 2017, CRC has a high debt of ~$5.3 billion and a high net debt-to-ebitda ratio of ~7.5x. Next in this series, we ll compare 2018 returns for Jagged P eak Energy (JAG) with energy equities and energy commodities, and we ll also analyze its fundamental metrics. A Closer Look at Jagged Peak Energy s Valuation

11 Jagged Peak Energy: The fifth-worst-performing upstream stock in 2018 In 2018 so far, Jagged P eak Energy (JAG) is the fifth-worst-performing upstream stock in the United States. Jagged P eak Energy is a growth-oriented crude oil and natural gas producer with operations in the P ermian Basin. Year-to-date in 2018, JAG fell ~23% from its 2017 close of $15.78 to $ Jagged P eak Energy is underperforming the SPDR S& P Oil and Gas Exploration & Production ETF (XOP). XOP is down ~6% in JAG has also underperformed crude oil (USO) and natural gas (UNG). In 2018 so far, crude oil is up ~2%, whereas natural gas is down ~6%. In comparison, the Energy Select Sector SPDR Fund (XLE) is down ~5% in Jagged Peak Energy s revenues and earnings Jagged Peak Energy has yet to report its 4Q17 earnings. In 9M17, Jagged Peak Energy reported revenues of ~$162 million, which is ~212% higher than its revenues of ~$52 million. In 9M17, JAG reported an adjusted profit of ~$36 million, which is much higher than its profit of ~$0.8 million in 9M16. For 2017, Wall Street analysts expect JAG to report EPS (earnings per share) of $0.27. Based on JAG s March 13 closing price of $12.18, its forward price-to-earnings ratio comes around 45x. So JAG s valuation is expensive, which might be the reason for the decline in its stock price over the last two months. Next in this series, we ll take a look at Wall Street s ratings for the best- and worst-performing upstream stocks. Wall Street's Targets for the Best-Performing Upstream Stocks

12 The word on Wall Street We ll now look at Wall Street s recommendations for the leading gainers in 2018 from the US oil and gas production, or upstream, sector. Recommendations for Whiting Petroleum As of March 13, Reuters reported 33 analysts with recommendations on Whiting P etroleum (WLL). Of these, seven analysts have a strong buy recommendation while seven have buy recommendations on WLL. There are 17 hold recommendations, and there s one sell recommendation and one strong sell recommendation for WLL. The median price target for WLL is $35.00, which is ~15% higher than the March 13 closing price of $ Recommendations for W&T Offshore As of March 13, Reuters reported two analysts with recommendations on W& T Offshore (WTI). Both analysts have hold recommendations on WTI. There are no strong buy, buy, sell, or strong sell ratings on the stock. The median price target for WTI is $4.25, which is ~8% higher than the March 13 closing price of $3.94. Recommendations for Enerplus C urrently, all eight Wall Street analysts recommending Enerplus (ERF) have a buy recommendation on the stock. There are no strong buy, hold, sell, or strong sell ratings on the stock. The median price target for ERF is $18.00, which is ~64% higher than the March 13 closing price of $ Recommendations for Anadarko Petroleum Currently, ~88% of Wall Street analysts rate Anadarko Petroleum (APC) a strong buy or buy, and ~12% rate it a hold. There s no sell or strong sell rating on the stock. The median price target for APC is $73.00, which is ~25% higher than the March 13 closing price of $ Recommendations for Denbury Resources

13 C urrently, 10% of Wall Street analysts rate Denbury Resources (DNR) a strong buy or buy, and 80% rate it a hold. Around 10% of analysts have sell or strong sell ratings on the stock. The median price target for DNR is $2.50, which is ~4% higher than the March 13 closing price of $2.40. Wall Street's Targets for the Worst-Performing Upstream Stocks The word on Wall Street We ll now look at Wall Street s recommendations for the worst performers in 2018 from the US oil and gas production, or upstream, sector. Recommendations for Halcon Resources As of March 13, Reuters reported nine analysts with recommendations on Halcon Resources (HK). Of these, one analyst has a strong buy recommendation, six analysts have buy recommendations, and two analysts have hold recommendations for HK. There are no sell or strong sell ratings on the stock. The median price target for HK is $10.00, which is ~84% higher than the March 13 closing price of $5.43. Recommendations for Carrizo Oil & Gas As of March 13, Reuters reported 22 analysts with recommendations on C arrizo Oil & Gas (C RZO). Of these, six have strong buy recommendations, 11 have buy recommendations, and five have hold recommendations for CRZO. There are no sell or strong sell ratings on the stock. The median price target for CRZO is $27.00, which is ~76% higher than the March 13 closing price of $ Recommendations for Newfield Exploration C urrently, ~72% of Wall Street analysts rate Newfield Exploration (NFX) a strong buy or buy, and ~28% rate it a hold. There is no sell or strong sell rating on the stock. The median price target for NFX is $38.00, which is ~62% higher than the March 13 closing price of $23.50.

14 Recommendations for California Resources Currently, ~43% of Wall Street analysts rate California Resources (CRC) a strong buy or buy, and ~57% rate it a hold. There s no sell or strong sell rating on the stock. The median price target for CRC is $25.50, which is ~78% higher than the March 13 closing price of $ Recommendations for Jagged Peak Energy Currently, ~67% of Wall Street analysts rate Jagged Peak Energy (JAG) a strong buy or buy, and ~33% rate it a hold. There s no sell or strong sell rating on the stock. The median price target for JAG is $17.00, which is ~41% higher than the March 13 closing price of $12.02.