The remarkable thing about cyclicality is the lag time between demand inputs and supply inputs. It’s a phase transition every time, and it continues to wreak havoc and create opportunity, in sequential transitions over time.
The oil space is about as obvious in this dynamic as anything, with oil producers ramping up production in a herd until demand drops and leaves them out on a ledge. Then the price of oil crashes and the producers all cut production and stop demanding oil services, eventually creating a supply shock that sends the price soaring back higher.
We may be on the verge of a dramatic version of this last phase, with the price of oil potentially set for rip-roaring gains as producers refuse to bring on more capacity for fear of another wave of economic shutdowns due to the increasing numbers of coronavirus infections, hospitalizations, and deaths in recent weeks.
Even so, demand keeps rising.
The reason for such a powerful degree of caution on the part of oil company execs is the punishing trauma they suffered back in April and May, when the price of crude oil traded into negative territory for the first time ever, crashing to -$40/bbl at one point. That trauma still looms over decisions on capacity – PTSD rules the day, and committees, boards, and consultants are never bold under such conditions.
That’s a potentially explosive combination and threatens to push us into a supply shock that vaults the price of oil sharply higher, eventually spurring a sudden rush of investment: traders into oil stocks, producers into the ground, and money into the servicers. Right now, stocks in the space are priced for failure, which presents a potentially powerful opportunity ahead of a change in the status quo.
With that in mind, we take a look at some of the more interesting related names, including: ConocoPhillips (NYSE:COP), American Energy Partners Inc (OTCMKTS:AEPT), Pioneer Natural Resources Co (NYSE:PXD), and Cabot Oil & Gas Corporation (NYSE:COG).
ConocoPhillips (NYSE:COP) trumpets itself as a company that explores for, produces, transports, and markets crude oil, bitumen, natural gas, liquefied natural gas (LNG), and natural gas liquids worldwide.
The company primarily engages in the conventional and tight oil reservoirs, shale gas, heavy oil, LNG, oil sands, and other production operations. Its portfolio includes unconventional plays in North America; conventional assets in North America, Europe, Asia, and Australia; various LNG developments; oil sands assets in Canada; and an inventory of conventional and unconventional exploration prospects.
ConocoPhillips (NYSE:COP) recently announced the promotion of William L. Bullock, Jr., president of the Asia Pacific Middle East division, to executive vice president and chief financial officer (CFO), effective September 1, 2020. He will replace Don E. Wallette, Jr., who is retiring after 39 years with the company.
Even in light of this news, COP hasn’t really done much of anything over the past week, with shares logging no net movement over that period.
ConocoPhillips (NYSE:COP) generated sales of $6.1B, according to information released in the company’s most recent quarterly financial report. That adds up to a sequential quarter-over-quarter growth rate of -20% on the top line. In addition, the company has a strong balance sheet, with cash levels far exceeding current liabilities ($7.9B against $6.1B).
American Energy Partners Inc. (OTCMKTS:AEPT) is unquestionably the most speculative and least-proven name on this list. But it is also the least fully-valued by the market because of that status, and we can already see a strong argument for interest given the huge growth underway, with nearly 1,500% topline growth recent reported relative to its performance early last year.
Its group of companies focus on providing solutions in markets where energy production and water remediation meet technology. Collectively, the subsidiaries are engaged in the energy services sector as well as the design, construction and operation of regional water treatment facilities that serve the industrial, energy, and governmental sectors. The company is focused on the acquisition of cash flow properties and assets that include non-operating oil wells, service companies, engineering service companies, and other energy assets on track to be cash flow positive.
American Energy Partners Inc (OTCMKTS:AEPT) just announced that its wholly owned subsidiary, Oilfield Basics, LLC, an industry leader in educational marketing of oil and gas industry topics, has entered into a strategic partnership with WellDatabase, a leading provider of oil and gas data and analytics.
According to the release, this partnership provides Oilfield Basics with unparalleled data and analytical tools for its content creators and provides WellDatabase with a ready-made educational platform on which to highlight their analytics expertise. The combined talent and strategic positioning of the companies are unparalleled in the space. Oilfield Basics was recently acquired by American Energy in February of 2020.
The company specializes in producing and curating free weekly podcasts with industry leaders and high-quality educational content on cutting edge industry content available nowhere else.
American Energy Partners Inc (OTCMKTS:AEPT) generated sales of $243K, according to information released in the company’s most recent quarterly financial report. That adds up to a sequential quarter-over-quarter growth rate of 79.5% on the top line. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($33K against $244K, respectively).
Pioneer Natural Resources Co (NYSE:PXD) bills itself as a company that operates in the independent oil and gas exploration and production space in the United States.
The company explores for, develops, and produces oil, natural gas liquids (NGLs), and gas. It has operations primarily in the Permian Basin in West Texas. As of December 31, 2019, the company had proved undeveloped reserves and proved developed non-producing reserves of 39 million barrels of oil, 16 million barrels of NGLs, and 83 billion cubic feet of gas; and owned interests in 11 gas processing plants.
Pioneer Natural Resources Co (NYSE:PXD) recently announced a 17.4% decline in net income on a 6.5% decline in revenue and other income in Q1 2020, which ended March 31, 2020. The company suspended its quarterly production guidance due to the unprecedented volatility and uncertainty in commodity markets.
It will be interesting to see if the stock can break out of its recent sideways action. Over the past week, the stock is net flat, and looking for something new to spark things. PXD shares have been relatively flat over the past month of action, with very little net movement during that period.
Pioneer Natural Resources Co (NYSE:PXD) managed to rope in revenues totaling $2B in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of -10.4%, as compared to year-ago data in comparable terms. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($1.3B against $2.1B, respectively).
Cabot Oil & Gas Corporation (NYSE:COG) frames itself as an independent oil and gas company that explores for, exploits, develops, produces, and markets oil and gas properties in the United States.
It primarily focuses on the Marcellus Shale with approximately 173,000 net acres in the dry gas window of the play located in Susquehanna County, Pennsylvania. The company sells its natural gas to industrial customers, local distribution companies, gas marketers, and power generation facilities through gathering systems and pipelines.
As of December 31, 2019, it had proved reserves of approximately 12,903 billion cubic feet of gas; and 22 thousand barrels of oil or other liquid hydrocarbons.
Cabot Oil & Gas Corporation (NYSE:COG) reported a 79.5% decline in net income on a 39.8% decline in operating revenue in Q1 2020 ended March 31, 2020. Excess supply and weak demand for natural gas and oil weighed on its financials. The company expects the supply/demand situation to improve later this year and in 2021.
COG has had a rough past week of trading action, with shares sinking something like -4% in that time. That said, chart support is nearby and we may be in the process of constructing a nice setup for some movement back the other way. Over the past month, shares of the stock have suffered from clear selling pressure, dropping by roughly -10%.
Cabot Oil & Gas Corporation (NYSE:COG) pulled in sales of $370.4M in its last reported quarterly financials, representing top line growth of -41.5%. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($214.4M against $387.2M, respectively).
