This year might come down as a significant landmark in many aspects – in the world of energy it will be THE year when U.S. oil production skyrocketed to heights previously unknown.
By the end of 2018 the United States is expected to overtake Russia as the leading crude producer in the world, only to further stretch its lead in the years afterwards.
U.S. producers have wisely opted for free-riding on the OPEC+ supply cut which led us to crude price levels that are largely acceptable for all – in fact, they are so agreeable in regard to U.S. output that there seems to be no way of stopping it.
Thanks to considerable technological breakthroughs in developing shale plays, the U.S. has doubled its oil output in the past 10 years and looks set to increase annual output at an average rate of 1 mbpd in 2018-2020.
Most of new oil will come from the Permian basin, however, the favorable oil price will give a much-needed boost to projects elsewhere, among others to often-overlooked oil sands production.
A continually growing market will bring new stock market stars into the spotlight - some have read the market better than the others, others are providing an unprecedented technological boost to the U.S. oil industry or setting themselves right in the center of the impending pipeline infrastructure expansion.
Here are 5 oil companies to look out for in 2018:
1) Conoco Phillips (NYSE:COP)
It seems that ConocoPhillips’ strategy of disposing of high-cost assets and focusing on projects that are viable under almost any imaginable set of conditions is finally paying off.
COP shares are worth twice as much as two years ago, having bottomed out in February 2016 the company has demonstrated a remarkable tour de force. Yet contrary to general belief that it is better not to get involved with genuinely hot stocks, ConocoPhillips has still heaps of upside potential.
The key factor is quite simple – despite having outperformed its peers lately, ConocoPhillips remains relatively undervalued compared to them.
At first sight, investors might see a lot of counter-intuitive decisions in the way ConocoPhillips has been handling its development, yet if one is to investigate deeper, we will find that COP anticipates market trends brilliantly.
It has divested non-core assets in the Permian whilst sticking to core ones, and instead of overpaying for Permian acres, shifted its focus towards the Central Louisiana Austin Chalk formation instead.
ConocoPhillips CEO claims that the new sustaining price for his company stands at $40 per barrel, which means COP has been making big money this year, a lot more than it foresaw initially.
It will stick to its strategic tenet of investing 5.5 billion per year in developing new wells, so that production could grow by 5% and cash flow by 10% annually. Yet now it will have enough surplus money to flood investors with money via dividends and buybacks, having set an annual target of 1.5 billion in stock repurchases.
2) Petroteq (TSX:PQE.V; OTC:PQEFF)
Oil sands used to be the worst nightmare of environmentalists – oil extraction generally does not really lead us to a greener future, worse still oil sand extraction produces significantly larger amounts of greenhouse gas emissions and uses a lot more water than conventional production.
Well, that is how it was until Petroteq brought its Asphalt Ridge project online. The company has patented a clean oil recovery technology that uses no water whatsoever and generates no greenhouse gases, thus solving one of the biggest issues of the oilsands extraction industry in general.
Petroteq’s closed-loop production system is already working at its recently launched Asphalt Ridge site in Utah, having produced the first 10 000 barrels without a hint of the toxic trailing ponds that became so closely associated with oil sands in the past.
This is just the beginning, with an efficient technology honed by some of the oil industry’s leading minds, Petroteq is betting big on an oil sands expansion; thank goodness the United States has no shortage of them.
Utah’s oil sands alone hold up to 32 billion barrels of oil, more than half of the U.S. total – it is no coincidence that Petroteq starts its ambitious journey here. It should not come to you as a surprise if the company’s Asphalt Ridge is followed by further projects in the oil-prolific Uintah Basin.
Petroteq’s rise to eminence will largely depend on the cost-efficiency of their oil sands extraction technology.
Petroteq aims for cost of extraction at an oilsands industry-low of $28 per barrel on high volume, generating almost unlimited licensing possibilities for Petroteq all around the world where oilsands are dry- Madagascar, Congo or Brazil, anyone who sits atop dry oil sands deposits will want to exploit it. Eventually, as the technology further develops, could wet oilsands in Canada and Russia also take advantage of this technology? That would open up a lot of new oilsands territory.
3) Magellan Midstream Partners (NYSE:MMP)
It is quite rare to come across a midstream company as a hot stock pick, however, Magellan is up there with the best. Having spent more than $5 billion on growth projects and acquisitions in the past decade, Magellan is almost universally perceived as a midstream must-buy.
Located at the core of the ongoing Texas oil surge, Magellan proudly boasts a network of crude oil pipelines and storage capacity of 27 million barrels, coupled with five marine storage terminals.
Together with its refined products pipeline system with 53 terminals, Magellan finds itself at the forefront of U.S. oil export ramp-up.
Thanks to a steady flow of transportation income, Magellan shares did not plummet as much as those of oil producers did, resulting in a relatively well-valued standing.
However, despite significant success already, Magellan is bound to grow even further due to increasing demand – as pipeline capacity bottlenecks start troubling producers, it can demand higher prices and cash in more.
Magellan’s upcoming projects stand testament to the ambitiousness of its plans. The company is poised to expand its Texas refined products pipeline system, yet the key driver of growth will be its crude transportation projects.
It will build a 250 000 bpd pipeline from ExxonMobil’s Wink terminal to Crane, the start point of the Langhorn pipeline which is carrying Permian to Houston.
It is also intent on building a pipeline from Crane to Houston and Corpus Christi, moving Permian and Eagle Ford crude closer to end customers. If one is to add Magellan’s joint venture possibilities with Valero, one ends up with a whole plethora of highly profitable projects in the making.
With one of the highest credit ratings and lowest levels of leverage in the midstream sector, Magellan investors are sure to hit the jackpot.
4) Valero Energy (NYSE:VLO)
Valero seems to be the best downstream bet of 2018, combining higher demand, lower-than-most debt positions (long-term debt-to-total capital ratio at 28%) and increasing refining margins.
Having risen 25% this year, having turned into one of the best performers of the U.S. energy sector overall, the San Antonio-based Valero’s rise is far from being over.
Aside from its $1.7 billion sustaining budget, Valero is investing $1 billion in growth projects this year, ranging from the addition of an alkylation unit at its Houston refinery to building a crude and product export terminal in the Houston area along with the midstream company Magellan.
Further on these steps will be followed through with a massive upgrade program in Valero’s Port Arthur refinery (addition of second coker and Sulphur recovery unit, worth $900 million) and improving terminal infrastructure around Austin.
The good thing about Valero’s standing is that it is insulated from any supply disruptions or crude market shocks.
For VLO it does not matter whether the refined crude will be U.S. shale or imported one, growing demand for products will guarantee a safe and steady flow of profit.
Given that Valero is expected to increase its dividend payout ratio of 71% to an even higher level, potential dividend yields of 6-7% for the next couple of years are luring investors as they are almost double that of other oil industry peers.
5) Halliburton (NYSE:HAL)
Now is the perfect time to invest in Halliburton, the leading oilfield services company of the Permian Basin, as well as one of the top services firms globally.
Fearing that the OPEC Vienna meeting would substantially affect oil prices have pushed service companies’ shares down by 10-15%, yet they will bounce back very soon.
Those who stand to gain the most are the ones focusing on the Permian, which Halliburton certainly is, yet it would be an understatement to reduce its growing stature merely to the U.S.
Halliburton’s activity is increasing in the Middle East, Russia and Europe, with a steadily growing rig count.
Having recently signed a 10-year integrated drilling and well services contract with Norwegian Equinor, as well as an exclusive gas stimulation services deal with Saudi Aramco, Halliburton will not depend on a single market to boost its revenue.
As the Permian Basin is looking too good to experience any major output disruption, this is what places Halliburton into a more favorable position than more internationalized peers Schlumberger and Weatherford (despite having a weaker debt-to-equity position).
Permian production is expected to double in 2018-2023, reaching 5.4 mbpd, the Houston-based services company is perfectly positioned to cash in on the oil craze.
All in all, Halliburton shares ought to be trading around $60 per share by the end of the year, significantly up from the current $45-46 per share.
Other companies to watch as oil soars:
Suncor Energy (TSX:SU): As one of the biggest names in energy, Suncor has adopted a number of high tech solutions for finding, pumping, storing, and delivering its resources.
If the next shale boom truly is to be in the oil sands then giants like Suncor is sure to do well out of it. While many of the oil majors have given up on oil sands production – those who focus on technological advancements in the area have a great long-term outlook.
Pivot Technology Solutions Inc. (TSX:PTG): Pivot focuses on the strategy to acquire and integrate technology solution providers, primarily in North America. It sells and supports integrated computer hardware, software and networking products for business database, network and network security systems.
With the energy sector becoming increasingly vulnerable to cyberattacks, companies like Pivot will see more and more attention from investors over time.
Gibson Energy (TSX:GEI): has a long history in Canada’s oil and gas game. Established in 1953, Gibson knows the industry inside and out. The company has a diverse portfolio which includes transportation, storage, processing, marketing and distribution of oil, condensates, oilfield waste, refined products and natural gas.
With Gibson’s huge array of assets and its multi-platform sales strategies, investors look to Gibson with a confidence. And with a recent dip in the stock’s price, the company is open for business, with a modest entry point for those interested in dipping their toes into the Canadian oil market.
Enbridge, Inc (TSX:ENB), based in Canada’s oil sands capital Alberta, is an energy delivery company focusing on transportation, distribution, and generation of energy. Operating in the United States and Canada, Enbridge owns and operates the largest natural gas distribution network in Canada and the longest crude oil transportation system in the world. Founded in 1949, investors can feel confident in Enbridge’s experience and market know-how.
Though not strictly dealing in commodities, Enbridge’s diversified assets and connections to a variety of industries position the company as solidified player in many Canadian investors’ portfolio.
Pembina Pipeline Corp. (TSX:PPL): The North American pipeline industry had a tough 2017, but the recent approval of the Keystone XL pipeline route and the growing need for transportation capacity should act as a boon for the sector.
Pembina Pipeline Corp. has ridden the oil price crash in an impressive manner, maintaining a good stock price and increasing its dividend. This is a stock that pays you to wait, and as the sector continues to improve it is likely investors will see good gains here.
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Forward-Looking Statements
This news release contains forward-looking information which is subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ from those projected in the forward-looking statements. Forward looking statements in this release include that PETROTEQ will be able to produce oil as currently scheduled, at the rates of production announced and at the targeted low prices from its Utah property; that PETROTEQ will successfully develop a blockchain supply chain solution for the oil industry; that it will have customers and contracts for its supply chain technology; that oil will be as much in demand in future as currently expected; that PETROTEQ’s technology is protected by patents and that it doesn’t infringe on intellectual property rights of others; that PETROTEQ will find licensees for its technology and that it can patent its technology in many countries; that PETROTEQ’s technology will work as well as expected; that blockchain technology will help PETROTEQ create a supply chain management system which can handle all transactions; and that PETROTEQ will be able to carry out its business plans. These forward-looking statements are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information. Risks that could change or prevent these statements from coming to fruition include that the Company’s patents and other technology protection are not valid, patents may not be granted in countries where PETROTEQ wants to license its technology; production of oil may not be cost effective as expected, technology development costs may be much higher than expected, there may be construction delays and cost overruns at the production plants, PETROTEQ may not raise sufficient funds to carry out its plans, changing and increased costs for extraction and processing; technological results based on current data that may change with more detailed information or testing; blockchain technology may not be developed to be as useful as expected and PETROTEQ may not achieve its business plans; competitors may offer better technology; and despite the current expected viability of its projects, that the oil cannot be economically produced with its technology. Currently, PETROTEQ has no revenues.
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