The energy sector's performance moderated slightly earlier this year after an exceptionally good 2022. However, the sector looks set for a solid recovery amid increased summer travel, constrained supplies due to turbulent geopolitics, and OPEC+ production cuts.
The potential rebound in oil and gas prices could translate into benefits for fundamentally strong businesses, Weatherford International plc (WFRD), North European Oil Royalty Trust (NRT), and Euronav NV (EURN) with exposure to the energy sector.
Consumers are now going above and beyond to compensate for the years spent indoors trying out-of-home experiences with virtual ones. As a result, air carriers are turning to bigger airplanes, even on shorter routes, and jumbo-jets, such as the Boeing 747 and the Airbus A380, are being brought back to help ease airport congestion and work around pilot shortages.
Moreover, Saudi Arabia-led OPEC+ surprise announcement of a cut of more than a million barrels of output a day, in addition to a reduction of 2 million barrels a day agreed upon in October 2022, has taken about 3% of the world’s petroleum production taken off the market in seven months.
In addition to growing Asian economies absorbing the bulk of the remaining supplies, Europe’s increasing reliance on American shipments and Russia’s announcement of a voluntary production cut of 500,000 barrels a day in response to Western sanctions could keep demand resilient.
The redrawing of the global energy map and shifting geopolitical inclinations in the Middle East since the beginning of the conflict has been nothing short of a windfall for U.S. energy producers. The U.S. has “gone from (being) a very domestically focused market into an international powerhouse.”
American crude oil production is going through a purple patch and is set to have a record-breaking couple of years. The EIA forecasts that U.S. crude oil production will average 12.4 million bpd in 2023 and 12.8 million bpd in 2024. This has been countering OPEC+ production cuts and keeping prices in check.
Hence, although energy prices have retreated from last year’s record highs, strong demand from extensive summer traveling and constrained supply has led to the belief that oil is asymmetrically positioned to the upside. This would benefit energy producers as well as the businesses serving them.
With the above context, let’s take a closer look at the featured stocks.
Weatherford International plc (WFRD)
As a global energy services company, WFRD is an energy services company that offers equipment and services for the drilling, evaluation, completion, production, intervention and responsible abandonment of oil and natural gas exploration and production and new energy industries.
WFRD operates through three segments: Drilling and Evaluation (DRE); Well Construction and Completions (WCC); and Production and Intervention (PRI). Over the past three years, its EBITDA has grown at a 34.7% CAGR.
On July 12, WFRD announced that it was awarded a 5-year contract to provide intervention services for Petróleo Brasileiro S.A. – Petrobras (PBR) in Brazil. This contract would further more than two decades of collaboration with PBR by providing its state-of-the-art digitalization solution, the Centro™ well construction optimization platform, which provides exceptional visibility and performance in operations.
WFRD’s intervention solutions would extend the life of PBR’s assets while reducing the non-productive time.
On June 8, WFRD announced that it had been awarded a three-year contract with Aramco to deliver drilling services. Under the deal, WFRD would deploy its Drilling Services portfolio, which includes a suite of technology that combines world-class services, real-term information analysis, and innovative drilling tools.
Deploying these offerings would add value to Aramco’s drilling operations by minimizing operating expenditure, reducing risks, and optimizing production.
For the first quarter that ended March 31, 2023, WFRD’s total revenues increased 26.4% year-over-year to $1.19 billion, while its adjusted EBITDA grew 78.1% from the year-ago value to $269 million. Consequently, the net income attributable to WFRD was $72 million or $0.97 per share, compared to a net loss of $80 million or $1.14 per share during the previous-year quarter.
Ahead of its earnings release on July 26, WFRD expects its revenue and EPS for the fiscal second quarter that ended June 30, 2023, to increase 17% and 1,735% year-over-year to $1.24 billion and $1.18, respectively. The company has also impressed by surpassing consensus EPS estimates in each of the trailing four quarters.
For the fiscal year ending December 31, 2023, WFRD’s revenue and EPS are expected to increase by 14.9% and 1,190.4% year-over-year to $4.98 billion and $4.65, respectively. Both metrics are expected to improve by a further 8.8% and 30.8% year-over-year to $5.41 billion and $6.08, respectively.
WFRD’s stock has gained 29.1% over the past month and 42.3% over the past six months to close the last trading session at $76.25.
WFRD’s robust outlook is reflected by its overall rating of B, which translates to a Buy in our proprietary POWR Ratings system. It has A grades for Growth and Momentum, and B for Sentiment and Quality. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
WFRD is ranked #2 of 89 stocks in the Energy - Oil & Gas industry. Additional ratings for WFRD’s Value and Stability are available here.
North European Oil Royalty Trust (NRT)
NRT is a grantor trust that holds overriding royalty rights under contracts with gas and oil exploration and production in various concessions or leases on behalf of unit owners.
The trust conducts no active business operations. Its activities are restricted to the collection of income from royalty rights and distribution to unit owners of the net income after payment of administrative and related expenses.
Over the past three years, NRT’s revenue has grown at a 71.9% CAGR, while its net income has grown at a 78.3% CAGR. Its total assets have grown at a 105.8% CAGR during the same time horizon.
On April 28, NRT announced a quarterly dividend distribution of $1.05 per unit for the second quarter of the fiscal year 2023. It pays $4.20 annually as dividends which translates to a yield of 26.9% at the current price.
NRT’s four-year average dividend yield is 11.29%, better than the industry average of 4.53%. The trust’s dividend payouts have grown at a 33% CAGR over the past five years.
During the fiscal second quarter that ended April 30, 2023, NRT’s total royalty income stood at $9.76 million, up 158.6% year-over-year, while its net income has increased 167% year-over-year to $9.51 million. As a result, the distribution per unit by the trust increased by 176.3% year-over-year to $1.05.
The stock has gained 20.5% over the past month and 29.5% year-to-date to close the last trading session at $15.85.
NRT’s POWR Ratings reflect its positive outlook. It has an overall B rating, which equates to Buy in our proprietary rating system. It has an A grade for Quality and B for Growth and Momentum.
NRT is ranked #7 of 89 stocks in the Energy - Oil & Gas industry.
Click here for additional ratings for NRT’s Value, Stability, and Sentiment.
Euronav NV (EURN)
Headquartered in Belgium, EURN is engaged in transporting and storing crude oil and petroleum products while also offering associated shipping services. The company operates in two business segments: the operation of crude oil tankers on the international markets (tankers) and the floating production, storage, and offloading operations.
EURN’s net income has grown at a 9.8% CAGR over the past three years.
On July 19, EURN announced that it sold the VLCC Nautica (2008 – 307,284 DWT) as part of a wider salvage operation for the FSO Safer located in Yemen. The Nautica will replace the FSO Safer and will stay there. Euronav will help transfer the oil and operate the vessel for a transition period of several months.
During the fiscal first quarter that ended March 31, 2023, EURN’s revenue increased by 197.2% year-over-year to $339.96 million, while its profit for the period increased by 302.7% and 295.5% year-over-year to $175.05 million, or $0.87 per share.
EURN expects its revenue for the fiscal second quarter that ended June 30 to increase 164.3% year-over-year to $393.03 million. During the same period, the company’s EPS is expected to come in at $0.73, compared to a loss of $0.07 per share during the previous-year period.
For the entire fiscal, EURN’s revenue and EPS are expected to increase by 60.3% and 334.3% year-over-year to $1.37 billion and $2.33, respectively.
The stock has gained 17% over the past year to close the last trading session at $15.04.
EURN’s robust outlook is reflected in its overall POWR Rating of B, which translates to a Buy in our proprietary rating system. It has A grades for Momentum and Sentiment and grades B for Growth and Quality.
EURN is ranked #18 in the same industry. Click here for additional POWR Ratings for Value and Stability for EURN.
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WFRD shares were trading at $74.75 per share on Wednesday morning, down $1.50 (-1.97%). Year-to-date, WFRD has gained 46.80%, versus a 20.04% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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