Rising economic and geopolitical issues and increasing oil inventory withdrawals have spurred oil price volatility across major parts of the world. Amid this, oil prices are spiking to record highs, and the stream is likely to continue in the future, booming the prospects of the oil and gas market.
Given the industry’s resilient outlook, investors could consider buying fundamentally sound oil and gas stocks: Schlumberger Limited (SLB), VAALCO Energy, Inc. (EGY), and Obsidian Energy Ltd. (OBE) with major upside potential.
The central bank’s Federal Open Market Committee recently lowered its key overnight borrowing rate by a half percentage point, or 50 basis points, amid signs of moderating inflation. Lower interest rates are likely to boost economic activities, as observed in the past, and can potentially result in increased demand for oil.
Meanwhile, ongoing withdrawals from global oil inventories are likely to push prices at higher levels. Oil withdrawals out of the inventories are expected to increase during the fourth quarter of 2024 as OPEC+ announced a delay in production increases until December, which were set to commence in October. Brent crude oil spot price is expected to average $82/b in the fourth quarter and $84/b in 2025.
Last week, the oil prices rose and marked their biggest weekly gains over a year amid the rising threat of a region-wide war in the Middle East. Brent crude futures rose 43 cents, or 0.6%, to total $78.05 per barrel, while U.S. West Texas Intermediate crude futures gained 67 cents, or 0.9%, to settle at $74.38 per barrel.
Besides, amid rising energy demands, the global energy as a service (EaaS) market is projected to grow to $208.20 million by 2032, exhibiting growth at a CAGR of 11.7%.
Given the industry’s robust outlook, investing in fundamentally strong oil stocks SLB, EGY, and OBE could be wise.
Let’s discuss the fundamentals of these stocks in detail:
Schlumberger Limited (SLB)
SLB is engaged in the provision of technology for the energy industry worldwide. The company operates through four divisions: Digital & Integration, Reservoir Performance, Well Construction, and Production Systems. It provides field development and hydrocarbon production, carbon management, and integration of adjacent energy systems.
On September 30, SLB, ADNOC Drilling Company, and Patterson-UTI entered into an agreement to create Turnwell Industries LLC OPC, a joint venture (JV). The JV is focused on the acceleration of UAE’s unconventional oil and gas program, with an initial 144 wells scheduled for completion by the end of 2025.
The joint venture will enable the three companies to leverage leading innovations in AI, smart drilling design, and completion of engineering and production solutions.
On September 19, SLB and NVIDIA partnered to develop generative AI solutions for the energy industry. The strategic collaboration accelerates the development and deployment of industry-specific generative AI foundation models across SLB’s global platforms, including its Delfi™ digital platform and Lumi™ data and AI platform, by leveraging NVIDIA NeMo™.
Also, on September 17, SLB launched the Lumi™ data and AI platform, which integrates advanced artificial intelligence (AI) capabilities, including generative AI with workflows across the energy value chain. The new platform accelerates advanced data and AI capabilities for the company’s customers across the energy industry.
For the second quarter that ended June 30, 2024, SLB’s revenue grew 12.8% from the year-ago value to $9.14 billion. The company’s income before taxes rose 9.9% year-over-year to $1.42 billion. Net income attributable to SLB and EPS amounted to $1.11 billion and $0.77, up 7.6% and 6.9% from the prior year’s quarter, respectively.
Furthermore, the company’s adjusted EBITDA rose 16.6% year-over-year to $2.29 billion.
Street expects SLB’s revenue and EPS for the third quarter (ended September 2024) to increase 12.4% and 14.3% year-over-year to $9.34 billion and $0.89, respectively. Furthermore, the company surpassed the consensus EPS estimates in all of the trailing four quarters.
SLB’s stock has gained 7.9% over the past month to close the last trading session at $45.46. Its 12-month price target of $65.39 reflects a 43.84% potential upside.
SLB’s bright prospects are reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a B grade for Growth. SLB is ranked #25 among 50 stocks in the Energy – Services industry.
Click here to access additional SLB ratings for Sentiment, Momentum, Quality, Value, and Stability.
VAALCO Energy, Inc. (EGY)
EGY is an independent energy company that engages in acquiring, developing, and producing crude oil, natural gas, and natural gas liquids in Gabon, Egypt, Equatorial Guinea, and Canada. The company holds a 58.8% interest in Etame commercial production.
On August 6, EGY declared a quarterly cash dividend of $0.06 per share of common stock for the third quarter of 2024, paid on September 20, 2024, to stockholders of record at the close of business on August 23, 2024. EGY pays an annual dividend of $0.25, which translates to a yield of 3.96% at the current share price. Its four-year average dividend yield is 2.22%.
On May 29, EGY announced the successful drilling campaign results. The company drilled, completed, and brought into production four wells in Canada, which were 2.75-mile lateral development wells. The company anticipated strong initial production rates of about 500 barrels of oil per day (BOPD) for three of the four wells, with nearly 350 BOPD production for the fourth well.
For the second quarter that ended on June 30, 2024, EGY’s total net revenue increased 6.9% year-over-year to $116.78 million. Its income before income taxes rose 104.2% from the year-ago value to $37.45 million. The company’s net income came in at $28.15 million and $0.27 per share, reflecting growths of 316.9% and 350% year-over-year, respectively.
In addition, the company’s adjusted EBITDAX of $72.47 million indicates an increase of 11% from the prior year’s quarter.
Street expects EGY’s revenue for the third quarter (ended September 2024) to increase 25.5% year-over-year to $145.89 million. The company’s EPS for the same period is expected to grow 200% year-over-year to $0.18. Moreover, it has topped the consensus EPS estimates in three of the trailing four quarters.
EGY’s stock has surged 7.9% over the past month and 61.6% over the past year to close the last trading session at $6.32. Wall Street analysts expect the stock to hit $9.40 in the near term, indicating a potential upside of 48.73%.
EGY’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.
The stock has a B grade for Value, Quality, and Sentiment. Within the Energy – Oil & Gas industry, EGY is ranked #5 out of 78 stocks.
In addition to the POWR Ratings I’ve just highlighted, you can see EGY’s ratings for Momentum, Growth, and Stability here.
Obsidian Energy Ltd. (OBE)
Headquartered in Calgary, Canada, OBE is engaged in the exploration, production, and development of oil and natural gas properties in Western Canada.
On September 30, OBE updated its 2024 guidance, including ongoing strong second-half 2024 drilling results, which exceeded the company’s initial expectations. The company increased its 2024 production guidance range from 37,000 to 37,400 boe/d (midpoint of 37,200 boe/d).
On June 27, OBE acquired approximately 1,700 boe/d (100 percent oil) of Clearwater production and 148 net sections of land in the Peace River area. The acquisition, along with other smaller acquisitions made in 2024, brought the company's holdings to over 680 net sections of land with Clearwater and Bluesky heavy oil rights.
The strategic acquisition allows OBE further upside and optionality within its Peace River operating area.
OBE’s total production increased 15.2% year-over-year to 35,773 boe/d during the second quarter that ended June 30, 2024. The company’s net income stood at CAD 37.10 million ($27.32 million) and CAD 0.46 per share, up 101.6% and 109.1% from the previous year’s quarter, respectively. In addition, the company’s free cash flow increased 20.9% year-over-year to CAD 52 million ($38.30 million).
Analysts expect OBE’s revenue for the fiscal year (ending December 2024) to increase 13.5% year-over-year to $606.34 million, and its EPS is expected to grow 20.9% year-over-year to $1.15 in the same year.
The stock has soared 1.1% over the past month to close the last trading session at $6.22. Its 12-month price target of $11.05 reflects a 77.65% potential upside.
OBE’s promising outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has a B grade for Value. Within the Energy – Oil & Gas industry, OBE is ranked #7 out of 78 stocks.
Click here to access additional ratings of OBE for Growth, Momentum, Sentiment, Quality, and Stability.
What To Do Next?
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SLB shares were trading at $45.63 per share on Monday afternoon, up $0.17 (+0.37%). Year-to-date, SLB has declined -10.67%, versus a 21.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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