In the final months of 2023, volatile demand and surging U.S. oil output have exerted pressure on crude prices. Energy research firm FGE predicts that OPEC and its allies will assert greater control over the market in 2024, anticipating a strengthened ability to increase production during the latter part of the year.
Considering a positive long-term outlook, it seems wise to scoop up shares of Permianville Royalty Trust (PVL). Meanwhile, watching Schlumberger Limited (SLB) and Subsea 7 S.A. (SUBCY) for this month appears prudent. Before exploring the highlighted stocks, let's analyze the industry's dynamics.
During the November meeting, OPEC+ disclosed a cut of 2.2 million barrels daily, with Saudi Arabia urging fellow members to collaborate for price stabilization. Simultaneously, a surge in U.S. production raised concerns that Saudi Arabia might strategically “flush the market” to crash prices and undermine smaller competitors.
Despite concerns, FGE analysts assert that the market will maintain equilibrium at the outset of the new year, citing the unchanged output targets of the oil cartel. Forecasts indicate that the OPEC+ production target will stabilize at approximately 37.1 million barrels per day during the first quarter.
FGE predicts a positive trajectory for crude prices during the early months, asserting that OPEC will gain increasing control over the market. The latter half of 2024 is seen as the "endgame" phase, with analysts suggesting that OPEC+ has executed precise production cuts to ensure market balance in the first half of 2024.
Maintaining unity over the next six months positions the group favorably to raise output targets in the second half of 2024.
Moreover, emerging markets have defied expectations with robust oil demand growth, surpassing current observations. Christyan Malek, JPMorgan's top energy strategist, emphasizes that oil demand in emerging markets has exceeded current perceptions and doesn’t see demand peaking anytime soon.
This scenario suggests a favorable environment for sustained growth and stability in the oil industry.
Fitch Ratings also predicts that the global oil and gas sector's performance in 2024 will align with 2023 and surpass mid-cycle levels. Expectations include consistently high and stable year-on-year oil prices attributed to OPEC+'s ongoing production curtailments.
That said, the U.S. Energy Information Administration (EIA) forecasts that Brent crude oil spot prices will rise, transitioning from an average of $78 per barrel in December to an anticipated average of $84/b during the first half of 2024.
In light of these trends, let’s look at the fundamentals of the three energy stocks.
Stock to Buy:
Permianville Royalty Trust (PVL)
PVL is a statutory trust established to acquire and manage a net profits interest. Unitholders in the Trust are entitled to about 80% of the net profits from the sale of natural gas and oil produced from particular properties owned by Enduro Resource Partners LLC in Texas, Louisiana, and New Mexico.
On August 9, PVL announced that COERT Holdings 1, LLC had informed The Bank of New York Mellon Trust Company, N.A., as Trustee, about the Sponsor's successful divestiture of specific oil and natural gas assets in the Permian Basin. These assets form an integral part of the properties encumbered by the Trust's 80% net profits interest.
The divestiture would enhance PVL's position by streamlining its portfolio, optimizing resource allocation, and potentially increasing returns from the remaining assets in the Trust.
For the quarter that ended September 30, 2023, PVL’s gross profits registered at $13.99 million. Its net profits amounted to $3.56 million. Also, the company’s distributable income stood at $2.48 million. As of September 30, 2023, PVL’s cash and cash equivalents stood at $1.33 million compared to $922.91 thousand as of December 31, 2022.
Shares of PVL plunged 3.2% intraday to close the last trading session at $1.84.
PVL’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
PVL has a B grade for Momentum, Sentiment, and Quality. It is ranked #12 out of 85 stocks within the Energy - Oil & Gas industry.
In addition to the POWR Ratings I’ve highlighted, you can see PVL’s Growth, Value, and Stability ratings here.
Stocks to Hold:
Schlumberger Limited (SLB)
SLB specializes in energy industry technology. Its offerings encompass field development, hydrocarbon production, carbon management, reservoir interpretation, well construction, and production improvement services. The company's segments include Digital & Integration; Reservoir Performance; Well Construction; and Production Systems.
On October 10, SLB, Amazon Web Services (AWS), and Shell Global Solutions Nederland BV formalized a multi-year collaboration to implement digital end-to-end workflows for Shell, leveraging SLB subsurface solutions on AWS cloud infrastructure.
The strategic alliance positions SLB for significant growth by enhancing its digital capabilities, fostering innovation, and expanding its market influence by providing high-performance, cost-efficient subsurface digital solutions to Shell and the broader industry.
Moreover, on October 3, SLB's End-to-end Emissions Solutions (SEES) launched its advanced methane point instrument, a self-installed continuous monitoring system utilizing IoT-enabled sensors. The innovation swiftly and cost-effectively detects, locates, and quantifies emissions in oil and gas operations.
The forward-looking approach is expected to enhance SLB's reputation, attract environmentally conscious clients, and foster long-term growth in a market increasingly focused on emissions reduction and sustainable practices.
SLB’s revenue increased 11.1% year-over-year to $8.31 billion for the third quarter that ended September 30, 2023. Its adjusted EBITDA rose 18.5% from the year-ago value to $2.08 billion. In addition, net income attributable to SLB and EPS grew 23.8% from the prior year’s period to $1.12 billion and $0.78, respectively.
The consensus revenue estimate of $33.13 billion for the fiscal year ending December 2023 reflects a 17.9% year-over-year improvement. Similarly, the consensus EPS estimate of $2.97 for the current year exhibits a 36.1% rise from the previous year. Also, the company surpassed the consensus EPS estimates in all four trailing quarters.
The stock has gained 4.3% over the past six months to close the last trading session at $49.04.
SLB’s prospects are reflected in its POWR Ratings. SLB has a B grade for Momentum and a C for Growth and Sentiment. It is ranked #27 out of 49 stocks within the Energy - Services industry. Click here to access the additional SLB ratings (Value, Stability, and Quality).
Subsea 7 S.A. (SUBCY)
Headquartered in Luxembourg, SUBCY is a global provider of offshore projects and services for the energy industry. The company specializes in subsea field development. It also excels in tying back its facilities to fixed or floating platforms or connecting them to the shore.
On October 2, SUBCY confirmed the conclusive closure of its previously disclosed joint venture with SLB and Aker Solutions. The newly established entity, under the name OneSubsea, aims to spearhead innovation and enhance efficiency in subsea production.
Its primary focus is assisting customers in unlocking reserves and minimizing cycle time for optimal operational outcomes. The strategic collaboration is expected to significantly benefit SUBCY's growth trajectory by leveraging synergies with industry leaders.
Furthermore, on September 25, SUBCY disclosed that the Subsea Integration Alliance inked a memorandum of understanding (MoU) to establish a framework agreement with BP p.l.c. (BP) for integrated subsea developments.
The collaboration involves working with BP from concept selection throughout the full field life cycle, ensuring improved subsea project performance through innovative operational approaches and a dynamic commercial model. The partnership would offer SUBCY opportunities for innovation, expanded capabilities, and increased market presence.
For the third quarter that ended September 30, 2023, SUBCY’s revenue increased 12.4% year-over-year to $1.58 billion. Its adjusted EBITDA grew 17.5% from the year-ago value to $201 million.
Furthermore, the company’s net income amounted to $36.30 million, compared to a net loss of $100 thousand in the prior year’s period, while EPS came in at $0.11, significantly up from the previous year’s quarter.
Analysts expect SUBCY’s revenue to increase 15.3% year-over-year to $5.92 billion for the fiscal year ending December 2023. Likewise, the company’s revenue for the next fiscal year (ending December 2024) is expected to rise 8.1% from the prior year to $6.40 billion. Moreover, SUBCY surpassed the consensus revenue estimates in all of the trailing four quarters.
The stock has gained 25.3% over the past six months, closing the last trading session at $13.02.
SUBCY’s outlook is apparent in its POWR Ratings. The stock has a B grade for Momentum, Sentiment, and Stability and a C for Growth and Value. It is ranked #24 out of 49 stocks within the Energy - Services industry.
Click here to access additional SUBCY ratings (Quality).
What To Do Next?
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SLB shares rose $0.13 (+0.27%) in premarket trading Wednesday. Year-to-date, SLB has declined -6.34%, versus a 22.88% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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