Despite widespread commitments to transition towards cleaner energy sources, recent forecasts from the International Energy Agency (IEA) for global oil and natural gas demand paint a contrasting picture. Meanwhile, tight supply conditions coupled with the persistent threat of escalating geopolitical tensions in the Middle East are exerting further upward pressure on oil prices.
Keeping these factors in mind, in this piece, I have highlighted the fundamentals of three oil and gas stocks, BP p.l.c. (BP), Western Midstream Partners, LP (WES), and Global Partners LP (GLP), which are well equipped to capitalize on the industry prospects.
The IEA anticipates that global oil consumption will surge by 1.24 million barrels per day (bpd) in 2024, up 180,000 bpd from its previous projection, marking the third consecutive upward adjustment in its forecast. The improving global economic growth and the expanding petrochemicals sector in China fuel this upward trend.
While the demand remains robust, oil supply is expected to struggle to keep pace with this year's demand. The U.S. Energy Information Administration (EIA) has revised its forecast for domestic oil growth in 2024, reducing it by 120,000 bpd to 170,000 bpd. This figure represents a significant decrease compared to last year's output increase of 1.02 million bpd.
With escalating geopolitical tensions in the Middle East and a downward revision in output forecasts by the EIA, oil prices saw their third consecutive day of increases yesterday. Brent crude futures and U.S. West Texas Intermediate both experienced slight gains, with Brent settling at $79.21 per barrel and West Texas Intermediate at $73.86 per barrel.
On the other hand, IEA predicts a rebound in the growth of global natural gas consumption in 2024, driven by lower prices and higher demand expected this winter. Following a modest 0.5% increase in 2023, natural gas demand is forecasted to grow by 2.5% this year.
The decline in natural gas prices from the highs of 2022, coupled with colder temperatures this winter compared to the exceptionally mild previous year, is contributing to the increase in demand. “We expect to see solid growth in global gas demand this year as prices have come down to relatively manageable levels,” said Keisuke Sadamori, IEA Director of Energy Markets and Security.
Considering the favorable industry dynamics, adopting a bullish stance on the shares of BP, WES, and GLP could be wise. To that end, let’s examine the fundamentals of the featured oil and gas stocks in detail:
BP p.l.c. (BP)
Headquartered in London, the United Kingdom, BP provides carbon products and services. It operates through Gas & Low Carbon Energy; Oil Production & Operations, and Customers & Products segments. The company engages in the production of natural gas and crude oil.
On January 17, 2024, BP revealed its agreement to acquire GETEC ENERGIE GmbH, a leading independent energy supplier for commercial and industrial customers in Germany. This acquisition significantly expands BP's presence in the European power and gas supply market, allowing the company to offer integrated energy solutions to both existing and new customers across Germany and Europe.
Additionally, with over twenty years of experience, expertise, and customer relationships, GETEC ENERGIE GmbH's acquisition aligns with BP's strategy to become an integrated energy company, enhancing its capabilities and customer interface in established and developing energy markets such as renewable power, biogas, and hydrogen.
BP’s trailing-12-month Return On Total Assets (ROTA) of 34.53% is 169.1% higher than the industry average of 12.83%. Its trailing-12-month assets turnover ratio of 0.73x is 33.6% higher than the 0.55x industry average. Furthermore, the stock’s trailing-12-month cash per share of $1.96 is 116.3% higher than the $0.91 industry average.
For the fiscal fourth quarter, which ended on December 31, 2023, BP’s total revenues and other income amounted to $52.59 billion, while its profit for the period and EPS stood at $436 million and $2.15, respectively. During the same quarter, the company’s cash and cash equivalents came in at $33.03 billion, up 13.1% compared to $29.19 billion as of December 31, 2022.
Analysts predict BP’s revenue and EPS for the fiscal 2024 first quarter (ending March 2024) to come in at $56.12 billion and $1.02, respectively.
The stock has gained 1.9% over the past three months to close the last trading session at $36.17.
BP’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Momentum and Quality. In the A-rated 43-stock Foreign Oil & Gas industry, it is ranked #17. Click here to see BP’s ratings for Growth, Value, Stability, and Sentiment.
Western Midstream Partners, LP (WES)
WES operates as a midstream energy company primarily in the United States. It is involved in gathering, compressing, treating, processing, and transporting natural gas, natural gas liquids, and crude oil.
On January 22, 2024, WES declared a quarterly distribution of $0.58 per unit, payable to its unitholders on February 13, 2024. The company’s annual dividend of $2.30 translates to an 8.24% yield on the prevailing price level, while its four-year average dividend yield is 11.21%. Its dividend payouts have grown at a CAGR of 21.2% over the past three years.
WES’ trailing-12-month net income margin of 34.53% is 169.1% higher than the industry average of 12.83%. Its trailing-12-month EBIT margin of 41.02% is 91.4% higher than the 21.43% industry average. Furthermore, the stock’s trailing-12-month levered FCF margin of 15.90% is 176.4% higher than the 5.75% industry average.
For the fiscal third quarter, which ended on September 30, 2023, WES’ total revenues and other income came in at $776.01 million. Its operating income rose 1% year-over-year to $360.76 million. Moreover, the company’s net income and net income per unit increased 3.9% and 6.1% from the prior-year quarter to $284.39 million and $0.70, respectively.
Street expects WES’ revenue for the fourth quarter (ended December 2023) to increase 9.7% year-over-year to $855.24 million. While its EPS for the same quarter is projected to come in at $0.79. Furthermore, its EPS is forecasted to improve by 3.8% annually over the next five years.
Over the past nine months, the stock has gained 9.5% to close the last trading session at $28.
WES’ strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has a B grade for Momentum, Stability, and Quality. Within the A-rated 25 stock MLPs - Oil & Gas industry, it is ranked #7. Click here to see the other ratings of WES for Growth, Value, and Sentiment.
Global Partners LP (GLP)
GLP purchases, sells, gathers, blends, stores, and transports gasoline and gasoline blendstocks, residual oil, crude oil, and propane to wholesalers, retailers, and commercial customers. The company operates through Wholesale; Gasoline Distribution and Station Operations; and Commercial segments.
On January 24, 2024, GLP declared a quarterly distribution of $0.70 per unit, payable to its unitholders on February 14, 2024. The company’s annual dividend of $2.80 translates to a 6.28% yield on the prevailing price level, while its four-year average dividend yield is 11.12%. Its dividend payouts have grown at CAGRs of 12.6% and 7.3% over the past three and five years, respectively.
On December 21, 2023, GLP announced the successful completion of its acquisition of 25 liquid energy terminals from Motiva Enterprises LLC. The acquisition nearly doubles GLP’s operating footprint, establishing a significant presence from Maine to Florida and extending into the Gulf Coast.
With the newly acquired locations, GLP now owns or leases 49 liquid energy terminals in the United States, totaling approximately 18.3 million barrels in shell capacity. This expansion aims to provide customers with gasoline, diesel, and other essential liquid fuels for their daily lives.
GLP’s trailing-12-month Return On Common Equity (ROCE) of 21.26% is 10.9% higher than the industry average of 19.17%. Furthermore, the stock’s trailing-12-month assets turnover ratio of 5.48x is 898.7% higher than the 0.55x industry average.
For the fiscal third quarter, which ended on September 30, 2023, GLP’s sales amounted to $4.22 billion, while its gross profit and adjusted EBITDA came in at $228.52 million and $77.73 million, respectively.
Moreover, its net income attributable to common limited partners and net income per common limited partner unit amounted to $20.54 million and $0.60, respectively. During the same period, the company’s cash and cash equivalents stood at $11.30 million, up 179.7% compared to $4.04 million as of December 31, 2022.
Analysts expect GLP’s revenue and EPS for the fiscal fourth quarter (ended December 2023) to come in at $4.39 billion and $0.96, respectively.
GLP’s shares have soared 46.1% over the past nine months and 39.8% over the past three months to close the last trading session at $44.56.
It’s no surprise that GLP has an overall rating of B, which equates to Buy in our proprietary rating system. It has a B grade for Value and Momentum. In the same A-rated MLPs - Oil & Gas industry, it is ranked #8.
In addition to the POWR Ratings we’ve stated above, we also have GLP’s ratings for Growth, Stability, Sentiment, and Quality. Get all GLP ratings here.
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BP shares were trading at $36.02 per share on Thursday morning, down $0.15 (-0.41%). Year-to-date, BP has gained 1.75%, versus a 4.69% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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