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All Contents © 2017The Kiplinger Washington Editors
By Aaron Levitt
| December 2016
Tim Evanson via Flickr
It’s no secret that the various crude oil stocks have had a hard time over the last couple of years. Lower for longer crude oil prices have clipped much of the enthusiasm — and profits — for the entire energy sector. However, things could be better for the various crude oil stocks in the New Year.
Already, prices for crude have begun to rise on the back of various production cuts. Supplies of oil have drifted lower in recent weeks. Those supply cuts got a shot in the arm recently when OPEC finally realized that they needed to hold off on production as well. That deal to cut output alone sent prices for crude oil up a quick 8%.
At the same time, bullish economic growth forecasts thanks to Donald Trump’s win as president and rising growth in places like India are helping on the demand side of the equation. Analysts continue to ratchet-up just how much energy we are going to use next year.
In the end, the World Bank now estimates that crude oil prices will average around $55 per barrel for the year.
The combination of these various factors paints a very bullish picture for the various crude oil stocks during 2017. With that in mind, the time to go long on energy stocks could be now. Here are three crude oil stocks to load-up on during the New Year.
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Joshua Doubek via Wikipedia
I hate to beat a dead horse, but EOG Resources Inc. (EOG) is simply the best fracker and king of the crude oil stocks.
The shale superstar was one of the first movers into some of the nation’s biggest shale resources. That included the Bakken, Permian and prolific Eagle Ford shales.
The status as a first mover gave EOG some of the best and lowest cost acreage around, and it also gave it an immense resource and production base. Furthermore, EOG has been steadily turning that into real profits over its history.
But unlike many energy stocks, EOG has constantly improved itself during the downturn, rather than keep on pumping and praying. The energy firm has improved its drilling techniques and has focused on what it calls “premium” drilling locations. These multiple stacked locations allow it to get massive efficiency from one well by hitting multiple shales at once. The key is that these premium locations produce an internal rate of return of 30% with crude oil at just $40. Rising to 60% when oil is at $50 per barrel and a staggering 100% at $60 per barrel oil.
With crude oil prices starting to rise, that makes EOG stock one heck of big time buy. Especially since its still about 20% off of its all-time highs.
Courtesy Andarko Inc.
As one of the largest independent crude oil stocks, higher oil prices are boon for Anadarko Petroleum Corporation (APC). The reason? The Gulf of Mexico.
Anadarko has had a long history of operating in the Gulf and is already one of the largest operators in the critical water way. Across its 2 million leased acres and 269 drilling blocks, APC pumps out about 155,000 barrels of crude per day from the Gulf. Offshore energy is simply more expensive to produce than onshore — even for some classic old school rigs in Anadarko’s acreage. So any bump upwards in prices will benefit the APC stock.
Also benefiting the firm, its shrewd buy of struggling Freeport-McMoRan Inc.'s (FCX) prime acreage in the Gulf of Mexico. For a low price, APC was able to pick-up 91 additional drilling blocks, hefty deepwater assets and proven rich reserves … that includes boosting its stake in the very lucrative Lucius field. It was an easy bolt acquisition that was instantly accretive and started producing free cash flows immediately.
Now with crude oil prices rising, the deal looks even better and Anadarko’s return to the Gulf is a major win for the firm. In the end, APC could be one of 2017’s best crude oil stocks to buy.
SkyTruth via Flickr
If you are looking for a high-octane way to add energy stocks to a portfolio, then WPX Energy Inc. (WPX) has to be it.
Originally part of pipeline firm Williams Companies Inc. (WMB), WPX was focused on natural gas. Williams used the firm as a way to fill its pipelines with the commodity. Those plans never really materialized as the obliteration of natural gas prices during the recession made WPX a huge liability for WMB.
So out it went.
WPX floundered as a sub-$5 stock for quite a while as natural gas continued to be in the doldrums. Then management got smart. It started selling its various natural gas properties and building key, premium positions in the oily Permian Basin.
Like previously mentioned with EOG, these are premium spots. And while the smaller WPX doesn’t have the same sort of cost efficiency, it can hit 11 stacked zones from one well pad across its acreage. That’s pretty good for any energy company, let alone a small one. And that doesn’t include WPX’s prime acreage in the Bakken either.
In just a year, WPX has shifted its complete portfolio and now receives more than 60% of its production from crude oil.
The company’s turnaround is working and it’ll keep working as energy prices rise. For investors hunting for crude oil stocks, WPX is a sleeper that will turn into a monster over the course of 2017.
This article is from Aaron Levitt of InvestorPlace. As of this writing, he was long the Vanguard Energy ETF (VDE), which holds EOG and APC.
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