The surprise victory of Republican Donald Trump in the U.S. Presidential election has turned out to be a boon in disguise for the energy sector.
The billionaire real estate developer, who never held an elected office before, proposed certain changes for the oil and gas sector. Trump supports the completion of Dakota Access Pipeline and the extension of Keystone XL pipeline. The President-elect is also in favor of the reversal of oil drilling restriction. This apart, Trump has named Scott Pruitt the chief of the U.S. Environmental Protection Agency (EPA), further emphasizing his fossil fuel-friendly stance.
Hence, the year 2017 appears to be highly favorable for oil and natural gas companies after the 45th President of the U.S. takes office on Friday, Jan 20, 2017. Before going to the stocks, let us discuss the key measures proposed by Trump to support the energy sector.
Support for Dakota & Keystone Pipeline: Trump pledged that he is in favor of completion of the $3.8 billion Dakota Access Pipeline project. The pipeline development was initially planned to stretch over 1,172 miles to carry crude from the Bakken shale out to the U.S. Gulf of Mexico. However, the project has been delayed due to protests from the tribes residing in and around the area and environmentalists. According to conservationists, the pipeline –expected to pass under a lake near the Standing Rock Sioux reservation – is likely to pose a serious threat to water resources.
Trump also proposed the extension of the Keystone XL pipeline to carry oil from Alberta, Canada to the U.S refineries. The initial phase of the pipeline project was finished in 2011. The proposed extension of the pipeline line will add another 1100 miles to the over 2100 miles it already covers. However, the proposed extension development has not been supported by environmental groups and politicians. This is because bitumen, which might be transported by the pipeline system along with crude to the U.S., might emit greenhouse gases.
Reversal of Offshore Drilling Restriction: The Obama administration’s decision to restrict oil and gas drilling in offshore plays of Atlantic and Alaska was strongly supported by environmentalists. However, Trump intends to boost energy self-sufficiency of the U.S. and hence, plans to open up drilling activities in these offshore resources.
Trump also promised to integrate more federal acres of land for oil and gas drilling operations. More land for drilling and fracking purposes will significantly improve the oil and gas production.
Scott Pruitt to Lead EPA: Republican Scott Pruitt is skeptical about climate change and is well known for playing a major role in halting the EPA’s ‘Clean Power Plan’ – an attempt by the Obama administration to cut emissions of greenhouse gas from coal-fired power units.
Having named Scott Pruitt as the EPA chief, Trump has given a clear indication of his plans to nullify a host of regulations associated with the climate under Obama. In other words, the nomination of Scott Pruitt reflects Trump’s strong inclination toward fossil fuels.
As expected, the energy industry has welcomed Trump’s decision and is confident that Pruitt, being pro fossil fuels, will not come up with any regulations that will inhibit the oil and gas sector.
In fact, Pruitt’s statement “Scientists continue to disagree about the degree and extent of global warming and its connection to the actions of mankind,” indicates his skepticism about the theory that fossil fuel lead to an increase in earth’s temperature by emitting greenhouse gas.
On the other hand, environmentalists are outraged over the nomination of Pruitt as they believe this move will pave the way for polluters to fill up their pocket at the expense of global warming.
Trump’s Policies to Benefit Energy Stocks
Trump has already clarified his stance on fossil fuels and will likely continue to support the industry after taking up office.
On top of that, both oil and gas prices have started gaining momentum. Natural gas prices have recovered substantially from the 17-year low mark of around $1.6 per million British thermal units (MMBtu) recorded in the first quarter. In fact, the commodity is trading above the key psychological level of $3 per MMBtu. Cold weather forecast has also pushed the commodity price up as many homes in the U.S. need natural gas for heating purposes. Moreover, the recent deal between OPEC and non-OPEC producers to curb production amid oversupplied commodity market has led crude to gain momentum. Oil has already crossed the psychological level of $50 per barrel.
Overall, we can say that the year 2017 is likely to be a good one for the energy industry, with strong support from the new President as well as improving commodity prices. Exploration and production (E&P) players will be able to sell the commodities at higher prices, while more E&P operations will increase the need for drilling activities. This in turn will enhance the need for engineering and construction companies and oilfield services firms to efficiently set up oil and gas wells. The midstream energy players also stand to gain as higher production will lead to an increased need for new oil and gas pipeline and storage assets.
Our Choices
With the help of the Zacks Stock Screener, we have zeroed in on five stocks that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy) and offer a VGM score of ‘B’. VGM score, where V stands for Value, G for Growth and M for Momentum, is a comprehensive tool that allows investors to filter through the standard scoring system and pick winning stocks. With extensive research we found that the key to success is to focus on stocks with a Zacks Rank #1 or 2 and a VGM score of B or better.
Incorporated in 1959, Houston, TX-based McDermott International Inc. MDR is an engineering and construction company, solely focused on the offshore oil and gas business.
This Zacks Rank #1 stock has an impressive earnings track. It handily beat estimates in each of the last eight quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.
Tulsa, OK-based Williams Partners L.P. WPZ is an MLP, formed by Williams Companies, Inc. (WMB) to acquire, own, and operate a portion of WMB’s midstream assets. The partnership is involved in gathering, transporting, and processing natural gas as well as fractionating and storing NGL.
For the current quarter, the partnership has witnessed upward earnings estimate revisions over last 60 days. Currently, the partnership carries a Zacks Rank #2.
Headquartered in Houston, TX,W&T Offshore Inc. WTI is an upstream energy player involved in exploitation and production of oil and natural gas resources in the Gulf of Mexico.
The Zacks Rank #2 stock managed to beat the Zacks Consensus Estimate in each of the last four quarters with an average positive surprise of 31.49%. For the current year, the company is expected to witness year-over-year earnings growth of almost 30%. (Looking for the Best Stocks for 2017? Be among the first to see our Top Ten Stocks for 2017 portfolio here.)
Houston, TX-based Rowan Companies Plc RDC provides international and domestic contract drilling and aviation services. It focuses mainly on high-specification, premium jack-up rigs and ultra-deepwater drillships.
The company currently holds a Zacks Rank #2. Its average positive earnings surprise is 740.02% for the trailing four quarters.
Antero Midstream Partners LP AM is the owner, operator and developer of midstream energy properties, which includes pressure gathering pipelines and compressor stations that collect natural gas and oil.
The partnership presently carries a Zacks Rank #2 and surpassed the Zacks Consensus Estimate in all the prior four quarters.
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