The latest oil price rally is showing real strength with oil prices making big gains again on Monday. The rally kicked off last week after Washington indicated Israel could strike Iran’s oil facilities. Brent crude for November delivery gained 3.4% in Monday’s intraday session to trade at $80.71 per barrel at 1.20 pm ET while WTI crude was changing hands at $77.05 per barrel after gaining 3.1%.
Clearview Energy Partners has predicted that oil prices could gain as much as $28/bbl if flows are blocked in the Strait of Hormuz; $13/bbl if Israel strikes Iranian energy infrastructure and $7/bbl if the U.S. and its allies placed economic sanctions on Iran.
Meanwhile, Citi analysts have provided estimates that a major strike by Israel on Iran's export capacity could take 1.5M bbl/day of crude off the market, while an attack on downstream assets and other relatively minor infrastructure such as could take out 300K-450K bbl/day. According to ANZ Bank, Iran's oil output hit a six-year high of 3.7M bbl/day in August.
Not surprisingly, oil and gas stocks are flying, with the sector’s favorite benchmark, Energy Select Sector SPDR Fund (NYSEARCA:XLE), up nearly 10% over the past 30 days. The energy sector, however, has yet to catch up to the broader market after returning 12.0% vs. 20.0% by the S&P 500. That said, some energy stocks have outperformed even red-hot AI leader Nvidia Corp. (NASDAQ:NVDA). Here are the top 10 best performers in the energy sector so far in the current year.
#3 Targa Resources Corp. (NYSE:TRGP)
Market Cap: $34.6B
Year-to-Date Returns: 82.4%
Texas-based Targa Resources Corp. (NYSE:TRGP) owns general and limited partner interests in a limited partnership that provides midstream natural gas and natural gas liquid services. The company gathers, compresses, treats, processes, and sells natural gas. TRGP has earned a Buy recommendation from Goldman Sachs thanks to a strong return on equity (or ROE).
“Stronger-than-expected economic growth represents the clearest upside risk to ROE. [It] would create upside to asset turnover through faster sales growth and to profit margins through operating leverage. Stronger growth has recently coincided with hotter-than-expected inflation, however,” wrote GS analyst David J. Kostin. “
GS estimates that Targa Resources will be able to grow its ROE by 17% in the current year. TRGP has been an exceptional performer and is currently trading at a decade-high.
#4 The Williams Companies (NYSE:WMB)
Market Cap: $60.5B
Year-to-Date Returns: 43.0%
The Williams Companies Inc. (NYSE:WMB) is one of the largest energy infrastructure companies in the United States, operating 33,000 miles of pipelines in total, which it says account for a third of the transported gas in the U.S. The company has been posting solid results, with the recent pop in electricity demand growth, particularly from artificial intelligence (AI) data centers, likely to keep demand for the company’s gas pipelines high.
WMB has continued to rapidly expand its gas infrastructure. Earlier in the year, the company completed the purchase of facilities with transport links from Hartree Partners for $1.95 billion. The gas assets include six underground natural gas storage facilities in Louisiana and Mississippi with a total capacity of 115B cf, 30 pipeline interconnects to attractive markets including connections to Transco, and 230 miles of gas transmission pipeline. Transco is the largest U.S. natural gas transmission pipeline
"Importantly, this storage will also allow us to provide value to customers in markets with growing renewables adoption as daily peaks for natural gas increases the need for storage," Williams President and CEO Alan Armstrong said in a press release.
#5 Topaz Energy Corp. (OTCPK:TPZEF)
Market Cap: $2.9B
Year-to-Date Returns: 35.3%
Calgary, Canada-based Topaz Energy Corp. (OTCPK:TPZEF) operates as a royalty and energy infrastructure company in Canada. The company holds royalty interests on ~6 million gross acres of developed and undeveloped lands.
A week ago, RBC reiterated a Buy rating on Topaz Energy with a price target of C$28.00. Topaz Energy Corp has an analyst consensus of Strong Buy, with a price target consensus of C$30.06, representing a 15.04% upside. Last month, National Bank also maintained a Buy rating on the stock with a C$32.50 price target.
#6 ONEOK Inc. (NYSE:OKE)
Market Cap: $55.6B
Year-to-Date Returns: 35.2%
Tulsa, Oklahoma-based ONEOK Inc. (NYSE:OKE) is another midstream infrastructure company that engages in the processing, storage, transportation, and marketing of natural gas and natural gas liquids. The company recently posted Q2 adjusted EPS of $1.33, beating the Wall Street consensus by $0.12 thanks to higher natural gas processing volumes.
Similar to its peers, ONEOK has been looking to expand its gas assets through mergers. The company recently announced the acquisition of 43 percent of Enlink's outstanding common units for $14.90 per unit and 100% of the interests in the managing member for $300 million, for total cash consideration of approximately $3.3 billion. The acquisition includes a crude infrastructure platform capable of processing 1.7 billion cubic feet per day of Permian gas and 1.6 million barrels per day of Permian crude gathering capacity.
Recently, Morgan Stanley upgraded OKE shares to Overweight from Equal Weight with a $111 price target, up from $103 (17.3% upside), expecting a positive estimate revision cycle over the next year. Morgan Stanley's Devin McDermott expects the company to achieve strong execution in growth and synergy realization with EnLink and Medallion, following strong execution in integrating the Magellan acquisition.
#7 Kinder Morgan Inc. (NYSE:KMI)
Market Cap: $52.4B
Year-to-Date Returns: 34.2%
Yet another energy infrastructure giant, Kinder Morgan (NYSE:KMI) owns and operates approximately 82,000 miles of pipelines and 139 terminals. Kinder Morgan has reported that its natural gas pipeline segment recorded a boost from higher margins realized on its storage assets and higher volumes on its gathering systems. On the earnings conference call, CEO Kim Dang said he expects "significant new natural gas demand" rising from energy-intensive tech such as AI, crypto mining and data centers.
"We expect demand for natural gas to grow substantially between now and 2030, led by more than a doubling of demand for liquefied natural gas exports and a more than 50% increase in exports to Mexico," Dang said.
"The emphasis on renewables as the only sources of power is fatally flawed," Dang added, arguing that Big Tech leaders, "like the rest of us, realize that the wind doesn't blow all the time and the sun doesn't shine all the time."
Sital Mody, natural gas president at energy infrastructure company Kinder Morgan, is highly bullish on the Eagle Ford’s natural gas prospects. Mody has predicted strong production growth by the Eagle Ford Shale out to 2030 thanks to the favorable economics and low nitrogen content of natural gas produced in the basin. According to data from S&P Global Commodity Insight, natural gas production from the Eagle Ford Shale averaged 5.2 Bcf/d in 2023; Kinder Morgan has forecast that production will grow by another 2.5 Bcf/d, or nearly 50%, by 2030, and probably rival that of the Haynesville.
#8 Galp Energia S.A. (OTCPK:GLPEF)
Market Cap: $14.6B
Year-to-Date Returns: 30.6%
Galp Energia S.A. (OTCPK:GLPEF) operates as an integrated energy operator in Portugal and internationally.
In April, Galp described the Mopane discovery (see Sintana Energy above) as "potentially an important commercial discovery." Galp reckons the complex alone could contain hydrocarbon in-place in excess of 10 billion barrels of oil equivalent (boe) and sees possible additional exploration and appraisal wells in the project’s vicinity.
“All acquired data from the current Mopane drilling campaign will be analyzed and integrated into an updated reservoir model. The model will serve as the basis to refine Galp´s near-term drilling plan to further explore, appraise and develop the wider Mopane complex,” the company said in a statement.
#9 Diamondback Energy Inc. (NASDAQ:FANG)
Market Cap: $57.4B
Year-to-Date Returns: 28.8%
Midland, Tex.-based Diamondback Energy, Inc. (NASDAQ:FANG) has been one of the standout performers in the ongoing earnings season. The company reported Q2 revenue of $2.48B (+29.2% Y/Y), beating Wall Street consensus by $280M while Q2 Non-GAAP EPS of $4.52 beat by $0.02. The company averaged production of 276.1 MBO/d (474.7 MBOE/d).
Earlier, Diamondback Energy agreed to buy privately held Permian producer Endeavor Energy Resources in a cash and stock deal valued at $26 billion. Interestingly, FANG shares have jumped more than 10% after the deal was announced nearly a week ago, meaning the market views it favorably. Stock prices of the acquiring company, more often than not, tend to go down as the company has to pay a premium coupled with a high risk of failure.
#10 Exxon Mobil Corp. (NYSE:XOM)
Market Cap: $554.6B
Year-to-Date Returns: 25.8%
Exxon Mobil Corp. (NYSE:XOM) is the largest integrated oil and gas company in America.
XOM is trading at an all-time high thanks in large part to Wall Street being bullish on the company’s long-term outlook. XOM has a consensus rating of “Moderate Buy” among the 19 analysts covering the stock, based on 12 “Strong Buy” ratings and seven “Holds.”
By Alex Kimani for Oilprice.com
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