Entering November, oil looked poised to rise higher. OPEC had said it was cutting production and Europe was working on a plan to ban Russian oil shipments to the Continent.
But instead of a rally, the oil market has fallen, with West Texas Intermediate (WTI) crude futures dropping 12% on the month. WTI was trading at $76.76 a barrel on Monday.
Steadily rising oil and gas prices have lifted energy stocks since they emerged from the depths of the pandemic. But with oil now on the downswing, and natural gas losing momentum, too, many of the stocks could struggle. At current levels, oil prices are still high enough for oil companies to make strong profits, but they won’t be generating the kinds of free cash flow they were in the middle of the year.
To outperform in a weak price environment, companies will need some special characteristics. It’s worth considering which oil-and-gas companies succeeded the last time oil slipped.
The last time prices stayed at these levels for a significant period of time was over the last two months of 2021, when WTI spot prices averaged less than $80 a barrel. From Nov. 1, 2021 to the end of that year, only five energy stocks in the S&P 1500 rose.
|Name||Price||Market Value (bil)||Price Change*||2023 P/E|
|Par Pacific Holdings/PARR||24.09||1.5||2.3||6.4|
The stocks that rose tended to have an edge of some sort—often it had to do with how much money they planned to send back to shareholders. Sometimes it was because of the products they sold.
(ticker: EQT) announced in December 2021 that the natural-gas producer would reinstate its dividend in 2022 and buy back $1 billion worth of stock. That helped lift shares at the end of the year even though natural-gas prices had been falling.
(DVN) produced enough free cash flow in the third quarter of 2021 to lift its dividend by 74%, a jump that clearly caught the eye of investors. Devon pays out dividends based in part on how much cash flow it produces, so the company has been able to reward shareholders than other firms whose fixed dividends are less likely to change quarter by quarter.
(CVX) may also have been boosted by its shareholder-return policy. The company increased plans to buy back stock, a sign to shareholders that it would stay disciplined about the use of capital.
Par Pacific Holdings
(PARR) also rose at the end of 2021. The refiner posted record third-quarter net income, and benefited from rising gasoline prices in key markets. Par refines jet fuel in Hawaii, for instance, and benefited as that state opened back up to tourism.
(LPG) operates 22 large ships that carry liquefied petroleum gas across the world. The company has benefited from increasing shipments of energy products as shortages have cropped up around the world.
Write to Avi Salzman at firstname.lastname@example.org