Although energy prices have fallen sharply from their post-pandemic high, there is reason to believe that the crisis is far from over. A recent report by the International Energy Agency (IEA) called it “the first true global energy crisis.”
This is because geopolitics is exacerbating problems in an industry already hit by the pandemic. For consumers, especially low-income groups who spend the majority of their wages on energy, this is a double whammy. Because whether or not they received free money during the pandemic, they are bound to have to pay it back as the prices of everything from food and gas to housing and cars are rising. And now the Fed is doing everything it can to make the pain worse. Because things have to get worse before they get better.
Painful as they are, this is a windfall for U.S. oil and gas companies, which are willing to keep pushing up prices while limiting production. After all, the energy crisis has been building for years as oil companies continue to cut capacity before they can produce enough clean energy to replace it. Investors support the idea of limited capacity because it is high-maintenance equipment that can seriously reduce profitability when demand decreases.
But this year the Biden administration has had to release strategic reserves to bring prices down to reasonable levels, so it’s clear to everyone that some extra capacity is needed. This is what we see now. Prices are likely to remain in the $70-$90 range for most of 2023, once again allowing the government to replenish strategic reserves. So no matter what we think, the demand is not going anywhere.
On a global scale, the situation is also favorable. The consequences of this failure would be less severe if Russia were a smaller player in this market. But because of its status as a major supplier of oil, as well as a major supplier of gas (to Europe), it has gained a lot of importance. Russia said it would cut production by 7% in response to Western sanctions and attempts to limit the price of Russian oil. We don’t know how long he can keep doing this, as higher prices will hurt his customers, of course.
However, in 2023, another factor will come into play. This is China. The Asian country has been closed for most of this year. So even if the US slows down a bit, China might start to hum. This will mean higher demand (and price power) for these shares.
The IEA’s recommendation to increase spending on clean energy rather than oil means that the current crisis should continue until fossil fuel use (which has increased thanks to economic growth) peaks and then enters a phase of steady decline.
It predicts that “coal consumption will decline over the next few years, natural gas demand will stabilize towards the end of the decade, and rising electric vehicle (EV) sales means that oil demand will stabilize in the mid-2030s and then decline slightly towards the end of the decade.” middle of the century. . ”
However, to achieve zero emissions by 2050, clean energy investment would need to exceed $4 trillion by 2030, which would be half that at current levels.
Overall, demand for oil will remain strong over the next few years, and we could make the most of it by making smart investments. Look what I chose today -
Helmerich & Payne provides drilling services and solutions for oil exploration and production companies. It operates through three segments: North American Solutions, Offshore Gulf of Mexico and International Solutions.
The company’s fourth-quarter earnings were in line with the Zacks Consensus Estimate, up 6.8%.
Its forecasts for fiscal years 2023 and 2024 (through September) have been revised upward by 74 cents (19.9%) and 60 cents (12.4%), respectively, over the past 60 days. Analysts now expect the company’s revenue to rise 45.4% and 10.2%, respectively, over two years, while profits rise 4,360% and 22.0%. Zacks Rank #1 (Recommended Buy) is owned by the oil and gas and drilling industries (in the top 4% of industries categorized by Zacks).
Management is optimistic about “significant momentum in fiscal 2023″. Investors should be encouraged to focus on three important factors.
First of all, it is the Flexrig fleet, which makes capital allocation more efficient. This leaves minimal downtime for each rig as the contract for it is transferred to another customer shortly after it is vacated by one customer. This can save a lot of money. This year, Helmerich will also restart 16 cold-pipe rigs for which it has fixed-term contracts of at least 2 years. About two-thirds of this amount has already been disbursed, most of which will be for large publicly traded exploration and production assets, mainly in the first half of the financial year.
Second, rig prices have been high this year, which is not surprising given the energy crisis. But what is particularly encouraging is that strong demand and contract extensions are expected to further increase the average operating fleet price. Management has seen a huge boost this fiscal year. Its technology offerings and automation solutions are clearly driving demand as older rigs are no longer as efficient.
NexTier Oilfield Solutions provides completion and production services in existing and other reservoirs. The Company operates in two segments: Well Completion Services and Well Construction and Workover Services.
In the most recent quarter, NexTier outperformed the Zacks consensus estimate by 6.5%. Revenue fell 2.8%. The earnings forecast for 2023 has remained stable over the past 60 days, but it has increased by 16 cents (7.8%) over the past 90 days. This means a 24.5% increase in revenue next year and a 56.7% increase in revenue. Zacks Rank #1 stock is held by Oil & Gas – Field Services (Top 11%).
Management talked about the structural advantages that the company enjoys. The unavailability of a fracturing fleet is one of the major bottlenecks holding back the growth of land production in the US. While the new build fleet should increase the current fleet size of 270 by around 25%, the overburdening of high demand and supply chain constraints on legacy fleets not designed for modern fracturing operations will take many fleets out of service. As a result, the fleet will continue to be in short supply. E&P companies are also looking to return value to shareholders rather than build capacity.
As a result, by the end of 2023, US demand (management cites industry consensus of 1 mb/d) will continue to exceed supply (1.5 mb/d), and even with a mild recession, this disparity is likely to continue. for some countries. time At least for the next 18 months.
While NexTier prices will be higher in 2023, they will still be 10-15% below pre-pandemic levels. However, the company took advantage of the situation to renegotiate more favorable commercial terms and enter into stronger partners. Meanwhile, its natural gas-powered equipment continues to command better prices due to natural gas’s significant fuel cost advantage. Thus, they are expected to remain active even in the event of a recession.
Patterson provides onshore contract drilling services to U.S. and international oil and gas operators. It operates through three segments: Contract Drilling Services, Injection Services, and Directional Drilling Services.
The company reported very strong results in the latest quarter, beating the Zacks Consensus Estimate by 47.4% on earnings and 6.4% on sales. The Zacks consensus estimate for 2023 has increased by 26 cents (13.5%) over the past 60 days, implying a 302.9% increase in earnings. Revenue growth is expected to be very strong next year, at 30.3%. #1 Zacks stock held by Oil & Gas & Drilling (Top 4%)
A recent survey conducted as part of the 2023 planning process shows that there is strong optimism for additional rigs across Patterson’s broad portfolio of 70 clients, including major superspecialists, state-owned independents and small private operators. They currently plan to add 40 rigs in the fourth quarter and another 50 in 2023. This is a positive indicator for business growth next year.
The company is using strong demand for rigs to negotiate higher prices, and is also increasing the number of rigs on fixed-term contracts, improving the visibility of profits and increasing prospects for stable cash flow. Its advanced equipment, including higher levels of automation and lower emissions, makes this possible.
Nine Energy Service is an onshore completion service provider in the North American Basin and internationally. It provides well cementing, completion equipment such as liner hangers and accessories, fracture isolation packers, fracturing sleeves, first stage preparation tools, fracturing plugs, casing float tools, etc., and others. services.
In the September quarter, the company reported revenue that beat Zacks’ guidance by 8.6%, while earnings beat Zacks’ guidance by 137.5%. Over the past 60 days, the Zacks consensus valuation has increased by $1.15 (100.9%), which means a profit increase of 301.8% in 2023. Analysts also expect a solid 24.6% increase in revenue. Zacks Rank #1 stock is held by Oil & Gas – Field Services (Top 11%).
The positive environment that the aforementioned players see is also reflected in Nine’s results. Management said much of the quarter-on-quarter increase was driven by higher cementing and coiled tubing prices, as well as more completion tools. Equipment and labor shortages continue to limit availability, so customers are willing to pay higher prices. However, part of the rise in cement prices over the past few years has been due to a shortage of raw cement.
Nine has a significant market share in the cementing and soluble closures segments. Faced with a shortage of raw materials and the need to reduce emissions, innovative solutions helped the company to take a 20% share in well cementing. Its share of the soluble plugs market (it’s one of four suppliers with a 75% share) is protected by high barriers to entry because it includes advanced materials that are not easy to replicate. It is also a fast growing segment, with management expecting 35% growth by the end of 2023.
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Post time: Jan-14-2023