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Oil appears to have risen from a near-term bottom, with West Texas Intermediate (WTI) grade trading right at $43 a barrel in mid-March. Since then, a number of catalysts have been pushing the commodity higher.
First is the fact that oil drilling rigs are being taken down at a rate that’s faster than ever. This has helped cut supply to some degree. There’s also the fact that geopolitical risk in the Middle East have rekindled fears of production disruptions.
The crash in oil prices, although punishing for producers, has actually forced companies to become more efficient. The slowdown in drilling activity can be seen as as a positive, giving companies time (or in some cases forcing them) to improve productivity.
With all this, since mid-March, WTI crude is now up over 35%. This rebound is pulling many of the oil explorer stocks higher. This includes WPX Energy (NYSE: WPX) and Range Resources (NYSE: RRC), both up 35% since oil bottomed out.
However, not all the major oil producers have enjoyed the same rebound. Here are three oil stocks that could be enticing at current levels:
Oil Laggard No. 1: Cenovus Energy (NYSE: CVE)
Shares are up just 3% since WTI bottomed, but Cenovus also a major player in the sometimes misunderstood Canadian oil sands. Its assets are long-lived, meaning production doesn’t plateau for many decades, which is unlike most shale assets.
The beauty of enhanced oil recovery, which is what Cenovus specializes in, is that these operations are very cost-competitive. Basically, gravity does a lot of the work in the low-steam-assisted gravity-drainage process.
Cenovus also has strong ties to the downstream market, with a near-decade-old joint venture with Phillips 66 that helps keep margins relatively high. Let’s not forget its 5%-plus dividend yield either.
Oil Laggard No. 2: Concho Resources (NYSE: CXO)
Shares are up 9% since mid-March, but this is still a disappointment for one of the lowest-risk explorers in the market. It has a solid oil and natural gas mix, with a cost structure that’s lower than many oil exploration companies. Its recent focus has been on the prolific Permian Basin.
Concho’s various positions in multiple plays within the Permian also put Concho as a potential buyout target, where buyers are turning their focus to the major shale players. What’s more is that Concho has a large inventory of low-risk drilling locations that makes growing production relatively easy for the next several years.
Concho is one of the few players that’s actually upped its 2015 outlook, including production and costs. This oil producer expects to grow production by around 20% this year, all while lowering capital spending year-over-year.
Oil Laggard No. 3: Noble Energy (NYSE: NBL)
Shares are flat since the oil bottom, but it’s easily one of the top plays in the industry. Noble has operations in various countries and operates in both onshore and offshore exploration.
It took advantage of its strong balance sheet and the “sale” going on in oil and gas stocks by buying up Rosetta Resources (NASDAQ: ROSE) earlier this week. Noble is paying a decent 20% to 25% premium from where Rosetta traded last week, but Noble is still getting the near-$2 billion market cap company for less than 50% where it traded last summer.
As mentioned, Noble is global player, with assets in areas like West Africa, the Gulf and Israel. With its wide variety of assets, Noble can easily shift production to lower-cost production areas like Israeli natural gas until commodity prices are more favorable.
In the end, whether oil prices have truly bottomed is anyone’s guess. But for investors willing to live with a little more volatility in their portfolios (remember that volatility is not risk), the three oil stocks here have been left out of the recent rally, yet they could catch up rather quickly if the oil rebound holds.
Cheap Oil Here to Stay – For Now
Crude hasn’t been this cheap since March 11, 2009. And it’s likely to stay low for a while. OPEC refuses to cut production. And US production is expected to increase – not decrease – an additional 600,000 more barrels a day. The Saudis have played this one wrong – and you could profit from their blunder.
Top analyst Tyler Laundon’s found what he considers the best way to play this new, cheap oil boom.