The Biden Administration has been working awfully hard over the past couple weeks to convince the folks at OPEC to ramp up production and drive down the price at the pump. It hasn’t worked. What does it mean?
One of the keys to understanding the oil market right now is the power that OPEC+ has.
OPEC is the Organization of the Petroleum Exporting Countries, which is an intergovernmental organization, or cartel, of 13 countries that was founded in September 1960. By contrast, OPEC+ is the extended version of OPEC that came together in 2016, which includes all of the OPEC members, as well as Russia, Kuwait, and several others. That extension powerfully expanded OPEC’s reach in terms of production control in the oil market.
The power that OPEC+ now possesses comes mostly from having control over such a high percentage of global production right now – i.e., after adding Kuwait and Russia in 2016 only to see the US shale industry collapse last year.
But it also comes from being able to make a defensible argument for the need for higher oil price.
The reason they have had such an easy time coaxing oil higher over the past year is because investment in oil production capacity expansion has gone off a cliff since the pandemic hit, and was already declining before it. But oil is acting exceptionally inelastic on the supply side at present – it always does, but this time seems unusually the case.
So, the price needs to go higher to spur a jump in production and new investment in oil production expansion.
Under such conditions, the worst thing you can do is artificially suppress the price of a commodity. Price controls cause terrible outcomes over time. The end result of trying to suppress the price of oil from here will be a much bigger price spike later.
Hence, with both unprecedented policy power and a defensible argument as tailwinds, oil may have only one direction ahead: Up. With that in mind, investors need to be on the hunt for exposure to the space, so we cover some of the most compelling opportunities in the space below.
Matador Resources Co. (NYSE:MTDR) engages in the exploration, development, production, and acquisition of oil and natural gas resources. It operates through the following segments: Exploration and Production, Midstream, and Corporate.
The company’s Exploration and Production segment focuses on the exploration, development, production, and acquisition of oil and liquids-rich portion of the Wolfcamp and Bone Spring. The Midstream segment conducts natural gas processing, oil transportation services, oil, natural gas and produced water gathering services, and produced water disposal services to third parties.
Matador Resources Co. (NYSE:MTDR) recently reported financial and operating results for the third quarter of 2021, including news that Q3 net cash from operations came in at $291.2 million (GAAP basis), leading to third quarter 2021 adjusted free cash flow (a non-GAAP financial measure) of $147.5 million.
Joseph Foran, Matador’s Chairman and CEO, commented, “The third quarter of 2021 was another excellent quarter for Matador with production and financial results above our expectations, including better-than-expected oil, natural gas and total oil equivalent production, record oil and natural gas revenues, record net income and record Adjusted EBITDA. San Mateo also had a great third quarter, including better-than-expected operating and financial results, while also closing three new third-party midstream opportunities during the quarter. The Board and I would like to acknowledge and express our sincere appreciation to both the Matador and San Mateo teams for their strong execution once again in the third quarter of 2021.”
And the stock has been acting well over recent days, up something like 5% in that time. Shares of the stock have powered higher over the past month, rallying roughly 7% in that time on strong overall action.
Matador Resources Co. (NYSE:MTDR) managed to rope in revenues totaling $520.7M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 134.7%, as compared to year-ago data in comparable terms. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($107.8M against $472.8M, respectively).
Viking Energy Group Inc (OTCMKTS:VKIN) is the most speculative name on this list, but it certainly seems to deserve attention. This is especially the case following the company’s recent announcement outlining its deal to acquire interest in a key carbon capture technology solution.
VKIN has growing exposure to both oil and natural gas as well as strong support from its majority owner, Camber Energy Inc (NYSEAMERICAN:CEI). Both stocks were running strong to the upside last month until a big bear fund put out a short report, taking them down. However, at this point, both appear to have picked up a ton of short interest in the mix, and a squeeze could be in the offing, especially given VKIN’s tiny float of just 7.3 million shares.
Viking Energy Group Inc (OTCMKTS:VKIN) has been spiky over recent months, driving sharp gains for shareholders on its small float as it continues to ramp up interest in the oil and gas production space while acquiring key interest in an Exclusive Intellectual Property License Agreement with ESG Clean Energy. The deal centers on ESG’s patent rights and know-how related to stationary electric power generation, including methods to utilize heat and capture carbon dioxide.
This has the potential to catapult VKIN into a key position in the clean energy space. According to the company’s most recent release, the ESG Clean Energy System is designed to generate clean electricity from internal combustion engines and utilize waste heat to capture ~ 100% of the carbon dioxide (CO2) emitted from the engine without loss of efficiency, and in a manner to facilitate the production of precious commodities (e.g., distilled/ de-ionized water; UREA (NH4); ammonia (NH3); ethanol; and methanol) for sale.
James Doris, President and Chief Executive Officer of Viking, commented, “In my view this transaction positions us as an industry leader in terms of being able to assist with the power generation needs of commercial and industrial organizations while at the same time helping them reduce their carbon footprint to satisfy regulatory requirements or to simply follow best ESG-practices. We are excited to be able to use the platform of Simson-Maxwell Ltd., our recently acquired majority-owned subsidiary, to promote the ESG Clean Energy System.”
Viking Energy Group Inc (OTC US:VKIN) was above $3/share in September. At the same time, its majority parent, CEI, was trading nearly $5/share at the time. Both stocks have strong and growing exposure to what may well be the most powerful growth theme in play for market participants over the next 4-6 quarters – Oil and Gas. And that’s not even to mention the extraordinary potential of the Carbon Capture theme in play after VKIN’s most recent announcement.
Diamondback Energy Inc. (Nasdaq:FANG) is an independent oil and natural gas company, which engages in the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves.
The company operates through the Upstream and Midstream Services segments. The Upstream segment focuses on the Permian Basin operations in West Texas. The Midstream Services segment involves in the Midland and Delaware Basins.
Diamondback Energy Inc. (Nasdaq:FANG) recently announced financial and operating results for the third quarter ended September 30, 2021, including new of Q3 2021 average production of 239.8 MBO/d (404.3 MBOE/d), Q3 2021 Permian Basin production of 223.0 MBO/d (374.3 MBOE/d), and Q3 2021 cash flow from operating activities of $1,199 million; Operating Cash Flow Before Working Capital Changes of $1,131 million.
“Diamondback continued building on its execution track record in the third quarter, generating a record $740 million of Free Cash Flow while keeping capital costs under control. Efficiency gains, particularly in the Midland Basin drilling and completion programs, have mitigated the inflationary pressures seen on well costs and have led to our second decrease in capital guidance this year, now down 10% from guidance presented in April 2021. Through the third quarter of 2021, Diamondback has generated $1.65 billion of Free Cash Flow, and we have used this Free Cash Flow to reduce our gross debt by $1.3 billion and increase our dividend for the third time this year, now up 33% from a year ago,” stated Travis Stice, Chief Executive Officer of Diamondback.
Even with that news, the action hasn’t really heated up in the stock, with shares moving net sideways over the past week. Shares of the stock have powered higher over the past month, rallying roughly 3% in that time on strong overall action.
Diamondback Energy Inc. (Nasdaq:FANG) managed to rope in revenues totaling $1.9B in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 165.3%, as compared to year-ago data in comparable terms. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($475M against $2B, respectively).
Other key tickers in the energy space include Pioneer Natural Resources Co. (NYSE:PXD), Helmerich & Payne Inc. (NYSE:HP), Hess Corp. (NYSE:HES), VanEck Oil Services ETF (NYSEArca:OIH), and the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEArca:XOP).
