The Oil Space Could be Poised to Boom After SPR Headlines Fail to Hit the Mark (SBOW, CEI, MTDR, PBF, CPE, HP, SM, XLE)

Earlier this week, the Biden administration leaked through sources that it has put together a coalition of large oil-consuming nations willing to undertake a coordinated release of oil from strategic reserves. 

It’s a landmark event given that the US has never before undertaken a Strategic Petroleum Reserve (SPR) release outside of an immediate geopolitical or weather-related emergency before. What we have now is simply an oil bull market. But US oil prices – and the associated prices at the pump – are still well below where they were for much of the past 15 years. However, the difference this time is inflationary pressure in other areas of the economy, and the increased political consequences of not acting in the face of that pressure, especially ahead of an important mid-term election season now getting underway on the campaign front.

So, perhaps it shouldn’t come as a shock to see this step. 

However, it’s a different question altogether to speculate on whether this SPR release strategy will work at all. In the past, such moves haven’t had any long-lasting impact on oil prices. And this time in particular seems especially destined to fall short given that OPEC has already said it may simply include this move in its trajectory – ie, it may just hike production less over coming months to absorb the SPR releases into its framework to keep total global oil production trends in-line with its planned schedule.

We would also note that this process is likely to reduce investment in production capacity outside of OPEC because it presents investors with the idea that the payoff for developing new oil resources is limited through government intervention. That reduction in incentivized investment stands to ultimately drive oil prices even higher over the long term.

With that in mind, stocks in the oil space could be key plays to watch into this headline-driven pullback. Hence, we take a look at a few of the more interesting opportunities in the space below.

SilverBow Resources Inc. (NYSE:SBOW) is a Houston-based energy company actively engaged in the exploration, development, and production of oil and gas in the Eagle Ford Shale and Austin Chalk in South Texas. 

According to company resources, with over 30 years of history operating in South Texas, the Company possesses a significant understanding of regional reservoirs which it leverages to assemble high quality drilling inventory while continuously enhancing its operations to maximize returns on capital invested.

SilverBow Resources Inc. (NYSE:SBOW) recently announced today that it has closed its previously announced acquisition of oil and gas assets in the Eagle Ford from undisclosed sellers. The aggregate purchase price for these assets was $75 million, subject to customary purchase price adjustments and an August 1, 2021 effective date. In accordance with the terms of the Purchase and Sale Agreement, the transaction consisted of $45 million in cash and approximately 1.35 million shares of SilverBow’s common stock.

Sean Woolverton, SilverBow’s Chief Executive Officer, commented, “This is the third acquisition we have closed in the second half of this year. This transaction represents SilverBow’s largest to date. As we look to 2022, the Company is set to grow production by double digits in part from the incremental development locations and a full year’s worth of contribution from the acquired assets. With greater cash flow and liquidity, SilverBow remains well-positioned for strategic M&A and further de-levering.”

The stock has suffered a bit of late, with shares of SBOW taking a hit in recent action, down about -7% over the past week. 

SilverBow Resources Inc. (NYSE:SBOW) was able to draw $99.2M in revenues in its most recent earnings data, powering strong growth of 117.2% year-over-year. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($988K against $177.7M, respectively).

Camber Energy Inc (NYSE American:CEI) is an interesting name with a growing footprint as a producer in oil and gas, and one that we recently covered as a squeeze candidate. We noted the company’s class-action obstacles and its high-short-interest, as well as its upcoming move to avoid exchange listing status issues as it navigates to remain in compliance as a small-cap growth name on the NYSE American exchange despite efforts by aggressive and interested attackers. Conclusion: this is an interesting stock at an interesting point in time.

Since that piece, the stock has blasted higher, up as much as 35% in the past week. The rubber has met the road, and shorts are on the run. What’s more, the Reddit crew appears to have increasingly attached itself to the name as an opportunity, which is an important variable, especially during a week where many institutional market participants may be asleep at the wheel due to their vacation schedules.

Camber Energy Inc (NYSE American:CEI), as we have noted, has exposure to oil and gas assets through its majority-owned subsidiary, Viking Energy Group Inc (OTC US:VKIN), which has energy assets located in North America in Kansas, Missouri, Texas, Louisiana, and Mississippi. 

CEI also benefits from the VKIN subsidiary because VKIN has been making strides toward becoming a potential future leader in the emerging carbon capture marketplace after recently announcing that it has entered into an Exclusive Intellectual Property License Agreement with ESG Clean Energy, LLC regarding ESG’s patent rights and know-how related to stationary electric power generation, including methods to utilize heat and capture carbon dioxide. 

According to its release, the ESG Clean Energy System is designed to generate clean electricity from internal combustion engines and utilize waste heat to capture approximately 100% of the carbon dioxide (CO2) emitted from the engine without loss of efficiency, and in a manner designed to facilitate the production, for sale, of precious commodities, such as distilled/de-ionized water, UREA (NH4), ammonia (NH3), ethanol, and methanol.

Camber Energy Inc (NYSE American:CEI) also just announced that on November 19, 2021 it received a letter from the NYSE American in response to the Company’s request for an extension of the date by which the Company is to file outstanding financial reports. The company’s request has apparently been granted – the Exchange accepted the Company’s request and has allowed the Company until December 17, 2021 to file the Delayed Reports. We would expect pressure on the CEI shorts to build from here into the report. The short gambit seems like it may really have been about the company’s potential failure to meet listing standards, and that could now be off the table.

PBF Energy Inc. (NYSE:PBF) engages in the operation of a petroleum refiner and supplies unbranded transportation fuels, heating oil, petrochemical feed stocks, lubricants, and other petroleum products in the United States. It operates through its Refining and Logistics segments.

The Refining segment refines crude oil and other feed stocks into petroleum products. The Logistics segment owns, leases, operates, develops, and acquires crude oil and refined petroleum products terminals, pipelines, storage facilities, and logistics assets.

PBF Energy Inc. (NYSE:PBF) recently reported third quarter 2021 income from operations of $100.9 million as compared to loss from operations of $342.7 million for the third quarter of 2020. Excluding special items, third quarter 2021 income from operations was $101.0 million as compared to a loss from operations of $374.2 million for the third quarter of 2020. PBF Energy’s financial results reflect the consolidation of PBF Logistics LP (NYSE: PBFX), a master limited partnership of which PBF Energy indirectly owns the general partner and approximately 48% of the limited partner interests as of quarter-end.

Tom Nimbley, PBF Energy’s Chairman and CEO, said, “PBF’s third quarter results reflect both the improving demand environment, as well as the continuing challenges facing our industry. During the quarter we successfully executed a significant turnaround at Torrance, conducted unplanned maintenance at Toledo and managed to navigate the turmoil delivered by Hurricane Ida on the Gulf Coast. Our Chalmette refining team safely brought the refinery down in advance of the storm. As a result, we experienced very little damage and were able to quickly resume operations after restoring power to the plant. We are very proud of the way our Chalmette team performed, even as many employees were dealing with their own storm-related hardships.”

While this is a clear factor, it has been incorporated into a trading tape characterized by a pretty dominant offer, which hasn’t been the type of action PBF shareholders really want to see. In total, over the past five days, shares of the stock have dropped by roughly -16% on above average trading volume. All in all, not a particularly friendly tape, but one that may ultimately present some new opportunities. 

PBF Energy Inc. (NYSE:PBF) managed to rope in revenues totaling $7.2B in overall sales during the company’s prior most recently reported quarterly financial data — a figure that represented a rate of top line growth of 96%, 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 ($1.5B against $4.2B, respectively).

Other core small-cap energy names include Matador Resources Co. (NYSE:MTDR), Callon Petroleum Co. (NYSE:CPE), Helmerich & Payne Inc. (NYSE:HP), SM Energy Co. (NYSE:SM), and Energy Select Sector SPDR ETF (NYSEArca:XLE).