The most important story right now for markets isn’t Russia’s quagmire in Ukraine. It isn’t the Fed battling inflation. It isn’t the nightmarish slide in growth tech stocks. Those are all important pieces of the puzzle. But the centerpiece has become about the price of oil.
The price for WTI Crude Oil has spiked as high as $130/bbl – double where it was trading just 13 weeks ago. As President and Macro Strategist at Bianco Research Jim Bianco pointed out last week, not every recession is led by a 50% rise in crude, but every 50% rise in crude has led a recession.
So, the pressure is on right now for world leaders to find some way to get more oil flowing. While talk of a possible official boycott of Russian oil by the West continues to pick up momentum, the seeds of this oil bull market were in place well before Putin’s tanks rolled over the Ukrainian border.
We have seen an unusually inelastic oil market on the supply side over the past year, as major producers commit to avoid mistakes of the past born of chasing upward momentum in oil. It has also become politically unpopular to invest in fossil fuel production, which has led to boards ruling against expansion.
We have also seen US production dwindle faster than other areas around the world in the wake of the rash of bankruptcies that followed the pandemic oil crash in spring 2020. That has led to unprecedented power in the hands of OPEC producers.
All of those factors were already running head-first into the rapid demand growth that came out of the end of the pandemic in major developed western economies in February.
To add to that picture, Vitol Group, the world’s biggest independent oil trader, put out a note last month suggesting that China is sitting at basically rock bottom in terms of reserves of oil, and they typically stockpile just after the Lunar New Year. So that extra demand has likely been coming to the table.
That was already a perfect storm. And then Putin and his tanks entered the picture to blast this storm into the stratosphere. Now, the world has a clear oil shortage brewing, and the politics of investing in expanded production will likely move to the back burner in favor of a sharp easing in restrictions on producers in the US.
This all adds up to a recipe for a boom in oil stocks. With that in mind, we take a look below at some of the most interesting smaller cap players in the space with room to grow significantly this year.
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 nnounced operating and financial results for the fourth quarter and full year 2021. Highlights include net production of 250 million cubic feet of natural gas equivalent per day ("MMcfe/d") (74% natural gas) for the fourth quarter of 2021, at the high end of guidance. Oil and gas sales increased 52% quarter-over-quarter driven by increased production and higher commodity prices.
Sean Woolverton, SilverBow’s Chief Executive Officer, commented, "This past year presented a number of challenges which SilverBow turned into opportunities. We were well positioned to take advantage of rising commodity prices given our lean cost structure and our hedge strategy utilizing more two-way collars to fulfill hedge requirements. As a result, we delivered record free cash flow of $84 million for the fiscal year, cut our leverage ratio in half to a conservative level of 1.25x and increased our liquidity by $150 million year-over-year. Furthermore, the three acquisitions we closed in the second half of the year allowed us to quickly scale our cash flow without having to expand our capital guidance for the year. Through organic development and the aforementioned acquisitions, we expanded our drilling inventory of high-return oil and gas wells across the Eagle Ford and Austin Chalk, the latter of which have shown promising returns within our portfolio. The market began to take note of our successes this year as SilverBow's share price increased over 300% in 2021."
If you're long this stock, then you're liking how the stock has responded to the announcement. SBOW shares have been moving higher over the past week overall, pushing about 12% to the upside on above average trading volume. Shares of the stock have powered higher over the past month, rallying roughly 19% in that time on strong overall action.
SilverBow Resources Inc. (NYSE:SBOW) managed to rope in revenues totaling $99.2M in overall sales during the company's most recently reported quarterly financial data -- a figure that represents a rate of top line growth of 117.2%, 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 ($988K against $177.7M, respectively).
Viking Energy Group Inc. (OTC US:VKIN) has proven oil and gas assets valued at over $96 million located in North America in Kansas, Missouri, Texas, Louisiana, and Mississippi. Shares blasted higher yesterday, suggesting the stock has been undervalued over recent months given the surrounding bullish context in the Oil space.
The company has also been expanding into other energy themes, including carbon capture, storage, and electricity grid operations through strategic activity, including through its majority owner, Camber Energy Inc (NYSE American:CEI).
Viking Energy Group Inc. (OTC US:VKIN) recently announced that it has acquired a 51% interest in entities that own the intellectual property rights to fully developed, patent pending, ready-for-market proprietary Electric Transmission and Distribution Open Conductor Detection Systems designed to detect a break in a transmission line, distribution line, or coupling failure, and to immediately terminate the power to the line before it reaches the ground. The company noted in its communications that the systems are designed to detect a break in a transmission line, distribution line, or coupling failure, and to immediately terminate the power to the line before it reaches the ground.
The technology apparently stands to dramatically increase public safety and reduce the risk of causing an incendiary event, and is designed to be integral component within a much-needed, worldwide grid hardening and stability initiative by electric utilities to improve resiliency and reliability of existing infrastructure.
VKIN President and Chief Executive Officer James A. Doris further commented, "This technology is extremely important. It truly is difficult to put a monetary value on a solution that can sense a broken power line and cut the electricity flowing through the line before the wire hits the ground. Arcing and sparking energized power lines are hazardous, and difficult to detect using traditional concepts. Unfortunately, people in places like California, Western Canada, Australia, and other parts of the world are fully aware of what can happen when a downed, energized power line makes contact with the ground. The damage caused by these wildfires has been catastrophic. We have already begun discussions with major utilities in California and global equipment manufacturers for deployment. Our solution can be quickly and cost-effectively deployed in high-risk areas first, then utilized more broadly by all utility companies to help reach their grid hardening goals."
Viking Energy Group Inc. (OTC US:VKIN) shares have been declining despite the raging bull market underway in the energy sector. The stock made up some ground yesterday, but we could see more of the same ahead given money flowing into the oil space searching for value.
Diamondback Energy Inc. (Nasdaq:FANG) bills itself as an independent oil and natural gas company that engages in the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves. It operates through its Upstream and Midstream Services segments.
The Upstream segment focuses on the Permian Basin operations in West Texas. The Midstream Services segment is involved in the Midland and Delaware Basins.
Diamondback Energy Inc. (Nasdaq:FANG) recently announced a series of leadership appointments and promotions, effective immediately. Travis Stice will assume the role of Chairman of the Board of Directors of Diamondback and will remain in his current role as Chief Executive Officer. Steven West, current Chairman, will remain on the Board as a Director. Steve’s leadership and contribution to the Company’s success as Chairman have been significant over the past ten years and the Board looks forward to his continued contributions.
“It has been an honor and a privilege to serve as the Chairman of Diamondback for the last ten years. The Company’s growth has been nothing short of spectacular, and Travis’ leadership has been a major contribution to the Company’s success. He will be a great representative of the shareholders as Chairman, and I look forward to continuing to serve those same shareholders in my new role,” stated Steven West.
Recent action has seen 2% piled on for shareholders of the stock during the trailing month. Market participants may want to pay attention to this stock. FANG has evidenced sudden upward volatility on many prior occasions. Furthermore, the listing has seen interest climb, with an increase in recent trading volume of 17% over the long run average.
Diamondback Energy Inc. (Nasdaq:FANG) has a significant war chest ($672M) of cash on the books, which stands against about $1.4B in total current liabilities. FANG is pulling in trailing 12-month revenues of $6.8B. In addition, the company is seeing major top-line growth, with y/y quarterly revenues growing at 162.9%.
Other key smaller-cap stocks with exposure to the Oil boom include Matador Resources Co. (NYSE:MTDR), Helmerich & Payne Inc. (NYSE:HP), SM Energy Co. (NYSE:SM), Viking Energy Group Inc. (OTC US:VKIN), and the VanEck Oil Services ETF (NYSEArca:OIH).
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