Click here for part 1.
Independent Oil and Gas Company Correlation
Company | Ticker | P/E | Dividend Yield | Pearson Correlation | |
Berry Petroleum | 31.53 | 0.63% | 0.925 | ||
Canadian Natural Resources | 20.73 | 0.73% | 0.920 | ||
Occidental Petroleum | 18 | 1.82% | 0.916 | ||
Newfield Exploration Co. | 19.19 | 0.906 | |||
Talisman Energy Inc. | 63.41 | 1.01% | 0.904 | ||
Provident Energy Trust | 22.67 | 6.18% | 0.876 | ||
CNOOC Ltd. | 15.8 | 2.28% | 0.870 | ||
Swift Energy Co. | 35.15 | 0.868 | |||
Pioneer | 25.36 | 0.08% | 0.868 | ||
Linn Energy, LLC | 6.77% | 0.867 | |||
SM Energy Company | 24 | 0.14% | 0.867 | ||
Cimarex Energy Co. | 17.45 | 0.36% | 0.863 | ||
Rosetta Resources, Inc. | 123.35 | 0.861 | |||
Brigham Exploration Co. | 93.61 | 0.860 | |||
Gran Tierra Energy, Inc. | 59 | 0.852 | |||
Noble Energy, Inc. | 23.72 | 0.75% | 0.848 | ||
Suncor Energy Inc. | 26.33 | 0.89% | 0.845 | ||
China Petroleum & Chem. | 8.88 | 2.83% | 0.833 | ||
Apache Corp. | 14.72 | 0.48% | 0.832 | ||
EOG Resources, Inc. | 174.06 | 0.57% | 0.814 | ||
Stone Energy Corp. | 14.76 | 0.801 | |||
Devon Energy | 17.69 | 0.73% | 0.787 | ||
Forest Oil Corp. | 18.07 | 0.787 | |||
Questar Corporation | 16.09 | 3.51% | 0.784 | ||
Ecopetrol SA | 2.34% | 0.783 | |||
Anadarko Petroleum | 51.94 | 0.45% | 0.764 | ||
EXCO Resources Inc. | 6.55 | 0.79% | 0.762 | ||
Nexen Inc. | 24.25 | 0.75% | 0.755 | ||
Chesapeake Energy | 14.42 | 0.89% | 0.727 | ||
Plains | 49.34 | 0.716 | |||
Apco Oil & Gas Int. | 15.55 | 0.10% | 0.691 | ||
Cabot Oil & Gas | 49.93 | 0.24% | 0.664 | ||
Denbury Resources | 31.54 | 0.650 | |||
Ultra Petroleum Corp. | 15.65 | 0.490 | |||
Range Resources | 0.30% | 0.386 | |||
Southwestern Energy Co. | 24.05 | 0.355 | |||
Petrohawk Energy | 29.52 | -0.107 | |||
Average | 35.19 | 1.42% | 0.76 |
Other than Petrohawk (HK), all independent oil and gas companies are highly correlated with oil prices. It is not just US-based oil companies, but also the stock performance of non-US oil companies are directly correlated. Canadian Natural Resources (Canada) and CNOOC (China) stocks are prone to correlate to retail oil prices. Obviously there is a significant, in fact, an almost perfect correlation. However, this does not necessarily mean that higher oil prices result in higher stock prices. It might be a two-way cause-and-effect model where both variables interact with each other. It is also possible that both variables are affected by the same determinants. Thus, uncertainties or unexpected shocks can affect both the companies' stock prices and oil prices in the same way. It might be a nifty idea to drill this further:
Oil & Gas Drilling & Exploration
Company | Ticker | P/E | Dividend Yield | Pearson Correlation | |
Key Energy Services Inc. | 0.918 | ||||
Rowan Companies Inc. | 18 | 0.904 | |||
Oasis Petroleum Inc. | 0.902 | ||||
Continental Resources | 68.92 | 0.899 | |||
Ensco plc | 15.05 | 2.43% | 0.897 | ||
Penn West Energy Trust | 50.16 | 3.97% | 0.879 | ||
EV Energy Partners LP | 13.74 | 6.31% | 0.871 | ||
Pengrowth Energy Trust | 17.34 | 6.19% | 0.866 | ||
Whiting Petroleum | 29.36 | 0.865 | |||
Helmerich & Payne Inc. | 20.9 | 0.38% | 0.865 | ||
Cenovus Energy Inc. | 28.59 | 2.15% | 0.861 | ||
Northern Oil and Gas, Inc. | ]]NOG]] | 210.29 | 0.855 | ||
Statoil ASA | 12.94 | 3.97% | 0.843 | ||
Unit Corp. | 19.47 | 0.839 | |||
Bill Barrett Corp. | 21.77 | 0.836 | |||
Concho Resources, Inc. | 55.55 | 0.829 | |||
Pride International Inc. | 31.15 | 0.826 | |||
Nabors Industries Ltd. | 76.78 | 0.824 | |||
Atwood Oceanics, Inc. | 12.16 | 0.817 | |||
Enerplus Resources Fund | 43.47 | 7.01% | 0.811 | ||
Patterson-UTI Energy | 36.68 | 0.72% | 0.806 | ||
Noble Corp. | 15.07 | 0.96% | 0.707 | ||
W&T Offshore Inc. | 12.89 | 0.79% | 0.531 | ||
Petroleo Brasileiro | 9.44 | 0.38% | 0.380 | ||
Diamond Offshore | 11.4 | 0.64% | 0.351 | ||
Transocean Ltd. | 26.99 | 0.304 | |||
SandRidge Energy | 21.38 | -0.048 | |||
Average | 35.18 | 2.76% | 0.750 |
The Pearson correlation coefficient for drillers and explorers is also extremely high with an average value of 0.75. Key Energy, Rowan, and Oasis, all have correlation coefficients higher than 0.9 which means almost perfect correlation. Looking at the oil prices from a supply-chain perspective, the results make sense: Drillers and explorers require a significant amount of initial investment capital. Once they discover the fields, their total profit is almost entirely based on the value of the oil in the field. If the oil prices get higher, the value of the oil reserves also gets higher even if there is less oil left in the field.
The correlation coefficients are based on the past 2 year data. I also calculated the numbers for up to 20 years, and the results were not significantly different. The value of correlation gets higher as more observation points are included. If you expect higher oil prices, and willing to invest in this sector, it might be a good idea to check for the correlation coefficients. That will give us an idea to what extent higher oil prices will be reflected as higher capital gains for the investors.
Note that, we are not limited to oil stocks. Thanks to the financial innovations of the last decade, it is possible to invest in ETFs without worrying much about the correlations. According to XTF, there are 23 energy ETFs. US Oil Fund (USO), Natural Gas Fund (UNG), GSCI Crude Oil (OIL), Powershares Crude (UCO) and Crude Oil Long (OTO), US 12 month oil (USL), DB OIL (DBO) and Energy (DBE), US Brent Oil (BNO) are highly liquid ETFs that invest in the energy sector.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
