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Independent Oil and Gas Company Correlation

Company

Ticker

P/E

Dividend Yield

Pearson Correlation

Berry Petroleum

BRY

31.53

0.63%

0.925

Canadian Natural Resources

CNQ

20.73

0.73%

0.920

Occidental Petroleum

OXY

18

1.82%

0.916

Newfield Exploration Co.

NFX

19.19

0.906

Talisman Energy Inc.

TLM

63.41

1.01%

0.904

Provident Energy Trust

PVX

22.67

6.18%

0.876

CNOOC Ltd.

CEO

15.8

2.28%

0.870

Swift Energy Co.

SFY

35.15

0.868

Pioneer

PXD

25.36

0.08%

0.868

Linn Energy, LLC

LINE

6.77%

0.867

SM Energy Company

SM

24

0.14%

0.867

Cimarex Energy Co.

XEC

17.45

0.36%

0.863

Rosetta Resources, Inc.

ROSE

123.35

0.861

Brigham Exploration Co.

BEXP

93.61

0.860

Gran Tierra Energy, Inc.

GTE

59

0.852

Noble Energy, Inc.

NBL

23.72

0.75%

0.848

Suncor Energy Inc.

SU

26.33

0.89%

0.845

China Petroleum & Chem.

SNP

8.88

2.83%

0.833

Apache Corp.

APA

14.72

0.48%

0.832

EOG Resources, Inc.

EOG

174.06

0.57%

0.814

Stone Energy Corp.

SGY

14.76

0.801

Devon Energy

DVN

17.69

0.73%

0.787

Forest Oil Corp.

FST

18.07

0.787

Questar Corporation

STR

16.09

3.51%

0.784

Ecopetrol SA

EC

2.34%

0.783

Anadarko Petroleum

APC

51.94

0.45%

0.764

EXCO Resources Inc.

XCO

6.55

0.79%

0.762

Nexen Inc.

NXY

24.25

0.75%

0.755

Chesapeake Energy

CHK

14.42

0.89%

0.727

Plains

PXP

49.34

0.716

Apco Oil & Gas Int.

APAGF

15.55

0.10%

0.691

Cabot Oil & Gas

COG

49.93

0.24%

0.664

Denbury Resources

DNR

31.54

0.650

Ultra Petroleum Corp.

UPL

15.65

0.490

Range Resources

RRC

0.30%

0.386

Southwestern Energy Co.

SWN

24.05

0.355

Petrohawk Energy

HK

29.52

-0.107

Average

35.19

1.42%

0.76

Other than Petrohawk (NYSE: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.

KEG

0.918

Rowan Companies Inc.

RDC

18

0.904

Oasis Petroleum Inc.

OAS

0.902

Continental Resources

CLR

68.92

0.899

Ensco plc

ESV

15.05

2.43%

0.897

Penn West Energy Trust

PWE

50.16

3.97%

0.879

EV Energy Partners LP

EVEP

13.74

6.31%

0.871

Pengrowth Energy Trust

PGH

17.34

6.19%

0.866

Whiting Petroleum

WLL

29.36

0.865

Helmerich & Payne Inc.

HP

20.9

0.38%

0.865

Cenovus Energy Inc.

CVE

28.59

2.15%

0.861

Northern Oil and Gas, Inc.

]]NOG]]

210.29

0.855

Statoil ASA

STO

12.94

3.97%

0.843

Unit Corp.

UNT

19.47

0.839

Bill Barrett Corp.

BBG

21.77

0.836

Concho Resources, Inc.

CXO

55.55

0.829

Pride International Inc.

PDE

31.15

0.826

Nabors Industries Ltd.

NBR

76.78

0.824

Atwood Oceanics, Inc.

ATW

12.16

0.817

Enerplus Resources Fund

ERF

43.47

7.01%

0.811

Patterson-UTI Energy

PTEN

36.68

0.72%

0.806

Noble Corp.

NE

15.07

0.96%

0.707

W&T Offshore Inc.

WTI

12.89

0.79%

0.531

Petroleo Brasileiro

PBR

9.44

0.38%

0.380

Diamond Offshore

DO

11.4

0.64%

0.351

Transocean Ltd.

RIG

26.99

0.304

SandRidge Energy

SD

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 (NYSEARCA:USO), Natural Gas Fund (NYSEARCA:UNG), GSCI Crude Oil (NYSEARCA:OIL), Powershares Crude (NYSEARCA:UCO) and Crude Oil Long (OTO), US 12 month oil (NYSEARCA:USL), DB OIL (NYSEARCA:DBO) and Energy (NYSEARCA:DBE), US Brent Oil (NYSEARCA: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.

Source: Best Hedge Against Rising Oil Prices: Part 2