Big Day for Oil and Gas: Assessing the Winners

Includes: CVI, FOR, HDY, NOG, WNR
by: Michael Filloon

Wednesday was a great day for oil and gas. The Fed released minutes and stated the economy is improving. This should lead to increased demand for materials like steel and other materials. Oil prices pushed above $100/barrel after the Department of Energy stated oil inventories did not rise last week as expected. Oil and gas exploration and production and refiners are two groups that should continue to do well. I watch the outperformers and use as a guide of what companies to buy.

Hyperdynamics (NYSE:HDY) was up 24.53%. It had a volume of 4.76 million, compared with the 3 month average of 2.83 million. AGR Petroleum signed a contract with Jasper Drilling on behalf of Hyperdynamics. This jump is not based on immediate production, but it is one step closer to production. Hyperdynamics has a market cap of $499 million. It is an oil and gas exploration company with properties in the Republic of Guinea. Hyperdynamics is hard to fall in love with. It works in a country that has a history of political turmoil. It recently relinquished 70% of its original contract. Hyperdynamics has 2D and 3D seismic of the area, and is expected to spud its first well this year. Be careful with this stock, as politically unstable regions can cause significant losses.

Credo Petroleum (NYSEARCA:CRED) was up 12.49%. It has a market cap of 105 million. Credo had promising drilling results in its Nebraska acreage. Three of four wells are complete and have combined initial/flush production rates of 350 barrels of oil per day. Credo is also working acres in the Bakken. Its leasehold is in a very good location and worth considerably more than it paid. It has a 52 week high of $14.95 and now trades at $10.54. Credo had a volume of 30959 with an average three month volume of 26637. A more in depth article can be found here.

The shorts got squeezed Wednesday. Northern Oil and Gas (NYSEMKT:NOG) was up 11.7%. NOG is off its high of $33.98. Most of the current pullback is the result of allegations by a company with respect to depletion rates and other improprieties. NOG has a non-operator model. They decrease costs by buying up small acreages that bigger names do not want or have time to bother. They also have lower well costs. NOG has a market cap of $1.28 billion. It is a pure Bakken player. Although the stock has seen a sharp decrease on these accusations, this company has the same fundamentals. NOG is expected to grow 238.7% this year and 79% next. With a forward PE of 11.02 it looks promising. NOG had volume of 3.12 million with the three month average being 2.81 million. An overview of NOG can be found here.

The refiners had a good day also. Increased production of shale oil in the United States has decreased the cost of WTI. This has improved the crack spread and increased profits significantly. Although I think the difference in the price of WTI and Brent will tighten, refiners will continue to see great margins.

CVR Energy (NYSE:CVI) was up 8.59%. It had a volume of 3.02 million versus its three month average of 2.31 million. It is off its 52 week high of $24.38. Dahlman Rose initiated coverage and issued a buy rating with a price target of $30. Its forward PE is 7.86. CVI has a very interesting product mix. It is a refiner that also produces fertilizer. Both businesses are doing well. For a more in depth article please read CVR Energy May Be the Best of Both Worlds. CVR is expected to grow 395.7% this year and 11.4% next.

Western Refining (NYSE:WNR) was up 6.82%. It had a volume of 6.7 million versus the three month average of 4.66 million. Western is well placed in the refining space. Its refineries are located close to shale plays in the United States. Because of this, it will continue to have access to less expensive oil. Its near record refining margins and wide crude-oil differentials should continue to create very large profits. Western is estimated to increase earnings by 2300% this year.

In summary, the oil and gas exploration and production companies and day refiners look to have good prospects in the short term. Refining margins should continue to increase as shale oil production decreases costs. Due to the difference in Brent and WTI, profits should continue to increase. Oil companies will continue to do well as oil should continue to have a value around $100/barrel. These five companies had a big Wednesday. Short term is unsure as to fundamentals in these companies. The volume numbers of these stocks were not as high as I would like, so be careful. Long term is a different story, as we see increasing demand in world oil, and producers continue to try to keep up.

Disclosure: I am long WNR, NOG.

Additional disclosure: Sources: Northern Oil and Gas (NOG); Western Refining (WNR); Hyperdynamics (HDY); Credo Petroleum (CRED); CVR Energy (CVI). This is a list of companies that outperformed on Wednesday. It is not a buy recommendation, just a reference to use when studying stocks to purchase.

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