Entering text into the input field will update the search result below

Pros And Cons Of Investing In Oil Stocks


  • What are the pros and cons of investing in oil stocks, is it too late to buy oil stocks, and what oil stocks to buy?
  • In this article, I synthesize industry fundamentals and Seeking Alpha quant ratings to derive an answer to each of these questions.
  • The pros seem to dominate the cons of investing in oil stocks at this time. We are still in the early innings of a major oil bull market.
  • Measures to mitigate the cons of investing in oil stocks are also explored, for those who invest for a stable and growing income and those in search of capital appreciation.
  • Looking for a helping hand in the market? Members of The Natural Resources Hub get exclusive ideas and guidance to navigate any climate. Learn More »
Oil pump jack and barrels on newpaper with growth of price of crude oil. Stock market of crude oil, investment and petroleum industry.

Bet_Noire/iStock via Getty Images

During the COP 26 UN climate change conference held from October 31 to November 12, 2021, in Glasgow, U.K., oil producers from Saudi Arabia to Shell (SHEL) were not welcome. Only two months ago, it was 'criminal' to produce oil and

The Natural Resources Hub is the one-stop solution for taking advantage of the ongoing commodity super-cycle. Join The Natural Resources Hub today to invest alongside me, and benefit from my unique ability to uncover one after another hidden-gem idea that often ends up a multi-bagger or a source of stable and growing dividends.

Click HERE now for a free trial.

This article was written by

Laurentian Research profile picture
Laurentian Research is a resource industry veteran with a Ph.D. in geoscience and decades of investment experience. He leads the investing group The Natural Resources Hub, with an aim of helping membes uncover undervalued opportunities in the energy and mining sectors with multi-bagger potential. He is also passionate about helping members find dividend growth opportunities from long-term growth industries. Members get weekly newsletters, proprietary in-depth analyses, trade alerts, model portfolios, private access to him, and a community of fellow investors to share investment ideas with. Learn more >> Members get weekly newsletters, proprietary in-depth analyses, trade alerts, model portfolios, private access to me, and a community of fellow investors to share investment ideas with. Learn more about The Natural Resources Hub today and start growing your wealth alongside Laurentian Research!

Analyst’s Disclosure: I/we have a beneficial long position in the shares of DECPF,ESTE,CDDRF,KRNGF,AOIFF,STOSF,SLB,TOTZF either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (66)

Darp Research profile picture
On Gasoline CNBC just out www.youtube.com/...

Reasonable call for $150 WTI this summer, so say add $1 or more to gas at pump. He points out more supply just is not there.
As heavy investor in O&G since April 2020 dip, I get to wonder why only recently surges influx of articles like this as late as 2 years from then. Are there many main street investors not yet attracted to this sector? Financial advisors are reluctant to recommend O&G sector to their clients?
Laurentian Research profile picture
@JonathanSeagull I have been in and out quite a few oil cycles and like you, I also backed up the truck with oil and gas stocks in March-April 2020.

However, the wider reality is that the generalist investors just began to ask about oil stocks in a last few months or weeks, now that Buffett is back in oil and investing in oil is no longer politically incorrect. For them, I believe there is still a lot of money to be made in energy stocks, after they have just made really good money in the general market before this new migration.

Since you wonder, this article is a requested piece catered to those generalist investors, supposedly for educational purposes.
@JonathanSeagull Congrats. I did the same thing, 85% in energy, or infrastructure build out.
@jack20 Same to you. I held small position in global infra and I'm quite stunned how resilient it was "including" this year.
TopDoggie profile picture
Good article about the pros and cons. One thig is when I hear oil executives talk about capital discipline I let it go in one ear and out the other. In the shale patch there is a full on bar brawl for any and all available pipe. When they have pipe they have to fight for frac crews.
So even if drill baby drill became the (public) battle cry it would be irrelevant.
Laurentian Research profile picture
@TopDoggie Good point on the tight material supply. For many of those oil CEOs, they talk about capital discipline because their compensation is now directly linked to shareholder rewards. The day their compensation formulae are changed to rewarding production growth, I believe we'll see a lot of pipes, sands, and labor (at higher prices though), as we did in prior up-cycles.
GlobalCapitalist profile picture
Thanks for the article, very well reasoned and addressing a number of my concerns. Some of the smaller-medium companies just seem a bit to technical for my understanding. I imagine if the larger companies such as Exon were doing something bad they would have more people monitoring them to find out.

I started looking for information on one of the names above 'Diversified Energy Company Plc' and found a twitter thread about something dodgy they suspect Diversified is doing with their well auditing:


Generally if I found something on Twitter I don't understand I would research it myself (Not the best source of information). But knowing how credible that person is on the thread or the validity of their arguments I feel is well beyond me and would be beyond most people without a very high level of knowledge in the space.
Laurentian Research profile picture
Exxon actually made a lot of mistakes under the previous CEO, some of which cost the major tens of billions of dollars. Technical skill at Exxon is great, however a management committee is never more effective than a founder-owner-CEO. It also makes a lot of difference for shareholders if the management makes a fortune WITH them, rather than off them. These issues apply to large and small-cap.

As for DEC, there is an even more damning report you missed; it's a Bloomberg report that questions its environmental ethics. I always try to pay the fullest attention to these negative opinions, because they are trying to help me assess the hidden risk. I play the bearish arguments against the bullish one, such as that of Oaktree that put 1 billion dollar on the line after its due diligence with its enormous research capability. And I look at the deeds of the management in response to the questioning (examine the FCF and cash divvy being paid out to know if the business model actually works; check DEC response after the Hearst article and how DEC managed to make a new profit center out of it.)
@Laurentian Research I am sorry, I can't help but wonder but with all the concerns expressed in this thread about DEC, why dose it appear in this article in the first place as a viable investment opportunity and moreover, I must ask why is it remains in your portfolio. What is your specific bottom line rationale on holding DEC? Can you elaborate please? Thanks.
Laurentian Research profile picture
@33557645 Good question, which hopefully is answered here:

sliman21 profile picture
Good article. There are lots of cheap Canadian oil stocks. MEGEF, CVE, AETUF, SPGYF ... Get a basket of them and enjoy the ride for the next few years.
Darp Research profile picture
@Laurentian Research Thanks, an important article, as having missed the 1st year of a historically huge oil stock rally, a bunch of investors will be looking at this sector. Some of them Funds that swore off oil companies 12-18 months ago when the they were the best investment at the time. Like buying dotcoms in late 1999 timing wise.

Can give some perspective to new lookers at this sector. 1st it is not expensive at all. I have several oil stocks that have gone up 5, 10 times and one 30+ times, just in 2 years. Some that are 10 baggers are selling for less than 3 PE after going up 10 times. Compare that to Costco at 40 PE or whatever it is.

The 30+ bagger is Petrus, and after 30 times up it is 7.5 EV/EBITDA with 100% or so sales growth last year, not expensive. I think it can triple from here and make a 100 bagger. Oil stocks after this mega rally may still be the cheapest sector in the market, with miners being the other sector that is dirt cheap.

Am very heavy into DECPF which @Laurentian Research mentioned. It just broke out yesterday.

Welcome aboard to all.

Laurentian Research profile picture
@Darp Research Thank you for the comment. Congrats on the profit made so far on oil stocks. I think a lot more gains are on the way.
Darp Research profile picture
@Laurentian Research Thanks. Feel blessed to have been able to benefit from one of the best sector rallies ever. Super Cycles tend to last for about 10 years so concur.

@Darp Research
Petrus? That was my little secret but now it’s too late, lol.
I am still waiting for Rights issued on March 31 to show in my account. A nice bonus on the top of great performance. Long live Don Gray and his brothers!
Thank you L.R., for several interesting and still affordable oil/gas sector plays, particularly for the tip on OTC Karoon Energy (KRNGF).

I was pleased to discover from their website that it is an innovative Australian owned and operated company with much promise. Therefore, I chose to start a position on the ASX exchange where it's trading under the symbol KAR:XASX to exploit the greater trade volume and share/price availability.

CDDRF & DECPF are of interest as well, but I would buy the later (Diversified Energy) on the London Exchange under the symbol DEC:XLON.

Yes, Australian & UK stocks are accessible to U.S. investors.
Laurentian Research profile picture
@33557645 Glad you find your way to ASX and LSE. Not saying foreign exchanges offer better opportunities than the US ones, it's just a good practice to stay open-minded as an investor.
Offshore development has been in terminal decline...it needs to reverse
Laurentian Research profile picture
@HOSEDBY YOU Both offshore and onshore oil development has been in a general down-trend since late 2014 - typical of an oil bear market. However, I think capex has to, and will, pick up thanks to the incentivization of sustained high oil prices.
Ace24mn profile picture
Love the DECPF ldea for dividend and growth. Also in ET for growth and dividend. Much like your Santos pick, I'm in FOLGF another player in beetleloo in Australia. Huge upside. Thanks for article and ideas to look into.
Laurentian Research profile picture
@Ace24mn Good choices there. Appreciate your comment!
Excellent article. Thanks! I also like KOS.
Laurentian Research profile picture
@Software Phil Thank you. KOS is a fine pick. Best luck!
edaskew profile picture
Great article, Thanks. I believe this is the crux of the issue as you stated: "Few politicians understand oilfield development has a project cycle as long as ~7 years; it is ludicrous to expect oilmen to just turn on the spigot to flow more oil for you. As much as today's high oil prices are the consequence of yesteryear's under-investment, continued denunciation of oil producers, strangulation of capital flowing into oil investment, and stringent regulations under the pretext of climate policy will only extend the energy crisis and prolong the oil bull market for investors." That's right...they don't get it, they're not going to get it, even if they got it, they can't act on it without alienating their base. Poor decisions being made by world leaders are what support the price for hydrocarbons. This is the best case that can be made for oil industry investments.
vooch profile picture

oil field depletion rates are going to become a theme next year or thereabouts.......
Laurentian Research profile picture
@edaskew Thank you for sharing your insight.
@Laurentian Research Thanks for another great column !

The Dallas Fed survey chart you posted shows the shareholders of the energy companies are the primary reason for not significantly increasing production. In your view, what is the primary factor that holds down the valuation of oil & gas stocks ? Is it the mis-belief that the use for oil will be phase out in 1-2 decades (so that the terminal value in DCF is zerro)? It seems that analysts have consistently use much lower oil price to set the target price of oil stocks. For instance, even though the average WTI strip price for next 12 months is ~$97, analysts are still using ~$70 as the average price for 2022 (see this chart:
pbs.twimg.com/... ). Will valuation improve when the future curve switches from the present strong backwardaztion to contango ?
Have XOM for years as they seemed to be the largest and size matters when searching for oil. Permian Basin and Guyana fields make them well positioned for the future. Decent dividend and coming off excellent financials in 2021. First quarter earnings upped to $2,29 based on 4.2 billion shares for 9.6 billion in profit and expect 18-20 billion in FCF allowing for more debt reduction and possible addition to already stated 10 billion buyback.should be a big year for XOM
@Jlexus1953 I have swapped my long term XOM holdings for HES and doing covered calls on HES each week. XOM moves like a slow moving dinosaur, where HES moves twice a fast and appears to have more invested (as a company as a PCT) in Guyana/Suriname - is a partner of XOM in that profitable venture. glta!
fhbecker profile picture
@Software Phil Take care with midsize oils that are blessed with a sizeable recent find. All too often they try to replicate their prior "luck", thinking it was "skill", and follow their sizeable discovery with regrettable wells in other risky frontier plays.
Throwing Ketchup profile picture
"He knows many drivers will not be able to recharge their Tesla without the base-load electricity generated at coal or natural gas-fired power plants." It doesn't HAVE to be that way. I have an EV (not a Tesla) and a hybrid. Both are charged off my household solar system. My wife and I can easily use both as we both are with the limits of range of both battery systems (25 mi and 225 mi). We charge at home at days end, much of it before sundown (when we're still making power). We make almost exactly what we need for our house and our cars, pool, from a 14kw system. At $4.50/gallon of gas, and increasing electric prices, plus gov't incentives, we figure payback is about 6 years, then FREE! This won't work for everyone, but will work for most Americans. We haven't had to fill up my wife's hybrid since Feb., two months ago.
Agbug profile picture
@SnowDog222 , Let's just go with your perspective for investments sake. To transition to the carbon free future you envision and promote will require massive amounts of inputs to accomplish. Polysilicon, an energy intensive production process, copper mining, lithium extraction and refinement, structural steel and aluminum production, etc., etc.. Recent investments in $BATT and $CENC, with high hopes for $STEM to tame an unwieldy grid with so much noise induced upon it by the inherent variability of renewable inputs.

Elon knows we can't just turn off fossil fuels, unless one wishes the slow and agonizing death of billions of people via starvation.
chi_tino profile picture
@SnowDog222 Those government incentives you speak of are one of the reasons we are in this situation. I don't begrudge people taking free money from the uncle sam, but the nations having energy supply issues are the same countries giving out trillions for uneconomic green projects while stifling domestic energy infrastructure. Would you have built your system without capital and above-market net metering subsidies?
@chi_tino We will find he lives in Southern CA,AZ, or FL. Not MT,WI, or ME!!
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!

About XOP

SymbolLast Price% Chg
Expense Ratio
Div Frequency
Div Rate (TTM)
Yield (TTM)
Assets (AUM)
Compare to Peers

More on XOP

Related Stocks

SymbolLast Price% Chg
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.