Oil and gas prices have rebounded strongly from the COVID lows. The economic reopening and low investments during the pandemic drove prices higher. Further, Russia’s invasion of Ukraine disrupted supply and led to a rally in oil and gas prices.
Recovery in demand and higher price realizations bode well for the oil and gas sector. However, fear of a slowdown in the economy and tight monetary policy to tame inflation keeps prices highly volatile.
Amid the volatile oil prices, Saudi Aramco (Saudi Arabian Oil Company) recently delivered exceptional Q1 financial performance. The world’s largest integrated oil and gas company delivered record quarterly earnings of $39.5 billion since it was listed on the exchange in 2019. Higher crude oil prices and strong volumes drove Saudi Aramco’s profitability higher.
But before jumping to any conclusion, let’s revisit the recent management commentary by top oil and gas companies and focus on analysts’ recommendations, to determine what the future holds.
Exxon Mobil (NYSE: XOM)
While higher crude oil prices amid a tight supply/demand environment supported Exxon Mobil’s Q1 performance, adverse weather conditions and negative timing impacts remained a drag.
Nevertheless, this integrated oil and gas company expects upstream volumes to improve sequentially in Q2. Moreover, the absence of severe weather-related impacts and benefits from a favorable pricing environment augur well for growth.
It’s worth mentioning that XOM returned $5.8 billion to shareholders in the form of dividends and share repurchases. Moreover, it increased its current share repurchase program, and expects to buy back shares worth $30 billion through 2023.
XOM’s debt-to-capital ratio is near the low end of its target range (20-25%). Moreover, its net debt-to-capital ratio has dropped to about 17%.
Citing strength in the energy market, Argus Research analyst Bill Selesky raised his price target on XOM stock. Selesky expects XOM to benefit from higher prices and its strong cash flows. The analyst is bullish about XOM stock.
Including Selesky, 10 analysts recommend a Buy on XOM stock. Meanwhile, 11 analysts maintain a Hold. Further, the average price target of $93.98 indicates 5.8% upside potential over the next 12 months. Moreover, XOM stock has an Outperform Smart Score of 9 out of 10.
Chevron (NYSE: CVX)
Chevron’s earnings and cash flows are benefitting from higher price realizations. It delivered free cash flows of more than $6 billion in the last three consecutive quarters. This helped the company to pay down debt and boost shareholders’ value.
While Chevron has paid down debt, it increased its share buybacks. Moreover, it has raised dividends by 20% since COVID.
Increased price realizations and higher Permian production augur well for growth. However, a reduction in overall production on planned turnarounds at Wheatstone and Angola LNG could remain a drag on its Q2 performance.
Citing lower production, Truist Financial analyst Neal Dingmann reduced his price target on CVX stock to $181 from $186. Dingmann maintains a Hold recommendation on CVX stock.
CVX stock has received 15 Buy, eight Hold, and one Sell recommendations for a Moderate Buy consensus rating. Meanwhile, the average price target of $171.38 indicates 2.1% upside potential over the next 12 months. Further, CVX stock has an Outperform Smart Score of 9 out of 10.
ConocoPhillips (NYSE: COP)
Like the rest of the industry, ConocoPhillips benefitted from the strong realized prices. During the Q1 conference call, its CEO, Ryan Lance, stated, “we’ve again increased our targeted 2022 shareholder distributions, this time with an incremental $2 billion or a 25% increase, to be distributed through the blend of share repurchases and additional variable cash returns.”
COP reduced debt by $1.2 billion in Q1 and is moving swiftly towards its debt reduction target of $5 billion by 2025. Further, it returned $2.3 billion to its shareholders in Q1.
Highlighting the company’s accelerated pace of debt reduction, Mizuho Securities analyst Vincent Lovaglio stated, “As COP continues to work through its debt and reduce its fixed cost burden, capacity for regular dividend growth increases.”
Lovaglio has a Buy recommendation on COP stock. Overall, COP stock sports a Strong Buy consensus rating on TipRanks, based on 12 Buy and two hold recommendations. The average price target of $128.69 indicates 25.6% upside potential over the next 12 months. Further, COP stock has an Outperform Smart Score of 9 out of 10.
Bottom Line
Higher price realizations and recovery in demand will likely support oil companies’ earnings and cash flows. This would enable them to lower debt and boost shareholders’ returns through increased dividend payments and share repurchases. However, uncertainty around economic growth and a slowdown in activities pose challenges.
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