Growing energy demand worldwide, coupled with tight supplies, could keep crude oil prices close to last year’s averages in 2024. Further, prices could potentially surge in response to geopolitical instability, including escalating tensions in the Middle East and attacks on ships in the Red Sea.
Amid this backdrop, it could be wise to add quality oil & gas stocks Dorchester Minerals, L.P. (DMLP), VAALCO Energy, Inc. (EGY), and Antero Midstream Corporation (AM) to your watchlist in 2024.
As per the Short-Term Energy Outlook (STEO) by the U.S. Energy Administration (EIA), the Brent crude oil price will average $82 per barrel (b) this year and $79/b in 2025, quite close to the 2023 average of $82/b.
Nearly half of the petroleum and other liquids produced worldwide last year came from OPEC+ (Organization of the Petroleum Exporting Countries). OPEC+ production restraint will keep oil prices near current levels.
EIA projected OPEC+ crude oil production to average 36.4 million barrels per day (b/d) in 2024 and 37.2 million b/d in 2025, lower than its pre-pandemic five-year average of 40.2 b/d. The prices could exceed its current forecast primarily due to unplanned production disruptions, a risk highlighted by the growing tensions in the Red Sea.
Crude oil production in the U.S. could hit new records to meet the rising energy demand. EIA forecasted U.S. crude oil production to reach 13.2 million b/d in 2024 and cross 13.4 million b/d next year, and with these, the production will beat previous records. An increase in well efficiency will drive production growth over the next two years.
The oil and gas drilling extraction in the U.S. market has shown a potent greater return with the adoption of innovative drilling technologies and techniques like hydraulic fracturing and horizontal drilling. These have enabled producers to extract more resources from what used to be considered dry fields.
The oil and gas infrastructure market size was valued at $68.8 billion in 2022, with U.S. market share being more than 10%. The market is projected to grow at a CAGR of 6.6% during the forecast period, attaining a market volume of $130.9 billion by 2032.
Given the industry’s robust outlook, investing in quality oil and gas stocks AM, DMLP, and EGY could be wise this year.
Let’s discuss the fundamentals of these stocks in detail:
Antero Midstream Corporation (AM)
AM owns, operates, and develops midstream energy infrastructure in the Appalachian Basin. The company operates through Gathering and Processing; and Water Handling segments. Its operations include a network of gathering pipelines and compressor stations that collect and process production from Antero Resources’ wells in West Virginia and Ohio.
AM pays an annual dividend of $0.90 per share, which translates to a dividend yield of 7.38% on the current share price. Its four-year average yield is 14.65%. The company’s dividend payouts have grown at a CAGR of 14.8% over the past five years.
AM’s trailing-12-month gross profit and EBIT margins of 80.74% and 55.43% are 74.4% and 168.9% higher than the respective industry averages of 46.30% and 20.61%. Likewise, the stock’s trailing-12-month net income margin of 32.38% is 141.1% higher than the industry average of 13.43%.
During the third quarter that ended September 30, 2023, AM’s total revenue increased 14.2% year-over-year to $263.84 million. Its operating income was $162.31 million, up 17.8% from the prior year’s quarter. The company’s net income and comprehensive income grew 16.4% year-over-year to $97.82 million.
In addition, the company’s net income per share rose 17.6% from the year-ago value to $0.20. As of September 30, 2023, its total current assets stood at $95.53 million, compared to $88.99 million as of December 31, 2022.
Antero Midstream’s third-quarter results continued to benefit from the operating momentum that the company has built throughout 2023. As a result, AM raised its full-year production guidance for the second consecutive quarter. It now expects production volumes to increase by nearly 225 MMcfe/d, or 7%, from the 2022 exit rate to the 2023 exit rate.
Analysts expect AM’s revenue and EPS for the fourth quarter (ended December 2023) to increase 6.6% and 16.3% year-over-year to $257.36 million and $0.20, respectively. Moreover, the company surpassed the consensus revenue estimates in each of the trailing four quarters.
AM’s stock has surged 4.2% over the past six months and 8.9% over the past year to close the last trading session at $12.20.
AM’s robust outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a B grade for Quality, Stability, and Momentum. It is ranked #14 out of 26 stocks in the MLPs – Oil & Gas industry.
Click here to access additional AM ratings for Value, Sentiment, and Growth.
Dorchester Minerals, L.P. (DMLP)
DMLP acquires, owns, and administrates producing and non-producing natural gas and crude oil royalty, net profit, and leasehold interests. The company’s royalty properties consist of producing and nonproducing minerals, royalty and overriding royalty, net profits, and leasehold interests in 592 counties and parishes in 28 states.
On November 9, DMLP paid cash distribution of $0.845120 per common unit for the third quarter to common unitholders of record as of October 30, 2023. DMLP pays an annual dividend of $3.38, which translates to a yield of 10.77% at the prevailing share price. Its four-year average dividend yield is 11.12%.
Additionally, the partnership’s dividend payouts have increased at a CAGR of 34.7% over the past three years.
On November 7, DMLP announced the successful conclusion of a notable lease transaction in the Midland Basin. DMLP leased 243 net acres in two tracts of land in Reagan County, Texas for $30,000 per acre and a 25% royalty. Additionally, it also executed an amendment to an existing lease on two separate tracts of land.
The resulting payment of approximately $11.8 million from these transactions will be included in DMLP’s fourth quarter distribution to unitholders.DMLP’s trailing-12-month gross profit and EBIT margins of 96.41% and 73.44% are 108.2% and 256.3% higher than the respective industry averages of 46.30% and 20.61%. Also, the stock’s trailing-12-month levered FCF margin of 66.92% is significantly higher than the industry average of 5.86%.
Over the past three years, DMLP’s revenue and EBITDA have increased at respective CAGRs of 41.5% and 47.6%. The company’s total assets have grown 26.7% over the same period, while its net income and EPS have improved at CAGRs of 55.9% and 50.6%, respectively.
For the third quarter that ended September 30, DMLP reported total operating revenues of $42.59 million. Its operating revenues from royalties and net profits interest grew 6.7% and 101.4% year-over-year to $35.79 million and $6.03 million, respectively. The company’s net income came in at $29.46 million, or $0.73 per common unit, respectively.
Furthermore, the partnership’s cash and cash equivalents were $43.49 million as of September 30, 2023, compared to $40.75 million as of December 31, 2022.
Shares of DMLP have gained 2.7% over the past month and 3.7% over the past year to close the last trading session at $31.38.
DMLP’s POWR Ratings reflect its promising prospects. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
The stock has an A grade for Quality and a B for Momentum. DMLP is ranked #13 of 26 stocks within the A-rated MLPs – Oil & Gas industry.
To see additional POWR Ratings of DMLP for Value, Growth, Sentiment, and Stability, click here.
VAALCO Energy, Inc. (EGY)
EGY is an independent energy company that acquires, explores, develops, and produces crude oil, natural gas, and natural gas liquids. It holds an Etame production-sharing contract related to the Etame Marin block located offshore in the Republic of Gabon in West Africa.
On November 7, EGY declared a cash dividend of $0.0625 per share of common stock for the fourth quarter of 2023, paid on December 21, 2023, to stockholders of record at the close of business on November 24, 2023. It pays an annual dividend of $0.25, which translates to a yield of 5.72% at the current share price. Its four-year average dividend yield is 1.39%.
EGY’s trailing-12-month gross profit and EBIT margins of 60.81% and 24.74% are 31.4% and 20% higher than the industry averages of 46.30% and 20.61%, respectively. Further, the stock’s trailing-12-month Return on Total Capital (ROTC) of 17.52% is 88.4% higher than the industry average of 9.30%.
For the third quarter that ended September 30, 2023, EGY’s net revenue increased 48.9% year-over-year to $116.27 million. Its operating income grew 4.9% from the year-ago value to $35.55 million. The company’s adjusted EBITDAX came in at $71.36 million, up 68.2% from the prior year’s quarter.
In addition, the company’s cash and cash equivalents amounted to $103.35 million as of September 20, 2023, compared to $37.20 million as of December 31, 2022.
Street expects EGY’s revenue and EPS for the first quarter (ending March 2024) to increase 59.8% and 428.6% year-over-year to $128.45 million and $0.37, respectively. For the fiscal year ending December 2024, the company's EPS is expected to grow 290% year-over-year to $1.56.
EGY’s shares have gained 10% over the past six months to close the last trading session at $4.42.
EGY’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has a B grade for Value and Quality. Within the Energy – Oil & Gas industry, EGY is ranked #15 of 84 stocks.
In addition to the POWR Ratings we’ve stated above, we also have EGY ratings for Growth, Momentum, Stability, and Sentiment. Get all EGY ratings here.
What To Do Next?
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AM shares were trading at $12.20 per share on Friday morning, down $0.00 (0.00%). Year-to-date, AM has declined -2.63%, versus a 0.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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