Wall St: Oil stocks to con­sider dur­ing Iraq tur­moil

Financial Mirror (Cyprus) - - FRONT PAGE - By Lee Jack­son

While the call to arms over the weekend in Iraq ap­pears to at least have stalled the mil­i­tants’ light­ning quick ad­vance across the coun­try, there are still many oil fields and re­finer­ies that are po­ten­tial ca­su­al­ties, at least in the short term. A new re­port from the Ex­plo­ration and Pro­duc­tion an­a­lysts at RBC points out that the mil­i­tants still hold the north­ern city of Mo­sul, de­spite be­ing stalled in their ad­vance to Bagh­dad. They cite re­ports that the mil­i­tants have im­peded re­pairs to Iraq’s main pipe­line, which car­ries crude from the Kirkuk oil field to the Mediter­ranean, and there are con­flict­ing re­ports as to whether the Baiji re­fin­ery, which pro­duces 310,000 bar­rels per day, has been cap­tured, dur­ing the mil­i­tants’ ad­vance on Tikrit.

One thing is for sure, the vo­latil­ity is not go­ing away any­time soon. The RBC team fo­cused their re­port on com­pa­nies that are more lev­ered to oil pro­duc­tion, which they ex­pect to out­per­form in the case of any drop in pro­duc­tion in Iraq.

Athlon En­ergy Inc. (NAS­DAQ: ATHL)

is an in­de­pen­dent ex­plo­ration and pro­duc­tion com­pany fo­cused on the ac­qui­si­tion, de­vel­op­ment and ex­ploita­tion of un­con­ven­tional oil and liq­uids-rich nat­u­ral gas re­serves in the Per­mian Basin in western Texas. The com­pany an­nounced last week it had closed all of its pre­vi­ously an­nounced ac­qui­si­tions in the north­ern Mid­land Basin for an ag­gre­gate pur­chase price of $873 mln in cash. The com­pany pre­vi­ously dis­closed that it had closed on ap­prox­i­mately $200 mln of the ac­qui­si­tions in early May. RBC has a $48 price tar­get for the stock with a con­sen­sus tar­get of $50. The stock closed on Fri­day at $46.19 a share.

makes the list of top names to buy, es­pe­cially if Iraq de­te­ri­o­rates. The com­pany is one of the top names in the Bakken Shale are in ceb­n­tral North Amer­ica and an­a­lysts are ex­pect­ing a slow but steady in­crease in pro­duc­tion lev­els. The RBC price tar­get is posted at $138, and the con­sen­sus tar­get is $144. Both num­bers are way be­low where Con­ti­nen­tal closed on Fri­day: $152.38.

is a top en­ergy play in the Per­mian Basin. It is an in­de­pen­dent oil and nat­u­ral gas com­pany en­gaged in the ac­qui­si­tion, de­vel­op­ment and

Con­ti­nen­tal Re­sources Inc. (NYSE: CLR)

Con­cho Re­sources Inc. (NYSE: CXO)

ex­plo­ration of oil and nat­u­ral gas prop­er­ties. It also may be a pos­si­ble takeover can­di­date. Con­cho just com­pleted a suc­cess­ful sec­ondary stock of­fer­ing that raised close to $1 bln, if the over­al­lot­ment shares were sold. The com­pany plans to use the net pro­ceeds from this of­fer­ing to re­pay the debts un­der the com­pany’s credit fa­cil­ity, as well as for cor­po­rate pur­poses that in­clude fi­nanc­ing its three-year ac­cel­er­ated growth plan, cap­i­tal ex­pen­di­tures tied to the re­cently an­nounced mid­stream joint ven­ture and po­ten­tial fu­ture as­set buys. RBC has the com­pany as a top pick, with a $148 price tar­get. The con­sen­sus tar­get is $145.14. Con­cho closed on Fri­day at $141.83.

Goodrich Petroleum Corp. (NYSE: GDP)

was hit hard when their fourth-quar­ter re­sults came in sig­nif­i­cantly be­low Wall Street ex­pec­ta­tions, but savvy in­vestors bought hard and heavy and have been re­warded as the stock has soared. The com­pany re­ported fourth-quar­ter ad­justed earn­ings per share of $0.57 and rev­enue of $50.6 mln, com­pared to an­a­lysts’ con­sen­sus es­ti­mates of $0.48 and $62.74 mln, re­spec­tively. Pro­duc­tion av­er­aged 80,800 Mcfe per day for the quar­ter. RBC has a $31 price tar­get, which is ac­tu­ally lower than the con­sen­sus num­ber of $31.48. Goodrich closed on Fri­day at $29.02.

Ko­diak Oil and Gas Corp. (NYSE: KOG)

has had a laser fo­cus on the Bakken Shale, which ap­pears to some an­a­lysts to be putting it at a dis­ad­van­tage as it has nowhere else to drill when the weather turns bad. The tough win­ter made for some slow go­ing for Ko­diak. Re­newed pro­duc­tion now that sum­mer is al­most here is ex­pected to go full-blast and reignite earn­ings. The RBC price tar­get is $14, and the con­sen­sus is at $14.78. Ko­diak closed on Fri­day at $13.79.

Oa­sis Petroleum Inc. (NYSE: OAS)

is a com­pany that came in with out­stand­ing earn­ings last year and is poised to con­tinue in 2014. For the full year, Oa­sis Petroleum re­ported ad­justed EBITDA of $821.9 mln. That was up 60% from the $512.3 mln the com­pany re­ported in 2012. Fourth-quar­ter growth was strong, as well, as ad­justed EBITDA rose 38% from last year’s fourth quar­ter to $225.4 mln. RBC is a big fan of the stock and has a $58 price tar­get, while the con­sen­sus fig­ure is

$55.86. Oa­sis closed on Fri­day at $52.68.

Whit­ing Petroleum Corp. (NYSE: WLL)

is an­other large en­ergy player in the Bakken Shale and is ranked as the third largest pro­ducer there. Over 2013, Whit­ing sold off sig­nif­i­cant amounts of its as­sets that aren’t in the Bakken, in­clud­ing its Pos­tle Field en­hanced oil re­cov­ery as­sets for $817 mln and its acreage in the Delaware Basin for $150 mln. It in turn are us­ing the cash from the sales and de­ploy­ing more as­sets into the higher-re­turn Bakken this year and be­yond. The RBC price tar­get is $81, and the con­sen­sus fig­ure is at $85.25. Whit­ing closed on Fri­day at $79.29.

It is im­por­tant to re­mem­ber this is more of a trade idea on the geopo­lit­i­cal sit­u­a­tion, ver­sus a long-term buy-and-hold rec­om­men­da­tion. While the stocks are all solid port­fo­lio names, many are trad­ing at or near the RBC price ob­jec­tives. In­vestors with a more ag­gres­sive ac­count pro­file may want to con­sider some of these oil-rich names for a sum­mer play.

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