What are the least attractive oil stocks for investors right now?
Seeking Alpha analysts Fluidsdoc and Long Player weigh in.
Fluidsdoc: Deciding which of the many companies I follow is the worst is a dynamic calculation. Post-Maduro, I am concerned about Canadian heavy oil miners.
Canadian Natural Resources (CNQ) and Suncor Energy (SU) have been my two long positions in this category and immediately sold off on news of Maduro’s overthrow. This was driven by a mini-crash in Western Canadian Select, or WCS.
It remains to be seen how Venezuelan crude that competes directly with Athabascan WCS (bitumen) ramps up. Chevron (CVX) and Exxon Mobil (XOM) have developed steam-assisted gravity drainage technology that is used to extract thick, low-gravity crude to a high art. The limiting factor would be logistics, but with the knowledge and technology CVX and XOM bring, it could happen pretty fast. In that scenario, volumes from CNQ and SU, which have been sending about a third of their daily output to the U.S. Gulf Coast refineries, could be impacted.
Accordingly, I am not presently putting new money into the Canadian heavy oil miners.
Long Player: My least favorite oil stocks are a relative situation because I think that oil and gas are out of favor. But it is quite possible that with the current economic uncertainty, the smallest companies will take the longest to bounce back and therefore are the least favorite, even though there are a lot of them I like for the long term.
I say that even though this is a very low-visibility industry, and the view can change very fast, as it did when Maduro was captured or the Ukraine war began. It is a reason to still keep some of these because you just do not know what will happen in the long term due to the low visibility.
Therefore, a leveraged stock like HighPeak Energy (HPK) would be my least favorite, but with a Diamondback Energy (FANG) executive now in the CEO position, I like it for the long term. Some that I believe have no potential are ones like New Era Energy & Digital (NUAI) that have no income and are really development stage. For one like that, you need to wait for income.
Another one would be Prairie Operating (PROP), where there is far too much dilution ahead and it is losing money. With weakening commodity prices, I see little hope here without a whole lot of help from better commodity pricing. But that does not appear to be on the horizon.
I would also note that in the current atmosphere it is probably best to avoid oil and gas stocks with less than $1B market cap until the political uncertainty goes away and we have constructive and permanent trade agreements in place. We also need to get past the threat of a recession or worse.