The Brexit continues to garner headlines as markets attempt to digest the implications of the U.K.’s decision to leave the E.U. and its impact on the global economy. The Brexit has already triggered a rally in the U.S. dollar, putting further pressure on oil prices, but investors should not ignore energy stocks as many now attractively valued.
Here are three oil stocks that have not only demonstrated that they can weather weak oil prices but are poised to unlock considerable value for investors as oil rallies in the coming year.
Now what?
The first is no stranger to investors. It is integrated energy major Suncor Energy Inc. (TSX:SU)(NYSE:SU). It has not only shown itself to be highly resilient to the protracted slump in crude but has taken advantage of the significant decline in asset prices triggered by weak oil prices to beef up its oil production and reserves.
Earlier this year Suncor completed its $4.2 billion acquisition of Canadian Oil Sands, substantially expanding its stake in the Syncrude oil sands project. This was followed in quick succession by its purchase of Murphy Oil Corp.’s 5% stake in Syncrude for $937 million, giving it majority control of what has been a troublesome operation. These purchases added over 135,000 barrels of daily oil production to Suncor’s portfolio and significantly boosted its long-life oil reserves.
Then there was Suncor’s recent equity raising that boosted its cash reserves, allowing it to reduce debt and keep sufficient cash on hand for further opportunistic acquisitions.
For these reasons Suncor will emerge from the current harsh operating environment in better shape than when it began because the solid increase in its oil production has allowed it to take full advantage of higher oil prices.
Next there is upstream oil producer Vermilion Energy Inc. (TSX:VET)(NYSE:VET), which owns a globally diversified portfolio of oil and gas assets across Canada, Europe, and Australia.
Vermilion is one of the very few energy companies to have left its dividend intact since the crisis began, and this can be attributed to its solid financial position.
Like Suncor, it has also taken advantage of cheap oil assets to expand its production and reserves. Vermilion recently announced the US$48 million purchase of several exploration and production properties in Germany. These properties will add around 2,000 barrels of crude to Vermilion’s daily oil production as well as an estimated nine million barrels of oil to its reserves.
This purchase, along with Vermilion’s ability to expand its existing oil production (which shot up by an impressive 30% for the first quarter 2016 compared with a year earlier), will allow it to cash in on the impending rally in crude.
Finally, there is Colombian-based upstream oil explorer and producer Gran Tierra Energy Inc. (TSX:GTE)(NYSE:GTE), which has a solid, almost debt-free balance sheet and a portfolio of high-quality oil assets.
Gran Tierra has also elected to use its financial strength to exploit weak asset prices. It acquired Petroamerica Oil Corp. in 2015 and has now announced its intention to purchase PetroLatina Energy Ltd. These transactions should add over 8,000 barrels of daily oil production to Gran Tierra’s total output and boost its reserves by an impressive 61 million barrels of oil by the end of 2016. This will leave it well equipped to cash in on the eventual rally in crude and enhance its growth prospects.
So what?
All three companies have not only demonstrated their ability to weather the slump in crude, but that they all will emerge from this downturn in far better shape because of higher oil production and solid balance sheets.
