Most constituents in the energy sector benefit from rising oil prices. Whitecap Resources (TSX: WCP), Vermilion Energy (TSX: VET)(NYSE: VET), and Enerplus (TSX: ERF)(NYSE: ERF) are turnaround stocks in 2021, but their comebacks aren’t over. Expect them to soar further if oil continues to post multi-year highs.
Oil prices hit US$79 per barrel on October 5, 2021 — the highest level since 2014. The sudden surge stems from OPEC’s decision to maintain modest production output. It started a buying frenzy among traders. Meanwhile, natural gas prices rose by 10% — the highest level since December 2008.
Louise Dickson, a senior oil markets analyst at Rystad Energy, said there could be a tight supply in the last two months of the year. Thus, energy stocks are likely to continue their upward trend.
Sustainable business model
Whitecap’s financial and operational results in Q2 2021 were exceptional. The $4.56 billion company reported record production of 116,799 boe/d, or 65% higher than Q2 2020. The $227 million of free funds flow during the quarter enabled management to increase Whitecap’s monthly dividend by 8%.
Net income in the first half of 2021 was $38.2 million compared to the $2.2 billion net loss in the same period in 2020. According to management, Whitecap’s sustainable business model has become stronger following three significant acquisitions, including TORC Oil & Gas. At $7.26 per share, investors are up 53.2%. The corresponding dividend yield is 2.69%.
High-quality assets in core regions
Vermilion Energy is a high flyer with its 151.4% gain thus far in 2021. The current share price of $14.28 is 330.1% higher than a year ago. Had you invested $10,000 on October 5, 2020, your money would be worth $43,012.05 today. Apart from North America, this $2.22 billion energy producer operates in Europe and Australia.
The investment thesis for this energy stock is its international exposure and a free cash flow-oriented business model. Vermilion’s production growth comes primarily from exploiting light oil, and liquids-rich natural gas conventional resource plays in North America.
Vermilion also has growth catalysts in high-impact natural gas opportunities in Germany and the Netherlands. The company has oil drilling and workover programs in Australia and France as well as a working interest in a gas field in Ireland. In the first half of 2021, sales growth in North America was 55.1% compared to the same period in 2020.
Returns and value focused
Enerplus trades at $10.64 per share and pays a modest 1.44% dividend. Performance-wise, the year-to-date gain is 172.1%, while the trailing one-year price return is 329%. This energy stock carries a strong buy rating, with market analysts projecting a price appreciation of 19.5% to $12.65 in the next 12 months.
The $2.71 billion independent exploration and production company develops high-quality, capital-efficient assets. Besides Western Canada, Enerplus’s portfolio includes light oil assets in North Dakota and Montana. It also maintains a position in a natural gas shale play in northeast Pennsylvania.
Enerplus is on the rebound, as evidenced by the financial results in the second half of 2021. The net loss is down 96.3% to $44.9 million from $606.4 million in the same period in 2020. Management expects a cumulative cash flow between $1.5 billion and $2 billion from 2022 to 2025.
Pros and cons
High oil prices are good for energy stocks and investors. However, if prices swell further, it could fuel inflation and stall the economic recovery.
