This year, energy stocks are on a roller coaster ride amid volatile oil prices and rising interest rates. Oil prices have declined substantially from September highs amid concerns over waning demand in China and the United States. However, OPEC (Organization of the Petroleum Exporting Countries) and its allies have announced voluntary production cuts of 2.2 million barrels per day for the first quarter of 2024 to support oil prices.
Besides, Canadian energy companies have strengthened their balance sheets amid solid performances over the last few years. Also, economists predict the Federal Reserve will slash interest rates three times next year, which could boost economic activities, thus driving oil demand. So, I believe the recent pullback in the following two energy stocks offers an excellent entry point for long-term investors.
Canadian Natural Resources
Canadian Natural Resources (TSX:CNQ) operates a diversified portfolio of assets across North America, the United Kingdom, and Offshore Africa. The company would break even at WTI (West Texas Intermediate) crude trading in the mid US$30s per barrel, supported by its effective and efficient operations and low-cost structure. Besides, 60% of its liquid production is high-value SCO (synthetic crude oil), light crude oil, and NGLs (natural gas liquids). Also, its total proven reserve life index stands at 32 years.
Meanwhile, the oil and natural gas company plans to make a capital investment of $5.4 billion in 2024. Driven by these investments, the company’s management expects its total production to be between 1,330 and 1,380 thousand barrels of oil equivalent per day, marking a 3-7% increase from the previous year’s guidance. Besides, the company has strengthened its balance sheet by lowering its net debt from $21.3 billion at the end of 2020 to $11.5 billion by the end of the third quarter of 2023. With its liquidity at $6.1 billion, the company is well-equipped to fund its growth initiatives.
Further, CNQ has also rewarded its shareholders by raising its dividend for 24 consecutive years at a CAGR (compound annual growth rate) of 21%. Meanwhile, its forward yield stands at 4.66%. CNQ trades at an NTM (next 12 months) price-to-earnings multiple of 10.2, making it an attractive buy at these levels.
Whitecap Resources
Whitecap Resources (TSX:WCP) has been under pressure over the last few weeks amid falling oil prices. It has lost around 23% of its stock value, which has dragged its valuation to attractive levels. Amid the weakness, it trades at an NTM price-to-earnings multiple of 1.5.
However, the company plans to invest around $1–$1.2 billion next year to strengthen its production capacity. Bolstered by these investments, the company expects its average production to grow 5% compared to this year’s guidance. Also, the company’s management expects to generate free fund flows of $700 million next year. Meanwhile, it hopes to return 75% of these cash flows as dividends. It currently pays a monthly dividend of $0.0608/share, with its forward yield at 7.97%.
Further, WCP plans to raise its production to 200,000 barrels of oil equivalent per day by 2027, representing a CAGR of 5%. So, given its healthy growth prospects and high dividend yield, I am bullish on WCP.
