Do you know the oil and natural gas industry of the U.S makes up 8% of the GDP of the country? Texas, New Mexico, North Dakota, Oklahoma, and Colorado are the top five oil-producing U.S states.
The oil and gas industry comprises companies that engage in exploring, acquiring, developing, refining, and distributing oil and gas. There are two main categories of oil and gas companies in the market:
Integrated Oil and Gas Companies
Independent Oil and Gas Companies
Most leading oil and gas companies like ExxonMobil (NYSE: XOM) and Chevron Corporation (NYSE: CVX) are integrated companies that divide the business into various categories, including upstream, midstream, and downstream. These integrated organizations can hedge their profits against financial downturns and volatility in oil prices.
The independent oil and gas companies are the entities that focus on only one segment of the oil and gas industry. Most small to medium-sized oil and gas companies continue to operate as independent companies to enjoy the laser-sharp focus. However, these independent companies are vulnerable to the rise and fall of oil prices and unfavorable market conditions.
Several oil and gas companies with the potential to generate huge returns to shareholders are trading on stock markets. Investors may need to closely monitor these companies and purchase their shares at an appropriate time. In this article, we’ll identify the top five cheap oil stocks under $5 to keep on the watchlist.
The Best Oil Companies & Stocks to Watch
Here is the list of the best stocks trading under $5 that have the potential to generate steady returns in the long term.
Crescent Point Energy Corp. (NYSE: CPG)
W&T Offshore Inc. (NYSE: WTI)
VAALCO Energy (NYSE: EGY)
PHX Minerals (NYSE: PHX)
Southwestern Energy Company (NYSE: SWN)
All data and figures are according to the date of publication.
1. Crescent Point Energy Corp. (NYSE: CPG)
Crescent Point Energy Corp. is an oil and gas organization headquartered in Calgary, Canada. It is the 12th largest oil and gas producer in Canada. The organization has operating projects in SW Saskatchewan, Central Alberta, SE Saskatchewan, North Dakota, and Flat Lake. The share price of Crescent at the time of publication was $4.79.
Crescent Point has been focusing on exploring new projects through acquisitions, consolidating the balance sheet, and restructuring the operations for the last few years to strengthen its leadership position in the market. For instance, it recently agreed with Shell Canada Energy to acquire the assets of Jaybob Duvernay for $900 million. Crescent expects this acquisition to improve its free cash flow and long-term sustainability.
This Canadian company has been making efforts to reduce the net debt through the excess cash it generates from operations and the money it receives from disinvestment activities. The long-term debt of Crescent was $2,209.9 million in September 2021, compared with $2,413.7 million in September 2020.
Crescent realized the importance of restructuring operations after the devastating impact of the coronavirus pandemic on crude oil demand and prices. As part of the restructuring, Crescent closed down uneconomic production units and improved its cost structures. This restructuring process and capital discipline helped Crescent exceed its annual production guidance and report higher operating profits.
2. W&T Offshore Inc. (NYSE: WTI)
W&T Offshore Inc. is a leading oil and gas company headquartered in Houston, the United States. It predominantly focuses on exploring and developing oil and gas properties in the Gulf of Mexico. The organization currently has 210,000 gross acres in the deepwater properties and 527,000 gross acres of conventional shelf properties.
W&T has proved reserves of 144.4 million barrels of oil as of December 2020. The organization estimates that the reserves may last for about 11 years if they continue to operate with the same production capacity as they did in 2020.
The stock price of W&T Offshore at the time of publication was $3.37. W&T gained the attention of investors after it swiftly implemented cost reduction initiatives to combat the sharp downturn in oil prices during the COVID-19 pandemic. As part of the cost reduction initiatives, W&T consolidated two of its natural gas treatment facilities that operate in the Mobile Bay area into a single unit. The organization also shifted its headquarters to Houston to reduce the general and administration (G&A) costs. These cost-saving initiatives helped the organization to reduce lease operating expenses (LOE) by $20 million from the last year.
W&T has the potential to become a multibagger stock in the long term due to its huge reserves that offer long-term sustainability, cost-reduction initiatives, and a strong balance sheet.
3. VAALCO Energy Inc. (NYSE: EGY)
VAALCO Energy Inc. is engaged in the exploration, acquisition, and development of oil and natural gas properties. It is headquartered in Houston, the United States. The organization has proved reserves of 3,216 million barrels of oil as of December 2020. The share price of VAALCO Energy at the time of publication was $3.07.
The past few years have been exceptional for VAALCO as it achieved the three most anticipated milestones:
It successfully negotiated the license extension of up to 20 years for the Gabon Project.
It repaid all its debt and continued to generate free cash flow.
It kick-started the 2019-2020 drilling campaign and successfully drilled three development wells and two appraisal well-bores.
VAALCO is expected to kick-start the next drilling campaign in 2022 to drill up to four wells; these bore wells may increase the production capacity of VAALCO by 8,000 barrels of oil production per day.
Investors may keep this small-cap mining stock on their watchlist because of its committed top management, continuously increasing production capacities, and ability to generate free operating cash flow.
4. PHX Minerals (NYSE: PHX)
PHX Minerals is a natural gas and oil mineral company headquartered in Oklahoma, the United States. The organization has proved mineral reserves of 57.7 BCFE (billion cubic feet equivalent) at the end of September 2020. PHX has 252,443 net mineral acres in Oklahoma, Texas, North Dakota, Arkansas, and New Mexico. The stock price of PHX Minerals at the time of publication was $2.58.
There are two major revenue sources for PHX Minerals. They are:
The production and sale of oil and natural gas.
The royalties and lease bonuses received from the leasehold mineral acreage.
The top management is committed to strengthening the balance sheet and improving the financial stability of the organization. The organization aims to deleverage the balance sheet by repaying the full debt using free cash flows over the next three years.
Investors may need to monitor how this growth stock generates and manages the free cash flow in the short term before making an investment decision.
5. Southwestern Energy Company (NYSE: SWN)
Headquartered in Texas, Southwestern Energy Company is a leading natural gas exploration company in the United States. The organization has exploration properties of 938,000 net acres in Ohio, Louisiana, Pennsylvania, and West Virginia. The estimated production of the company from these properties is 4 BCFE per day.
The share price of Southwestern Energy Company at the time of publication was $4.98, with a market cap of $5.01 billion.
Southwestern believes in inorganic expansion. It recently acquired Montage Resources for $194 million in 2020. It also announced the acquisition of Indigo Natural Resources for $2.7 billion and GEP Haynesville for $1.8 billion. These three acquisitions are expected to enable Southwestern to report over $2.5 billion free cash flow and reduce the debt to $3 billion.
Investors may need to keep this energy stock on the watchlist and monitor how these acquisitions play out in improving production capacities, reducing debt, and generating free cash flows.
Stay Updated on Oil Stocks with WALLSTNOW
One cannot deny the fact that the stocks trading under $5 are volatile. However, a careful evaluation of operational activities, financial stability, dividend yield, and future growth potential of these companies help us understand if there is a possibility to enter into them and make a good return on investment.
The top oil and gas companies identified in this article are financially stable and operationally efficient. They are consistently looking for opportunities to reduce debt and enhance operating free cash flows. Many of the mining and biotech companies listed on NASDAQ and NYSE are constituents of mutual funds and exchange-traded funds (ETFs). If you feel investing in individual mining companies is risky, you may choose to go ahead with well-known mining ETFs such as First Trust Natural Gas ETF, InfraCap MLP ETF, and Invesco Dynamic Energy Exploration & Production ETF.
Want to know more about oil and gas stocks listed on NYSE and NASDAQ? Subscribe to the WALLSTNOW newsletter!
Disclaimer: All investments involve the risk of loss. Nothing on this website should be misconstrued as investment advice. Any reference to an investment’s historical or projected performance is not a recommendation or guarantee of profit or desired outcome.