Investors seeking good bets in the oil and gas exploration and production (E&P) sector are not exactly thick on the ground. Nor are there a lot of good bets on offer. The chief characteristic of the E&P sector seems to be volatility within a range of about $10, from $40 to $50, with occasional brief excursions outside those limits.
With volatility and accompanying uncertainty in mind, analysts at Wells Fargo Securities compared a bear market case ($50 per barrel through 2016, sometimes called “lower for longer”) and a bull market case, where oil returns to around $70 a barrel next year. The analysts found four stocks that ranked in the top 10 in both categories, and just one that also made the firm’s list of top defensive stocks in the sector.
The one stock on both lists and also was one of Wells Fargo’s top defensive names was EOG Resources Inc. (NYSE: EOG). Other stocks that made both the bear and bull lists were Apache Corp. (NYSE: APA), Newfield Exploration Co. (NYSE: NFX) and Diamondback Energy Inc. (NASDAQ: FANG).
In addition to EOG, other top picks to survive a bear market were PDC Energy Inc. (NASDAQ: PDCE) and Concho Resources Inc. (NYSE: CXO).
Wells Fargo’s top defensive picks are EOG, Concho, PDC, Anadarko Petroleum Corp. (NYSE: APC), Rice Energy Inc. (NYSE: RICE) and Gulfport Energy Corp. (NASDAQ: GPOR).
Note that except for EOG, no top bull market stocks made the defensive picks list. That indicates the general direction that the analysts think is most likely:
With regard to the lower for longer scenario, we’ve been calling for a structural shift of the E&P industry since downgrading the group late last year. Judging by our conversations with industry contacts and investors, it feels like most in the space have finally capitulated on a lower for longer commodity price environment. … It feels like survival mode has officially set in.