Energy

Goldman Sachs Sees 4 Exploration & Production Winners for $35 Oil Long Term

Jon C. Ogg

Published: February 10, 2016 3:05 pm

Last Updated: January 13, 2020 1:20 pm

Now that West Texas Intermediate Crude (WTI) oil has dipped under $30.00 per barrel, investors and industry watchers are even more concerned about the oil and gas stocks in the energy patch than ever. It is becoming almost assured that there will be far more corporate failures, more dividend cuts, more credit rating cuts and more debt defaults.

Goldman Sachs might not have been the first and certainly was not the only of the brokerage firms to sound a warning bell about $30 or $20 oil, but Goldman Sachs remains among the largest of them all, and they cater solely to institutions and to the wealthy individual investors. So, what does one make of the firm naming 4 exploration and production companies that do best in an extreme stress test?

That stress test is one where the price of oil remains around $35.00 for the next three years. Again, this will cause even more failures and implosions, so it is important to find which companies can survive and thrive in that climate.

Using the criteria of debt/liquidity, an ability to actually increase production in such a low price climate, and the potential to excel if oil manages to recover and go back towards $60 per barrel. Over 30 exploration and production companies were screened and only four seemed to make a passing grade.

Hess Corp. (NYSE: HES) was the top play noted and it has the largest market of these four stocks at $12 billion, with Goldman Sachs raising its rating to the prized Conviction Buy list. Hess was selected for its new projects, its flexibility in shale, having ample liquidity and an ability to find additional resources. Goldman Sachs also believes that most of Hess’ negative news from the company itself (capex and generating capital) being now behind the company. The firm’s $59.00 price target would imply more than 50% upside if the firm is not too aggressive here. Hess was last seen up 1.2% at $39.15, with a $55.26 consensus analyst price target and with a 52-week range of $32.41 to $79.00.

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