After oil hit multidecade lows, with the futures even making a rare technical “negative price” move around a futures roll date, there was a major scare that most of the smaller and more leveraged oil and gas exploration and production and the services companies would shrink into oblivion. Now that oil is back above $30 per barrel, suddenly there is some relief. Many investors had begun avoiding oil and gas stocks due to their direct exposure to and role in fossil fuels, but another group of investors is still looking for the companies that can survive as things are for the next decade or longer.
24/7 Wall St. has maintained a strong degree of skepticism about the oil and gas sector. After all, private endowments, pension funds and even some of the world’s top financial managers and advisory companies have pledged not to invest in but to move away from fossil fuels where they can. Some investors simply would not buy oil-related companies if they were given an opportunity to invest in them at one-third of the price.
The expected recovery of the economy and the depressed prices that had been seen during the panic selling in March has created a field for long-term investors to look out to without such a near-term focus. As the summer of 2020 kicks off, the trillions of dollars in stimulus and stabilization funds, as well as the zero-percent interest rates and other quantitative easing measures, have all acted to begin a stabilization of the economy.
It is important to consider that the panic-selling lows from March now appear to be a gross overreaction. That does not imply that the gains made since will only be followed by more gains. In fact, many of these oil stocks may remain somewhat muted. Some may even see their shares flounder without ever recapturing their highs.
The next Great Depression no longer seems to be on the table. In looking long term rather than short term, one driving force to normalization is that President Donald Trump has vowed to keep the economy open even if there is another spike in COVID-19 cases. For better or worse, people were going back out and driving and heading to stores and restaurants. The civil unrest is not expected to remain a long-term issue. Even airline ticket demand, housing demand and interest in cars have all started to tick back up from crush-depth lows.
There are of course some risks to crude oil prices near term. Any of these could yet again catapult all the oil and gas stocks back into panic mode. These risks would include a major growth rate in COVID-19 coming back, Russia and Saudi Arabia could decide to rattle the chains again, and an economic cold war with China and the United States could hurt. There are also 2020 election risks, which will follow up as election risks in the coming years.
When looking beyond the near-term issues, some secular trends have to be considered out to 2020. The move toward vehicle electrification is going to continue to grow rather than contract. Companies and industries will keep pressuring the fossil fuel industry. Regulation efforts toward fossil fuels also will continue around the globe, with or without the United States. The pressure to move to alternatives in the environmental, social, governance (ESG) theme should only continue. The climate change and global warming debate likely isn’t going anywhere. Furthermore, including 2020, there will be three U.S. presidential elections between now and 2030. If history repeats, we are likely to see yet another recession by the time 2030 has rolled around.
After adding these near-term and long-term issues together, there still almost certainly will be oil and gas companies in the year 2030. Even if the majors make more efforts into alternatives and biofuels, the reality is that there are just too many economies dependent upon oil and gas, with no alternatives to imagine that oil will be dead. The same is even likely in 2040 and beyond. The secular trends are obviously not favorable to most fossil fuel companies, but history and reality are likely to favor the strongest companies with the best balance sheets and management teams.
24/7 Wall St. looked long and hard to screen for 10 U.S.-based oil and gas stocks that almost certainly still will be operating in 2030. If the rest of the sector flops or flounders, these companies may even be thriving. That said, there should be no interpretation that all these stocks will rise dramatically over the next decade. Some may have even made very opportunistic acquisitions in bankruptcy or other highly distressed situations, and perhaps some will pursue more biofuels and other alternatives in their mix.
It is easier to write off entire industries and their major companies in theory than it is in practice. To prove the point, travel back in time to the year 2000, when the smoking trends were already in secular decline. Would anyone have believed that the top three tobacco stocks that trade on the New York Stock Exchange would still have a combined $275 billion in market capitalization in 2020?
Many of the energy sector’s stocks have recovered 50%, or much more, since the lows in March or April. That means some could face headwinds, profit-taking or missteps that could hurt the shares. These stocks have been listed alphabetically to avoid any ranking. Here are 10 of the larger U.S. companies tied to oil and gas that are likely to still exist and even thrive in 2030.