This deepwater driller and contrarian play could have potential as a takeover target. Oceaneering International Inc. (NYSE: OII) is a global provider of engineered services and products, primarily to the offshore oil and gas industry, with a focus on deepwater applications. With its applied technology expertise, Oceaneering also serves the defense, entertainment and aerospace industries.
The services and products it provides to the oil and gas industry include remotely operated vehicles, specialty subsea hardware, engineering and project management, subsea intervention services, including manned diving, survey and positioning services and asset integrity and nondestructive testing services. The company serves the defense, aerospace and commercial theme park industries.
Goldman Sachs is positive on the cost-cutting measures put in place and noted this recently:
Additional cost-cutting initiatives remain on the table into the back-half of 2020 and 2021. Although we believe that offshore activity levels are likely to remain low for the remainder of the year and into 2021, the company has demonstrated the ability to protect margins and maintain market share in the most severe downturn in recent history, which provides comfort around FCF and weathering the near-term storm.
The $10 Goldman Sachs price objective is well above the $6.39 consensus estimate. Oceaneering International stock ended the week near $5 a share.
Plains All American Pipeline
This remains a top MLP pick across Wall Street. Plains All American Pipeline L.P. (NYSE: PAA) is primarily engaged in midstream crude oil activities, including transportation, gathering, marketing and terminaling.
Top analysts, including the Goldman Sachs team, feel the company deserves a premium valuation given its leverage to the Permian and attractive organic growth backlog. The company owns an extensive network of pipeline transportation, terminaling, storage and gathering assets in key crude oil and NGL producing basins and transportation corridors and at major market hubs in the United States and Canada. On average, Plains All American handles more than 6 million barrels per day of crude oil and NGL in its Transportation segment.
Goldman Sachs said this recently about the company:
We continue to expect the company’s Permian footprint of gathering, intra-basin, and long-haul pipelines to benefit from the basin’s lower breakeven production costs relative to most other US shale plays, driving a quicker recovery in production as commodity prices increase and thus throughput on the company’s system.
Investors still receive a solid 9.76% distribution. Goldman Sachs has set an $11 price objective. The consensus target price is $12.04, but Plains All American Pipeline stock closed shy of $7.30 on Friday.
This is a smaller capitalization energy company with solid upside potential and is yet another top Permian Basin play. WPX Energy Inc. (NYSE: WPX) is an independent oil and natural gas exploration and production company engaged in the exploitation and development of unconventional properties in the United States. Besides the Permian Basin, its principal areas of operation include the Williston Basin in North Dakota and the San Juan Basin in New Mexico and Colorado.
WPX is a premier Permian-levered operator with sector-leading debt-adjusted cash flow growth supported by strong execution in the core Delaware, all while trading at a Williston Basin valuations, primarily due to its relatively high financial leverage.
After a solid second quarter, the BofA Securities analysts said this:
Second quarter 2020 adjusted EBITDA of $400 million was ahead of expectations; production above estimates, capex lower. Completions to resume in the second half. 2020 capex trimmed with exit volume unchanged (140 Mb/d); 2021 sustaining capex outlook unchanged. Operational momentum (new completion design), opportunistic hedges and solid free-cash-flow outlook ($200 million in 2020).
BofA Securities analysts have a $10 price target. The consensus price objective is $8.88. WPX Energy stock retreated below $6 late last week.
These five companies have all been sent to the single-digit midget penalty box. Some of them may have a difficult road back to prosperity, but given what we have seen in the past, and the massive liquidity that Washington, D.C., is providing, the odds are good that each survives this downturn and could head much higher in the rest of the year with an increase in the benchmark pricing of oil.