It is no secret that gas station supplies are skyrocketing. And the reason for this is the outrageous cost of gasoline. They have increased since before the Russian invasion of Ukraine. And as a result, prices rose. Countries, such as the United States, began to embargo Russian oil. And other products and services. As a result of the U.S.’s importation of Russian crude, prices soared again.
We are digging into our oil reserves to keep prices from skyrocketing. And this can only continue for so long until it drives up prices even further. In conclusion, gas costs are increasing, reaching an all-time high, and continuing to climb. Additionally, more individuals are going on holiday, and that will also contribute to the country’s inflation.
Moreover, the coronavirus situation has nearly returned to normal. So, this is yet another aspect in a lengthy list that is driving up petrol prices. It is impossible to predict how high prices may rise this year, and they might ascend much further. Or, they might reach a plateau at the current level. That appears unlikely, yet it is feasible.
In addition, petrol stations are another industry that benefits from this high pricing because people are purchasing more gasoline and making more money, which results in increased profits across the supply chain. Particularly petrol stations that offer it to consumers.
This post has compiled a list of the most promising gas station stocks for study.
Table of Contents
10 Best Oil and Gas Station Stocks You Should Consider
1. ConocoPhillips
ConocoPhillips is one of the world’s major E&P-focused corporations. It has operations in more than a dozen countries and specializes in locating and producing oil and natural gas.
ConocoPhillips benefits from its size and access to some of the world’s cheapest oil, including substantial exposure to the Permian Basin. In 2021, it strengthened its position in this low-cost, oil-rich region by acquiring Concho Resources and Shell’s holdings. With average expenses of about $40 per barrel and several of its resources being significantly lower, the corporation can create a substantial cash flow.
Due to the unpredictability of future oil demand, ConocoPhillips intends to return a substantial amount of its free cash flow to investors over the next few years. It wants to pay an ever-increasing dividend, repurchase shares, and provide variable cash returns based on its excess cash.
The corporation now combines its low-cost offering with an elite balance sheet. ConocoPhillips consistently has one of the most substantial credit ratings among E&P businesses, supported by a low leverage ratio for the industry and a significant amount of cash. Due to these features, it is one of the most certain E&P assets.
2. Devon Energy
Devon Energy is a U.S.-centric E&P firm, and it has activities throughout several oil-rich, low-cost basins. The company’s diversification enables it to produce large quantities of inexpensive oil and natural gas, creating a substantial amount of cash.
In 2021, the firm introduced an industry-first fixed-plus-variable dividend structure. It distributes up to fifty percent of its quarterly excess cash flow via variable dividend payments after paying its set base dividend and capital costs. The remainder of Devon’s extra cash is used to improve its balance sheet and repurchase shares.
Devon is an attractive investment option for income-focused investors due to its dividend approach. They will get a reliable base income throughout the oil price cycle and have the opportunity to generate substantial payouts during periods of high prices.
3. PDC Energy
As of April 15, PCE Energy (PDCE, $77.87) shares had gained about 60 percent year-to-date, but Wall Street believes they still have space to run.
Analysts applaud the exploration and production (E&P) company’s good fourth-quarter performance, the similarly optimistic expectation for 2022, and its capacity to create free cash flow (FCF, the cash remaining after costs, capital expenditures, and financial commitments are satisfied).
Goldman Sachs analyst Umang Choudhary writes, “We maintain our Buy rating on PDCE given the company’s robust FCF profile and freshly stated commitment to return more than 60 percent of post-dividend FCF to shareholders in the form of a rising base dividend and share repurchases.”
Analysts also commend PDC’s acquisition of Great Western Petroleum in February, a $1.3 billion transaction. Neal Dingmann, the Trust Securities (Buy) analyst, believes future “low-cost, accretive M&A transactions” might be catalysts for PDCE shares.
Strong Buy is the consensus analyst rating for PDC Energy, according to S&P Global Market Intelligence. Nine analysts give the company a Strong Buy rating, four a Buy rating, and one a Hold rating.
According to the expert community, just a handful of oil and gas equities have the same potential upside as PDCE shares. The experts’ average price objective of $93.14 for PDCE implies a possible upside of 20% over the next 12 months.
4. Enbridge
Enbridge maintains one of the world’s largest oil pipeline networks, and it carries thirty percent of North American oil production. Enbridge has a vast natural gas pipeline network, a natural gas utility company, and renewable energy businesses.
Long-term contracts and government-regulated tariffs support the predictable cash flow generated by Enbridge’s pipeline operations. This allows the company to pay a dividend with a high yield and invest in expanding its energy infrastructure activities.
In recent years, Enbridge has made substantial investments in infrastructure aimed at greener energy. This comprises pipelines for natural gas, offshore wind energy in Europe, and hydrogen energy. These investments position Enbridge for the future of energy, despite the company’s continued importance to the oil market.
5. ExxonMobil
ExxonMobil, one of the world’s largest oil firms, is a fully integrated supermajor. It engages in every oil and gas industry sector, including exploration and production, midstream, petrochemical manufacture, refining, and marketing of refined and petroleum products.
Recent ExxonMobil initiatives have centered on cutting corporate expenses and increasing productivity. In 2022, these investments will begin to bear fruit. In the past several years, the corporation has considerably reduced its oil production costs by focusing on its highest-return assets and taking initiatives to harness its colossal scale better. This creates substantial cash flow when oil prices are significantly higher.
This cash flow should sustain ExxonMobil’s dividend and status as a Dividend Aristocrat. Given the development of alternative energy, many investors are avoiding oil equities altogether. ExxonMobil invests in lower-carbon fuel sources, such as carbon capture, storage, and biofuels, and this should allow it to continue delivering fuel to the economy for decades.
6. Ovintiv
According to analysts, rising oil and gas prices enable E&P to play Ovintiv (OVV, $53.18) to “right-size” its financial sheet, allowing it to pay even more cash to shareholders.
Neil Mehta, an analyst at Goldman Sachs, says, “We maintain our Buy rating on OVV due to its improved FCF profile relative to its peers and the company’s expected shareholder returns inflection to 50 percent or more of FCF (from 25 percent now) as the balance sheet strengthens.”
Analyst Neal Dingmann (Buy) at Truist Securities is also optimistic about OVV’s expanding free cash flow, cash return to shareholders, and debt reduction measures. In addition, the business “might make a somewhat accretive acquisition in the future months without significantly altering its shareholder return goals,” he says.
According to bulls, OVV is a turnaround tale that is truly beginning to turn. Therefore, the oil and gas stock’s shares, which are up about 60 percent year-to-date, have plenty more outperformance left.
In fact, with an average price objective of $64.90, analysts assign OVV stock a potential upside of 22% over the next twelve months.
S&P Global Market Intelligence reports that ten analysts rank OVV as Strong Buy, nine as Buy, and five as Hold. That amounts to a unanimous Buy recommendation with a reasonable amount of certainty.
7. Phillips 66
Phillips 66 is a significant oil refining company with operations in the United States and Europe. Additionally, it has stakes in midstream operations and petrochemicals through its joint venture with Chevron, CPChem (NYSE: CVX). Lastly, the marketing and specialties division sells refined products and develops lubricants and other specialized goods.
Phillips 66 is among the lowest-cost refiners in the industry due to its large-scale, vertically integrated operations. This is the consequence of using its integrated midstream network to procure the lowest-cost crude for refining and petrochemical feedstocks and investing in projects with more significant product margins.
Phillips 66 also has a solid financial profile, with an investment-grade balance sheet and highly manageable debt levels. In addition, it has ample cash on hand. Due to its low debt and substantial cash reserves, the company has adequate funds to engage in expansion initiatives, including renewable energy.
In the past decade, it has been a dividend growth rockstar and a share repurchase powerhouse. Phillips 66 should be able to continue increasing shareholder value in the following years by focusing on making intelligent investments and returning cash to shareholders.
8. Chesapeake Energy
Chesapeake Energy (CHK, $94.36), a natural gas E&P business, has the highest upside potential among these oil and gas companies, according to UBS Global Research’s list of Top Picks for 2022. This is due to rising natural gas prices and other factors.
Similar to PDCE, Chesapeake is profiting from strategic acquisitions. The business ended its $2.6 billion acquisition of privately held Chief E&D Holdings early in March. This is the company’s second significant purchase since late 2021. Moreover, it permits CHK to return even more cash to shareholders.
“Basic dividends will grow to 50 cents per share,” writes Lloyd Byrne, an analyst at UBS (Buy). Remember that in January, CHK hiked its annual dividend by almost 14 percent to $2.00 per share while maintaining its $1 billion stock repurchase program. (The corporation also distributes variable dividends based on free cash flow after adjustments.)
Although favorable gas market conditions have driven CHK to a year-to-date gain of more than 45 percent through April 15, experts believe it is still cheap. In fact, with an average price objective of $116.70, analysts see a 24 percent potential for CHK stock over the next year or so.
Therefore, it is not surprising that the analyst consensus rating is Strong Buy. Seven of the eleven analysts polled by S&P Global Market Intelligence covering the stock rated as a Strong Buy, three as a Buy, and one as a Hold.
9. Diamondback Energy Company
Diamondback Energy (FANG, $138.44), an oil and gas E&P company, with a Buy consensus recommendation. Even though shares are up more than 28 percent yearly through April, experts assert that investors can still enjoy outsized returns in the next year.
In fact, with an average 12-month price target of $168.25, Wall Street projects an upside of 22% for FANG stocks.
Once again, the investment thesis is contingent on maintaining low expenditure and high cash to shareholders.
“Management is dedicated to capital discipline, FCF generation, and shareholder returns,” analysts John Freeman of Raymond James (Strong Buy).
Freeman explains that FANG just upped its annual basic dividend by 20% to $2.40 per share.
“FANG’s focus will be a constant and increasing base dividend,” the analyst says. “However, the business will supplement this base dividend with share repurchases or variable dividends to return 50 percent of FCF to shareholders.”
Stewart Glickman, an analyst at CFRA Research, makes a Buy argument for FANG shares by highlighting the company’s increasing dividend and the favorable macroeconomic environment.
Glickman adds, “With tighter markets anticipated in 2022, which should result in robust pricing, we believe FANG is poised for a solid year.”
The oil and gas stock is rated Strong Buy by seventeen analysts, Buy by ten, and Hold by five.
10. Baytex Energy Corp.
Baytex Energy is a Canadian exploration and production firm for oil and gas. It is in the business of acquiring, developing, and producing crude oil and natural gas. Eagle Ford in Texas and the Western Canadian Sedimentary Basin are its most crucial oil resource plays. Baytex said on April 1, 2022, that company has been granted a two-year extension of its revolving credit facilities through April 2026. With the extension, its credit was increased to $850 million. Additionally, Baytex Energy trades in Canada under the symbol BTE.TO.
How to Assess Oil and Gas Stocks
Investing in the oil business is inherently hazardous. Although each sector area has its own set of risk considerations, the oil industry as a whole is cyclical and volatile.
In general, oil consumption parallels economic development, and a strong economy may support growing oil prices and the profitability of oil producers. Nonetheless, geopolitics and capital allocation play significant roles in the business.
OPEC (Organization of the Petroleum Exporting Countries) is a cartel that coordinates the oil policy of its member states. The activities of OPEC can significantly impact oil prices, and it can restrict supply to boost prices or increase output to decrease them. Over the years, OPEC has exerted its influence, generating significant changes in oil prices.
Additionally, oil corporations that operate independently of OPEC can influence oil prices. If they dedicate excessive cash to new projects, this might result in overstock and pressure on pricing. Alternatively, if they hold back too much, prices may increase. Since oil and gas assets are built over an extended period, corporations cannot rapidly boost their supply in reaction to favorable market circumstances.
Given the volatility of oil prices, an oil firm must possess the following three qualities to endure the inevitable downturns in the industry:
- Strong financial profile characterized by an investment-grade bond rating, substantial cash on hand or adequate access to inexpensive credit, and manageable, well-structured debt maturities.
- Low operating expenses and reasonably consistent cash flow streams. E&P firms must be able to continue operations economically at oil prices below $40 per barrel. In contrast, midstream companies should get more than 85 percent of their cash flow from stable revenue streams, such as fee-based contracts. The operational expenses of downstream enterprises should be lower than the industry average.
- Diversification. Oil firms should operate in many geographies or be at least substantially vertically integrated by engaging in multiple activities.
Risk Management in Oil and Gas Station Investment
Even a modest mismatch between supply and demand may frequently cause the oil market to spiral out of control. This became clear in early 2020 when the COVID-19 outbreak pushed the industry into a spiral. However, the converse is also true: Oil prices may spike when demand increases and supplies are limited. This was the situation at the beginning of 2022 when crude oil prices spiked as the economy began to recover from the epidemic and supplies were strained due to Russia’s invasion of Ukraine.
Due to this dynamic, investors must exercise caution while selecting oil equities. They should prioritize enterprises that can endure adversity since they will be better positioned to prosper when markets recover.
Final Thoughts
The strong performance of oil and gas equities raises the apparent argument that the most accessible money may have already been made. The energy sector gained about 44 percent year-to-date through April 15, while the S&P 500 declined roughly 8 percent during the same period. (For the record, utilities increased by 6.3% while consumer staples increased by 2.5%.)
Ordinarily, when equities go so far and quickly, additional gains become (at least theoretically) constrained. As future earnings are priced in, and valuations become stretched, analysts have ample cause to become increasingly apprehensive. However, Wall Street believes that at least a few oil and gas equities have significant upside potential.
