Following an attack on Saudi oil facilities over the weekend, KeyBanc analyst Leo Mariani upgraded Whiting Petroleum (WLL), SM Energy (SM), Jagged Peak Energy (JAG) and Centennial Resource (CDEV) to Overweight given the companies' exposure to higher oil prices. Meanwhile, Suntrust also upgraded Centennial Resource and Mizuho raised its rating for Parsley Energy (PE), with the latter arguing that it is prudent to add exposure to U.S. oil production.
SAUDI OIL ATTACK: An attack on Saudi oil facilities on Saturday has knocked out more than 5% of global oil supply and halted output of more than half of Saudi Arabia's daily exports. Industry sources have told Reuters that Saudi Arabia will be able to restore supply within days. In a tweet, Secretary of State Mike Pompeo said that the U.S. would work with its "partners and allies to ensure that energy markets remain well supplied and Iran is held accountable for its aggression." Meanwhile, President Trump has warned the U.S. is "locked and loaded" to respond as two of his cabinet members blame the attack on Iran.
BUY WHITING PETROLEUM, OTHERS: In a research note to investors following the attack, KeyBanc's Mariani upgraded Whiting Petroleum to Overweight from Sector Weight, with an $11 price target. The analyst said he expects Whiting Petroleum to have an outsized benefit from the move higher in oil prices as it is one of the "oiliest" E&Ps with oil cuts of 64% and 63% in the second half of 2019 and 2020, respectively. Further, Mariani noted that the shares are down around 67% year to date, which he thinks puts the stock in a good position for a rebound. Whiting Petroleum amended its credit facility, allowing it to put its pending debt maturities on its revolver and to avoid the secured bond market, he added.
Meanwhile, Mariani also upgraded SM Energy, Jagged Peak Energy and Centennial Resource to Overweight from Sector Weight, with price targets of $14, $10 and $6.50, respectively. The analyst cited the companies' exposure to higher oil prices as he expects all to have an outsized benefit from the move higher. Additionally, Mariani argued that valuation puts the stocks in a decent position for a rebound.
The analyst was not the only one to raise Centennial Resource’s rating on Monday. SunTrust analyst Neal Dingmann upgraded the stock to Buy from Hold and raised his price target on the shares to $8 from $5, as he views the company as "one of the better small cap operators" based on its premium Permian assets. The analyst pointed out that he sees Centennial Resource becoming close to neutrality at some point next year, with the latest geopolitical events set to cause WTI to remain above $60 per barrel for months to come.
EXPOSURE TO U.S. OIL PRODUCTION: Mizuho analyst Paul Sankey also upgraded Parsley Energy (PE) to Buy from Neutral, with a $24 price target, following the major attacks in Saudi Arabia as he believes it is prudent to add exposure to U.S. oil production. The analyst told investors that Parsley's 2020 oil production seems skewed higher than consensus and that the company should be able to deliver a 10%-plus adjusted free cash flow yield in 2022.
BUY SEVEN GENERATIONS, CRESCENT POINT: Meanwhile, BMO Capital analyst Ray Kwan upgraded Seven Generations Energy (SVRGF) and Crescent Point Energy (CPG) to Outperform from Market Perform. While the analyst acknowledged that it is unknown when Saudi Arabia's production capability will be fully restored, a higher risk premium will be attributed to oil over the next 12 months, which should benefit condensate weighted producers like Seven Generations and Crescent Point.
WHAT'S NOTABLE: Following the attacks on Saudi Arabia, Citi analyst Scott Gruber told investors that he expects "most if not all" of the Upstream Energy complex could see an uplift. However, Nabors Industries (NBR), Schlumberger (SLB), Halliburton (HAL) and Valaris (VAL) have material operations in Saudi and could see activity slow given the magnitude of the outage, Gruber contended.
PRICE ACTION: In morning trading, shares of Whiting Petroleum have jumped about 44%, SM Energy has advanced almost 17%, Jagged Peak’s stock has gained over 13% and shares of Centennial Resource have jumped more than 29%. Meanwhile, Parsley Energy has gained about 9% to $20.19.
OTHERS TO WATCH: Exxon Mobil (XOM) and Chevron (CVX) are among the largest cap energy stocks that are also higher on Monday after a jump in oil prices following the drone strikes on an oil facility in Saudi Arabia.
