Opportunities In A Struggling Energy Sector

Watch These Two Oil Stocks With Big Things Coming, Good and Bad

Two of the most promising oil stocks out there right now are Apache Corporation (NYSE: APA) and Noble Energy (NYSE: NBL), assuming Egypt doesn’t trip them up.

For Noble, the highly anticipated cash cow is the completion of the Leviathan gas field--the giant field that put Israel on the energy map. 

For Apache, it’s the anticipation of an Exxon-Guyana-style discovery in Suriname, a stone’s throw across the maritime border from Exxon’s 14-strong string of discoveries.  

For both, Egypt is a bit of a sticking point right now, and analysts can’t seem to decide how vulnerable they are. 

First, Noble Energy: This company isn’t going to have any cash flow just yet. It’s innovative and cost-cutting, but we’re waiting on Leviathan right now, with first production scheduled for late this year. 

Houston super independent Noble Energy Inc., which is leading the development of two Eastern Mediterranean natural gas fields offshore Israel, plans to double firm volume commitments to Egypt’s Dolphinus Holdings Ltd. and extend the sales terms.

A lot rides on Egypt for Noble, though. Noble has cleared some important hurdles in this respect, with Israeli energy companies having just received approval from antitrust authorities to take a stake in a pipeline that will deliver this gas to Egypt. This deal will increase Israel’s planned natural gas exports to Egypt by one-third. That’s a big win for Noble. But Egypt’s el-Sisi regime is showing signs of cracking. 

As protests engulf the nation and the regime embarks on a crackdown, arresting over 2,000 people in a matter of only two weeks, there is reason to question the stability of the regime. The protests are gaining momentum, and under this regime they are a dangerous anomaly, partly because the regime banned protests as of 2013. This time, they were sparked off by corruption allegations that originated from a building contractor in exile who used social media to spread information about lavish vanity projects and palaces built for the regime in the midst of the country’s rising poverty. For perspective, these are not yet mass protests, but they are enough to have investors concerned. The regime’s draconian response to the protests is likely to backfire, and another revolution is not beyond the realm of the possible. 

For Noble, there is quite a lot at stake here: The estimated value of the Israeli gas planned for Egypt is $20 billion over 15 years. 

Apache, too, is potentially sitting on a fabulous new play in Suriname, but likewise has vulnerability to Egypt. It’s one of the largest acreage holders in Egypt’s Western Desert, with 6.2 million gross acres across 25 concessions. The vast majority of this is underdeveloped. 

At the end of July, Apache posted a quarterly loss of $360 million, or $0.96 per share, with revenues down 16.9% for the same quarter a year ago.

It’s not very enticing: But then, there’s Suriname … and the lure of a repeat of the major discoveries that just keep lining up for Exxon, Hess and Tullow in this newly prolific basin where Exxon is gearing up for first production at Liza early next year. 

It’s a complicated basin, and Apache isn’t a newcomer, but it’s already started drilling its first well in Block 58, right next to one of Exxon’s Guyana finds. And the Noble Sam Croft that’s drilling it for Apache is from the same fleet that’s been drilling for Exxon, so there’s much to learn there.  

Apache started the drill last week, and had initially anticipated first results within 20-30 days. 

Palladium: The Money Metal Right Now

If you haven’t been paying much attention to palladium while investors have been hypnotized by the return of gold, we suggest shifting focus right now because palladium prices have shot through the roof. 

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It’s not a battery metals story, per se--but there is a big tie-in to the auto industry. 

Palladium prices are soaring near and above record highs this week amid tight supply concerns. Palladium is used as an emissions-reducing agent for gasoline-powered engines, and right now, it’s all about emissions. The auto industry may be reeling right now, but emissions are a top priority.

Of particular concern is that there will be a shortage of palladium for car exhaust systems, despite a weakening auto sector. This pending supply tightening has analysts predicting prices could see a 33% rise in 2019, after hitting lows in August. 

The spiking prices though are in part sentiment-driven and there seems to be a trend right now of dumping precious metals and shifting to palladium. So we have a fundamental demand boost, plus sentiment playing in palladium’s favor.

Adding to the supply next year will likely be $7B-market-cap Polymetals International PLC, which has just raised its mineral resource estimate by 58% to 5.7 million ounces of palladium equivalent at its Viksha deposit in Russia—one of the largest open pit deposits in the world.