High Flyers: 3 Natural Gas Stocks for March 2022
Before you relegate natural gas stocks to a list of "stocks from the good old days," take a look at a few stocks blowing past traditional analysis.
What should you sink your teeth into right now? Oil stocks come to mind, what with the geopolitical tensions sending fuel prices higher and boosting shares.
Think back to April 2020, when oil prices fell below $0. Now in a radically different scenario, oil prices have deviated from 2020's collapsing revenues and continue to tip upward at a level not seen since 2014.
After being dubbed the official "worst-performing sector in 2020," energy stocks can pin on the blue ribbon — it's the best-performing sector so far in 2022, amid news of Germany halting progress on Russia's Nord Stream 2 natural gas pipeline.
Let's not forget natural gas stocks. Here's what you need to know as you do a slight pivot from a hyper-focus on oil to natural gas.
Let's dig in.
Why Natural Gas Stocks?
It's true that natural gas is a nonrenewable resource, which means that anyone passionate about ESG investments may veer away from investing in this sector. The Energy Information Administration (EIA) reports that natural gas can contain high concentrations of toxic hydrogen sulfide and CO2 (especially during extraction), so carbon monoxide, sulfur dioxide, nitrogen oxides and other compounds often make their way into the atmosphere. In addition, natural gas can be difficult to harness, and the most daunting aspect of future supply is that it will run out worldwide, eventually. Furthermore, natural gas limited short-term alternatives to natural gas as a fuel for heating and electricity generation during periods of high demand, changes in supply or demand over a short period may result in large price changes.
But. As an investor, you can't help but notice that the International Energy Agency says that natural gas demand will rise 29% by 2040. Furthermore, companies in the oil and gas sector often pay dividends, which allows you to earn regular income on returns.
3 Natural Gas Stocks to Consider Right Now
Which natural gas stocks make sense right now? Let's investigate several options.
DCP Midstream LP, headquartered in Denver, gathers, compresses, treats, processes, transports, stores and sells natural gas through its logistics and marketing and gathering and processing segments. The company's logistics and marketing segment includes transporting, trading, marketing and storing natural gas and NGLs and fractionating NGLs. The gathering and processing segment also gathers, compresses, treats and processes natural gas, producing and fractionating NGLs and recovering condensate.
For Q4 and year-end 2021, DCP had:
- Net income attributable to partners of $315 million and $391 million.
- Net cash provided by operating activities of $391 million and $646 million.
- Adjusted EBITDA of $330 million and $1.2 million.
- Distributable cash flow of $219 million and $869 million.
The company generated $122 million and $500 million of excess free cash flow for Q4 and year-end 2021, after fully funding distributions and growth capital. Q4 earnings benefited from favorable gathering and processing results driven by a 5% increase in Permian volumes versus Q3 2021 and strong performance from the DJ Basin.
The company exceeded the high end of 2021 financial guidance for adjusted EBITDA by $31 million and distributable cash flow by $59 million.
EQT Corporation, headquartered in Pittsburgh, produces, gathers and transmits natural gas in the Appalachia area. It operates in the Marcellus and Utica Shales area in the Appalachian Basin. The company has approximately 19.8 trillion cubic feet equivalents (Tcfe) of proved natural gas, natural gas liquids (NGLs) and crude oil reserves across close to two million gross acres and the majority are in the Marcellus area.
In Q4 2021, EQT Corporation saw sales at a volume of 527 billions of cubic feet equivalent (Bcfe) and for the full year ended 2021, sales volume of 1,858 Bcfe. The company saw total per unit operating costs of $1.28 billions of cubic feet equivalent (Mcfe), $0.08 Mcfe below 2020.
Chesapeake Energy Corporation, headquartered in Oklahoma City, Oklahoma, acquires, explores and develops properties for the production of oil, natural gas and NGLs from underground reservoirs in the United States. Chesapeake holds reserves in natural gas resource plays, including the Marcellus in Northern Appalachian Basin in Pennsylvania, Haynesville in Northwestern Louisiana, Eagle Ford in South Texas, the Brazos Valley in Southeast Texas and Powder River Basin in Wyoming. It owns interests in approximately 7,400 oil and natural gas wells including 5,900 properties with working interest and 1,500 properties with royalty interest and more.
In Q4 2021, the company held net cash provided by operating activities of $563 million and an unrestricted cash balance of $905 million. Net income for Q4 amounted to $1.4 billion and the company released a quarterly dividend of $1.7675 per common share, with a quarterly variable dividend of $1.33 per common share and a quarterly base dividend of $0.4375 per common share. It'll be payable on March 22, 2022 to shareholders of record at the close of business on March 7, 2022.
For the full year, it expanded its highest-return assets in the Marcellus and Haynesville region through two major acquisitions and announced $1 billion in a common stock and warrant repurchase program expected to be executed by the end of the year in 2023.
The company generated over $1.2 billion in adjusted free cash flow and expanded its dividend program and is expected to generate approximately $1.9 and $2.1 billion in adjusted free cash flow in 2022.
Ready to Break into Natural Gas Stocks?
If you've been following the news, you know that natural gas stocks have been rapidly changing amid intense international conflict and news. Despite a shift toward greener alternatives, years of underperformance and yo-yoing commodity prices, issues with capital discipline and investor wariness of fossil fuel investments, natural gas shares are on fire.
Do your due diligence before you invest, particularly if you think you want to hold any one of these stocks for the long term.
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