Why the Recent Oil Pullback is an Opportunity (CEI, VKIN, FANG, XEC, PDCE, CPE, HP, PBF, MTDR)

The Oil market continues to lead all asset classes in 2021. The recent pullback in oil is – one can make a good case – likely attributable to cash-raising activities by US producers, who still have some bumps and bruises on the balance sheet from last year’s crash in oil.

They can suddenly sell in-ground oil ahead in the futures market above $70/bbl, which is the first time that has been true in years. And the pullback has come out of the start of fresh quarter, when decisions like that are often made.

That suggests the prior trend higher has further to go, and both OPEC and supply deficits will continue to be a tailwind.

This presents a strong backdrop for smaller cap players in the space, such as Diamondback Energy Inc (NASDAQ:FANG), Cimarex Energy Co (NYSE:XEC), Viking Energy Group Inc (OTC US:VKIN), PDC Energy Inc (NASDAQ:PDCE), Callon Petroleum Company (NYSE:CPE), HP Inc (NYSE:HP), Camber Energy Inc (NYSEAMERICAN:CEI), PBF Energy Inc (NYSE:PBF), and Matador Resources Co (NYSE:MTDR).

We take a closer look at some of the more interesting names in the space below.

 

Diamondback Energy Inc (NASDAQ:FANG) is an independent oil and natural gas company, which engages in the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves. It operates through the Upstream and Midstream Services segments. 

The Upstream segment focuses on the Permian Basin operations in West Texas. The Midstream Services segment involves in the Midland and Delaware Basins. 

Diamondback Energy Inc (NASDAQ:FANG) recently announced that the Company fully redeemed the $191 million aggregate principal amount of outstanding legacy 4.625% Senior Notes Due 2021 of Energen Corporation, a subsidiary of the Company. The repayment of these notes will reduce cash interest expense by approximately $9 million annually.

“By using internally generated cash flow as well as proceeds from our previously announced Permian non-core asset sales to retire this tranche of bonds, we reduced our absolute debt load, decreased our interest expense and strengthened our balance sheet,” stated Travis Stice, Chief Executive Officer of Diamondback. “We expect to use additional internally generated free cash flow as well as proceeds from our pending Williston Basin divestiture to further reduce our callable debt in the second half of this year.”

While this is a clear factor, it has been incorporated into a trading tape characterized by a pretty dominant offer, which hasn’t been the type of action FANG shareholders really want to see. In total, over the past five days, shares of the stock have dropped by roughly -10% on above average trading volume. All in all, not a particularly friendly tape, but one that may ultimately present some new opportunities. FANG shares have been relatively flat over the past month of action, with very little net movement during that period. 

Diamondback Energy Inc (NASDAQ:FANG) managed to rope in revenues totaling $1.2B in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 31.7%, as compared to year-ago data in comparable terms. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($140M against $1.9B, respectively).

 

Viking Energy Group Inc (OTC US:VKIN) is an interesting player on the small-cap side in the energy sector, producing assets in Texas, Louisiana, Mississippi, and Kansas. 

VKIN is also currently the majority-owned subsidiary of Camber Energy Inc (NYSEAMERICAN:CEI), and a merger agreement is in the works that could increase the value of both companies through geographic and operational synergies. The company describes itself as an independent exploration and production company focused on acquiring, enhancing, and developing oil and natural gas properties in the Gulf Coast and Mid-Continent regions. That’s a hot spot right now in the market as oil continues to dominate the financial world performance leadership table.

Viking Energy Group Inc (OTC US:VKIN) recently posted sturdy results for Q1, including revenues of nearly $10.5 million and an adjusted EBITDA of $4.63 million.

James Doris, President and Chief Executive Officer of both Camber and Viking, commented, “We are pleased with Viking’s Q1 results, especially following the unprecedented conditions experienced in 2020. We are extremely encouraged with the foundation we have established, and are intensely focused on pursuing growth opportunities.”

We would also point out that the company was able to drive nearly 20% sequential quarterly topline growth ahead of any clear sense of full economic “reopening”, when analysts expect energy demand to grow significantly.

Viking Energy Group Inc (OTC US:VKIN) shares have been gaining ground since putting in a key pivot low in May. Shares have been trending off key range support in the $0.40 area, pushing up by as much as 75%, which has included a breakout above the stock’s major trend moving average. That suggests a technical shift in trend to the upside that may start to build momentum, especially on higher highs in the oil market.

 

Callon Petroleum Company (NYSE:CPE) engages in the exploration, development, acquisition and production of oil and natural gas properties in the United States. 

It focuses on unconventional oil and natural gas reserves in the Permian Basin.

Callon Petroleum Company (NYSE:CPE) recently announced that it has priced $650 million aggregate principal amount of its 8.00% senior unsecured notes due 2028 in a private offering that is exempt from registration under the Securities Act of 1933, as amended. The sale of the notes is expected to close on July 6, 2021, subject to customary closing conditions.

On June 21, 2021, the Company delivered a redemption notice with respect to all $542.7 million of its outstanding 6.25% Senior Notes due 2023. The net proceeds from the offering are expected to be used to fully redeem all of the 2023 Notes. The 2023 Notes will be redeemable on July 21, 2021. Remaining proceeds will be used to partially repay amounts outstanding under the Company’s senior secured revolving credit facility.

While this is a clear factor, it has been incorporated into a trading tape characterized by a pretty dominant offer, which hasn’t been the type of action CPE shareholders really want to see. In total, over the past five days, shares of the stock have dropped by roughly -6% on above average trading volume. All in all, not a particularly friendly tape, but one that may ultimately present some new opportunities. Shares of the stock have powered higher over the past month, rallying roughly 9% in that time on strong overall action. 

Callon Petroleum Company (NYSE:CPE) managed to rope in revenues totaling $359.9M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 24.1%, as compared to year-ago data in comparable terms. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($24.4M against $672M, respectively).

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