5 Best Performing Oil & Gas Stocks in 2024

The oil and gas sector has lost much of the momentum it enjoyed earlier in the year, largely due to lingering fears of weak demand. The energy sector’s 7.1% year-to-date return was well below par S&P 50017.2% gain which places it the 10th of 11 US market sectors.

According to StanChart, both bullish and bearish price cycles in recent months were primarily due to spillover effects from interest rate markets, as well as a seasonal dominance of algorithmic trading.

Unsurprisingly, Wall Street increasingly turns against oil and gas stocks: On Monday, Oppenheimer analysts demoted energy sector from market weight to underweight, saying “with previous inflationary headwinds largely removed, the sector currently shows the fewest shares above their 200-day moving average.”

That said, some of the best gainers in the stock market this year have been energy companies. Here are 5 of the best performing energy stocks that exclusively include energy stocks from Energy Select Sector SPDR Fund ETF (XLE):

#1 Targa Resources Corp. (NYSE:TRGP)

Market cap: $31.6 billion

Annual Return: 67.0%

based in Texas Targa Resources Corp. (NYSE:TRGP) owns general and limited partner interests in a limited partnership that provides natural gas and natural gas liquids services. The company gathers, compresses, treats, processes and sells natural gas. TRGP earned a buy recommendation from Goldman Sachs due to its strong return on equity (or ROE).

“Stronger-than-expected economic growth is the clearest upside risk to ROE. (This) would create an advantage for asset turnover through faster growth in sales and profit margins through operating leverage. However, stronger growth has recently coincided with hotter-than-expected inflation,” wrote GS analyst David J. Kostin.

Related: Why coal is still a cornerstone of the global energy mix

GS estimates that Targa Resources will be able to increase its ROE by 17% this year. TRGP has been an exceptional performer and is currently trading at a decade high of just Nvidia Corp. (NASDAQ:NVDA) with a higher return among the famous FAANG group of stocks. At the beginning of the month, Targa reported a second quarter 2024 net income of $298.5 million, compared to $329.3 million for the second quarter of 2023, with profits falling due to lower oil and gas prices.

#2 Diamondback Energy Inc. (NASDAQ:FANG)

Market cap: $34.7 billion

Annual Return: 29.8%

based in Midland, Texas Diamondback Energy, Inc. (NASDAQ:FANG) was one of the outstanding performers in the current earnings season. The company reported Q2 revenue of $2.48 billion (+29.2% y/y), beating the Wall Street consensus by $280 million, while Q2 Non-GAAP EPS of $4.52 beat $0.02. The company had an average production of 276.1 MBO/d (474.7 MBOE/d).

Earlier, Diamondback Energy agreed to buy private Permian producer Endeavor Energy Resources in a cash and stock deal valued at $26 billion. What’s impressive here is that Diamondback Energy is only valued at $34 billion (market cap). Interestingly, FANG shares are up more than 10% after the deal was announced almost a week ago, which means the market is looking at it favorably. Share prices of the acquiring company, most of the time, tend to fall because the company has to pay a premium, along with the high risk of failure.

#3 The Williams Companies (NYSE:WMB)

Market cap: $54.8 billion

Annual Return: 29.4%

Williams Inc. Companies (NYSE:WMB) is one of the largest energy infrastructure companies in the United States, operating a total of 33,000 miles of pipelines, which it says represents one-third of the gas transported in the US. The company posted solid results, with the recent increase in electricity demand, particularly from artificial intelligence (AI) data centers, likely to keep demand high for the company’s gas pipelines.

WMB continued to expand its gas infrastructure. At the beginning of the year, the company COMPLETED the acquisition of facilities with transport links from Hartree Partners for 1.95 billion dollars. The gas assets include six underground natural gas storage facilities in Louisiana and Mississippi with a total capacity of 115B cf, 30 pipeline interconnections to attractive markets, including connections to Transco, and 230 miles of gas transmission pipelines. Transco is the largest natural gas pipeline in the US

“Importantly, this storage will also allow us to deliver value to customers in markets with growing renewable adoption as daily natural gas peaks increase the need for storage.,” Williams president and CEO Alan Armstrong said in a press release.

#4 ONEOK Inc. (NYSE:OKE)

Market cap: $51.5 billion

Annual Return: 28.8%

based in Tulsa, Oklahoma ONEOK Inc. (NYSE: OK) is another midstream infrastructure company engaged in the processing, storage, transportation and marketing of natural gas and natural gas liquids. The company recently posted Q2 adjusted EPS of $1.33, beating the Wall Street consensus by $0.12, due to higher natural gas processing volumes.

Like its peers, ONEOK has sought to expand its gas assets through mergers. The company recently announced the acquisition of 43% of the outstanding common units of Enlink for $14.90 per unit and 100% of the interests in the managing member for $300 million, for total cash consideration of approximately $3.3 billion. The acquisition includes a crude oil infrastructure platform capable of processing 1.7 billion cubic feet per day of Permian gas and 1.6 million barrels per day of Permian crude oil gathering capacity.

#5 Kinder Morgan Inc. (NYSE:KMI)

Market cap: $47.3 billion

Annual Return: 20.8%

Another energy infrastructure giant, Kinder Morgan (NYSE:KMI) owns and operates approximately 82,000 miles of pipeline and 139 terminals. Kinder Morgan reported that its natural gas pipeline segment saw growth due to higher margins realized on its storage assets and higher volumes on its gathering systems. On earnings conference callCEO Kim Dang said he expects “significant new demand for natural gas” to grow from energy-intensive technology such as artificial intelligence, crypto mining and data centers.

“We expect demand for natural gas to grow substantially between now and 2030, led by a doubling of demand for LNG exports and a more than 50% increase in exports to Mexico.Dang said.

“The focus on renewable energy sources as the only energy sources is fatal,” Dang added, arguing that Big Tech leaders, “like the rest of us, realize that the wind doesn’t blow all the time and the sun doesn’t shine all the time.”

Sital Mody, president of natural gas at the energy infrastructure company Kinder Morgan is very optimistic about the Eagle Ford’s natural gas prospects. Mody predicted strong growth in Eagle Ford Shale production through 2030 due to favorable economics and the low nitrogen content of natural gas produced in the basin. Conformable DATA from S&P Global Commodity Insight, natural gas production from the Eagle Ford Shale averaged 5.2 Bcf/d in 2023; Kinder Morgan has forecast that production will increase by another 2.5 Bcf/d, or nearly 50%, by 2030 and will likely rival that of Haynesville.

By Alex Kimani for Oilprice.com

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