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Oil and Gas Stock Roundup: Crude's Rally Stretches to 5

By Matthew DiLallo – Oct 23, 2016 at 8:15AM

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Another week of rising oil prices drove Emerge Energy Services, EP Energy, Bill Barrett, San Juan Basin Trust, and BP Prudhoe Bay Royalty Trust up double digits this week.

Image source: Getty Images.

What happened

Crude oil continues to march higher, notching its fifth straight weekly gain. Overall, WTI edged up 1% to nearly $51 per barrel, driven primarily by expectations that OPEC and Russia are serious about implementing a deal to limit their output.

With crude oil on firmer footing, it's giving investors more confidence that companies with a greater sensitivity to pricing will get those higher prices in the future. That's clear by taking a look at this week's biggest movers -- which, according to data from S&P Global Market Intelligence, were Emerge Energy Services (NYSE: EMES), EP Energy (EPE), Bill Barrett (HPR), San Juan Basin Trust (SJT 0.74%), and BP Prudhoe Bay Royalty Trust (BPT -0.34%).

So what

With oil seeming to stabilize above $50 a barrel, shale drillers are starting to add more rigs to help support their output. That's why the U.S. oil rig count has risen for the past eight weeks. With more rigs in service, it's fueling demand for frack sand. That improvement in the outlook for volumes is pumping up Emerge Energy Service's unit price, which is now up more than 200% since the start of the year. 

The ongoing oil price rally was also the primary reason smaller shale drillers EP Energy and Bill Barrett jumped by double digits this week. In EP Energy's case, its drilling returns start to get compelling now that oil is in the $50s. For example, its Wolfcamp acreage can deliver 38% before-tax internal rates of returns once oil hits $55. Meanwhile, Bill Barrett recently restarted its drilling program thanks to the improvement in its cash flow and drilling returns from higher oil prices.  

Finally, oil and gas royalty companies San Juan Basin Royalty Trust and BP Prudhoe Bay Royalty Trust are also benefiting from rising prices. In fact, San Juan Basin Royalty Trust announced this week that it would pay a monthly dividend of more than $0.05 per share, which is up from $0.04 per share last month. BP Prudhoe Bay Royalty Trust's dividend, likewise, rises alongside oil prices. Because of that, its payout could be heading higher in the future, given the growing likelihood of coordinated action by OPEC and Russia to boost prices.

Now what

Crude's rise above $50 a barrel is crucial to certain oil stocks. In particular, royalty trusts, smaller drillers, and frack-sand producers are rising sharply because $50-plus crude enables them to collect higher royalties, earn better drilling returns, or deliver more volumes, which is what these companies need to survive.

Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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