The oil price crash of 2014 came from out of nowhere and it took oil stocks down with it as we see here.
The plunge in crude oil prices took some oil stocks down to ridiculously low levels, but there is a reason for that as the debt levels of some energy stocks leave them in danger of default if oil remains low for a long period of time. That's why it's really no surprise that our energy analysts are sticking with safer oil stocks as we head into 2015 as these are the oil stocks they think have the best chance of enduring whatever the market throws at investors in 2015.
Tyler Crowe: Call me picky, but I want my oil investments to generate gobs of free cash flow. The industry in general has a nasty reputation of eating up capital and not generating much of it in return, so when you find a company that does you hang on to it. That is why I'm still very bullish on the long-term prospects of Core Laboratories (NYSE:CLB).
Lots of haters will say that this company's prospects are too tied to deepwater projects that will dry up with cheap oil, and that the current glut of oil will make the services of this company less needed. Personally, I disagree with this sentiment because Core's services actually help lower costs for producers, which will be necessary if oil remains less expensive.
What is more important, though, is that Core is built to survive any storm in the industry. It has built a solid reputation as a company that generates loads of free cash flow, routinely returns it to shareholders, and has a balance sheet that most other oil services companies would envy. Even if this drop in oil price were to get a lot worse and last a while, it will take a long time before Core gets into any sort of financial trouble, and its technology lead in shale and offshore production enhancement -- two of the largest sources of growth for the oil industry -- means that its services will be in need for many years to come.
Matt DiLallo: If there is anything the plunge in oil prices taught investors in 2014 it's the fact that debt is a weight that can drag an energy company to the abyss. The other big lesson to be learned is that low cost oil production is a major competitive advantage in a low oil price environment. Virtually anyone with access to a drilling rig can make money when oil is $100 per barrel, but few can survive for very long if oil prices were to drop to say $40 and stay there for a while.
One oil company that is built to endure low oil prices is EOG Resources (NYSE:EOG). It has acreage in the drilling sweet spots of the three best horizontal oil plays in America. Because of that the company can make money even if oil prices slide to $40 per barrel as we see in the following slide.
In addition to unparalleled access to low-cost oil, EOG Resources has the balance sheet strength to endure a long downturn in the oil market. The company avoided the splashy acquisitions and greed driven overspending of its peers, which now has many drillers weighed down by debt. Because it stayed conservative the company now has ample liquidity to weather a long drought in oil prices.
With ample access to low-cost oil and a rock solid balance sheet EOG Resources is one of the best oil stocks to own in what could be a turbulent year.
Jason Hall: U.S. independent natural gas and oil producer Ultra Petroleum Corp (NASDAQ:UPL) has had its stock price crushed over the past six months, as oil prices have absolutely cratered. The past month has been the absolute pits:
Frankly, the chart above is a reflection of the market's panic, more than any analysis of Ultra's prospects or business. Oil prices will remain in flux as global demand growth slows, and producers battle over who should cut -- and how much -- but 90% of Ultra's production and 75% of revenues come from natural gas.
To be fair, natural gas prices have fallen more than 10% over the past week, as the winter has been -- so far -- relatively mild. Combined with production growth, it's possible that natural gas prices could fall even further. However, this is where keeping the long view pays off.
Both oversupply and lagging demand growth remain major concerns for primary oil producers, but natural gas demand -- despite the current seasonal softness -- has huge tailwinds. Growth in industrial, transportation, and export applications over the next decade are much more important than getting caught up in this winter's demand picture.
It's quite possible that 2015 will be a rough year for the oil industry. The market will take some time to sort out its issues. However, taking the long-term view and investing in the strongest companies should yield really great returns when the market hits another up cycle.