The recent pullback in oil and gas prices appears to be related to fears that the Delta variant of Covid-19 will result in further lockdowns and travel restrictions that could pose catastrophic risks for energy players, as they did in April of last year.
We see this dynamic often in markets – investors are susceptible to psychological relapse phenomena akin to post-traumatic stress disorder. Once you have been hurt in a bomb blast, the sound of a truck backfiring on the highway sends you onto the floor in the fetal position. And so it goes with markets.
But such moments are often the best opportunities: the echo that doesn’t carry the substantive risk.
Delta appears to fit that narrative perfectly because case levels are rising, and we’ve been here before. But the difference this time is that we have a vaccine, and it does prevent serious illness, rendering the virus a rather mundane interloper in the human microbiome.
According to a Bloomberg piece published on Friday, the Delta scare is not having any impact on mobility data – people are eating out just as much, travelling just as much, flying just as much, heading to the local bar just as much, driving just as much. Despite the big, scary headlines, the bottom-up activity isn’t really being impacted. But markets are hedging in anticipation of something that may never come.
Hence, this could be the big opportunity for investors looking for the chance to get involved in the explosive small-cap energy story in 2021, impacting stocks like SilverBow Resources Inc (NYSE:SBOW), Matador Resources Co (NYSE:MTDR), Viking Energy Group Inc (OTC US:VKIN), Diamondback Energy Inc (NASDAQ:FANG), Helmerich & Payne, Inc. (NYSE:HP), SM Energy Co (NYSE:SM), and VanEck Vectors Oil Services Etf (NYSEARCA:OIH).
We take a closer look at some catalysts in this group below.
SilverBow Resources Inc (NYSE:SBOW) is a good example of what we mean by small-cap energy, with a market cap of around $200 million. Many stocks in the energy sector are over $50 billion in market cap due to the value of in-ground reserves and the large run higher in the price of oil over the past year.
SBOW is a growth-oriented independent oil and gas company that engages in the acquiring and developing assets in the Eagle Ford Shale.
SilverBow Resources Inc (NYSE:SBOW) recently announced operating and financial results for the second quarter of 2021. Highlights include net production of 213 million cubic feet of natural gas equivalent per day (“MMcfe/d”), at high end of guidance, a full year 2021 production guidance range increase to 200-210 MMcfe/d, an 8% increase at the midpoint, and a full year 2021 free cash flow guidance range increase to $45-$55 million.
Sean Woolverton, SilverBow’s Chief Executive Officer, commented, “During the second quarter we generated $7 million of free cash flow while further reducing our total debt and leverage ratio. At quarter-end, our leverage ratio was 1.9x compared to 2.5x at year-end 2020. This is a result of increasing operational efficiencies, lowering costs and realizing favorable prices across all products. The SilverBow team continued to streamline our cost structure, with total cash operating expenses below $1.00 per Mcfe this quarter, at the same time as achieving another quarter of zero recordable incidents. Our first Austin Chalk well in Webb County continues to exceed expectations and we are now drilling additional wells across the Company’s acreage to further define our potential drilling inventory in this emerging play. Furthermore, we continue to add to our portfolio through accretive acquisitions, with our announced La Mesa transaction bolstering our Eagle Ford and Austin Chalk opportunity set.”
The stock has suffered a bit of late, with shares of SBOW taking a hit in recent action, down about -9% over the past week. Over the past month, shares of the stock have suffered from clear selling pressure, dropping by roughly -24%.
SilverBow Resources Inc (NYSE:SBOW) managed to rope in revenues totaling $69.9M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 181.2%, 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 ($2.1M against $101.9M, respectively).
Viking Energy Group Inc (OTC US:VKIN) is becoming increasingly interesting given its expanding resources and diversifying positioning, as well as the apparent extreme discount in play for shares in light of recent developments for the company.
This is an energy producer with active operations and resources that recently reported strong results featuring robust growth in core metrics. But the story is becoming more interesting based on the strong backing the company has from its majority investor, Camber Energy Inc (NYSEAMERICAN:CEI).
Viking Energy Group Inc (OTC US:VKIN) engages in the acquisition, exploration, development, and production of oil and natural gas properties, and owns and invests in oil and gas assets located in North America in Kansas, Missouri, Texas, Louisiana, and Mississippi. However, that story may be expanding in important ways at this point.
The company announced this week that it has acquired a majority interest in Simson-Maxwell, a leading manufacturer and supplier of industrial engines, power generation products, services and custom energy solutions.
Simson-Maxwell integrates innovative technology with superior products to contribute to global energy sustainability. Operating for over 80 years, Simson-Maxwell’s diverse group of employees at seven branch locations service over 4,000 maintenance contracts and assist with satisfying the energy and power-solution demands of the company’s entire customer-base.
James Doris, President and Chief Executive Officer of Viking, commented, “We are very excited to be working with Remora and the entire Simson-Maxwell team, and look forward to further strengthening an already-established platform and recognizable brand to position the company for additional expansion throughout North America through the remainder of this year and beyond.”
Viking Energy Group Inc (OTC US:VKIN) has grown to show strong commercial results in its recent filings. But this acquisition carries the potential to add an important vertical diversification and present the company with new avenues of potential shareholder value and growth. Given its ultra-cheap status in the market right now, the move could pay off for stakeholders.
Matador Resources Co (NYSE:MTDR) bills itself as a holding company that engages in the exploration, development, production, and acquisition of oil and natural gas resources. It operates through the following segments: Exploration and Production, Midstream, and Corporate.
The Exploration and Production segment focuses on the exploration, development, production, and acquisition of oil and liquids-rich portion of the Wolfcamp and Bone Spring. The Midstream segment conducts natural gas processing, oil transportation services, oil, natural gas and produced water gathering services, and produced water disposal services to third parties.
Matador Resources Co (NYSE:MTDR) recently reported financial and operating results for the second quarter of 2021, including net cash from operating activities coming in at $258.2 million (GAAP basis), leading to second quarter 2021 adjusted free cash flow (a non-GAAP financial measure) of $156.3 million, a 2.5-fold increase from adjusted free cash flow of $63.9 million in the first quarter of 2021.
Joseph Foran, Matador’s Chairman and CEO, commented, “On both our website and the webcast planned for tomorrow’s earnings conference call is a set of six slides identified as ‘Chairman’s Remarks’ (Slides A through F) to add color and detail to my remarks. We invite you to review these slides in conjunction with my comments below, which are intended to provide context for the second quarter of 2021 compared to Matador’s goals for the year.
Even in light of this news, MTDR has had a rough past week of trading action, with shares sinking something like -5% in that time. That said, chart support is nearby, and we may be in the process of constructing a nice setup for some movement back the other way. Over the past month, shares of the stock have suffered from clear selling pressure, dropping by roughly -20%.
Matador Resources Co (NYSE:MTDR) managed to rope in revenues totaling $442.8M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 192.3%, 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 ($79.2M against $422.6M, respectively).