3 oil stocks likely to benefit from new EPA rules
As oil prices soar, investors’ attention has turned to oil companies. As oil companies seek to increase oil production, this could also lead to increased methane emissions. Methane is released from oil and gas wells by flaring or venting natural gas, which contributes to air pollution.
According to the American Association for the Advancement of Science (AAAS), levels of methane in the air “are now higher than at any time in human history, due to emissions from fossil fuel and agriculture/livestock sectors”. The AAAS believes that since methane lasts less than 10 years in the atmosphere, reducing these emissions “will have a rapid and significant effect on the rate of climate change.”
According to a the wall street journal May 30 report, the US Environmental Protection Agency (EPA) has set new rules to reduce methane emissions, but they have yet to be finalized. The report also says the move could likely benefit oil drilling equipment companies such as Baker Hughes, Schlumberger and Honeywell International.
Using the TipRanks database, we took a closer look at these oil drilling equipment companies. We’ll also look at what Wall Street analysts are saying about these stocks.
Baker Hughes is an energy technology company with operations in approximately 120 countries. The Company’s segments include Oilfield Services & Equipment (OFSE), Industrial Energy Technology (IET) and new segments Climate Technology Solutions (CTS) and Industrial Asset Management (IAM).
With respect to methane emissions, BKR’s CTS business will include carbon capture, utilization and storage (CCUS), emissions management, hydrogen, and clean and integrated energy solutions. The IAM business is expected to “bring together key digital capabilities, software and hardware from across the enterprise to help customers increase efficiency, improve performance and reduce emissions from their energy and industrial assets” .
Evercore analyst James West is positive about these clean energy initiatives as BKR “continues to anticipate new energy orders at the upper end of its $100-200 million target for 2022”.
The analyst is bullish on the stock with a buy rating as he believes BKR has a “clearly defined strategy to continue to transform the core business, invest for growth, which includes leveraging the industrial space and positioning for the new energy frontiers”.
West also raised the price target to $41 from $34 for the stock, implying 13.9% upside potential.
Other street analysts are also bullish on the stock with a strong buy consensus rating based on 13 buys and one hold. BKR’s average price target is $40.31, implying a potential upside of 12% from current levels.
Schlumberger is a technology company that provides digital solutions and deploys “innovative technologies to enable performance and sustainability in the global energy industry”.
In March this year, SLB announced the launch of a new business, Schlumberger End-to-end Emissions Solutions (SEES), which will offer a comprehensive set of services and technologies that will enable operators to measure, monitor and report, and finally, eliminate “routine methane and flare emissions from their operations”.
The company’s press release stated that methane and flare emissions currently account for more than 60% of direct greenhouse gas (GHG) emissions from the oil and gas industry.
Schlumberger CTO Demos Pafitis commented, “We created SEES specifically to help our customers address one of the most pressing issues of climate change: the urgent need to reduce methane emissions. Due to its potency as a GHG and its large share in the industry’s overall operational emissions, tackling methane emissions will have a significant impact. »
Shares of SLB jumped 9.8% in the past month after the oil giant posted strong first-quarter results with a 40% dividend hike.
HSBC analyst Abhishek Kumar expects Schlumberger to benefit from higher oil prices as it has led to higher investment in the short-cycle US land market. The analyst also anticipates higher margins for SLB and is positive about the higher dividend and “strong” cash flow.
As a result, the analyst upgraded the stock to a buy from a hold and raised the price target to $44.20 from $40.60. Kumar’s price target implies a decline of 3.8% as the stock has already exceeded this valuation.
The stock also gets a strong buy from Wall Street analysts with 14 unanimous buys. SLB’s average price target is $50.73, implying a potential upside of 10.4% from current levels.
Honeywell International (NASDAQ: HON)
Honeywell is a Fortune 100 technology company whose solutions include “aerospace products and services; control technologies for buildings and industry; and performance materials globally.
Honeywell delivered first quarter results that compare favorably to consensus estimates. Even RBC Capital analyst Deanne Dray was impressed with the company’s first-quarter results in a tough macroeconomic environment and after the company’s Russian operations were suspended.
However, the analyst remains concerned that “Aero’s supply chain challenges continue to be an industry-wide issue, but the company should be well positioned for a rebound in commercial travel.”
As a result, Dray stayed sidelined on the stock with a Hold rating, but raised the price target to $215 from $213 on the stock, implying 11% upside potential.
However, other analysts on the street are cautiously bullish on the stock with a moderate buy consensus rating based on five buys and five holds. The average price target for HON is $217.60, implying a potential upside of 12.4% from current levels.
It appears that whether or not the US EPA finalizes rules aimed at reducing methane emissions, these three stocks could still benefit from rising oil prices and strong business fundamentals. If the EPA implements these new rules, these three companies could only benefit more.
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