A wave of consolidation is sweeping through the energy sector right now. Since last autumn, a number of billion-dollar takeover deals have been announced that are focused on the Permian Basin situated across parts of Texas and New Mexico. The consolidation comes as oil prices continue to slump and large energy companies struggle with declining production, reduced profits, and the global transition to clean energy alternatives. This backdrop has led to this list of energy stocks to sell.
After peaking at more than $120 a barrel in 2022, U.S. crude oil prices today are trading around $77 per barrel. The outlook for prices and producers is uncertain and has been complicated by an economic slowdown in China that is hurting demand and escalating violence in the Middle East that threatens production.
Amidst it all, certain energy producers continue to struggle and underperform, or whose fortunes could be hurt by a pending takeover. Here are three energy stocks to sell in February 2024.
Diamondback Energy (FANG)
Diamondback Energy (NASDAQ:FANG) just announced that it is buying privately held Endeavor Energy Partners in a cash-and-stock deal worth $26 billion. FANG stock is up 9% on news of the deal. However, the celebration might be premature. First, the deal involves Diamondback taking on more than $1 billion of Endeavour’s debt. And while Diamondback has said that it plans to close the takeover by year’s end, the acquisition still must run a gauntlet of regulatory approvals.
Competition regulators are sure to carefully scrutinize the deal, especially as Endeavour Energy is the largest privately held oil and gas producer in the Permian Basin. And regulators might be growing concerned about the wave of consolidation that’s sweeping across the U.S. oil industry. Last fall, Exxon Mobil (NYSE:XOM) announced a $60 billion U.S. takeover of Pioneer Natural Resources (NYSE:PXD), and Chevron (NYSE:CVX) said it would acquire Hess Corp. (NYSE:HES) for $53 billion.
How much consolidation are regulators going to permit before they put a halt to the loss of competition? With the gain from news of the Endeavour Energy takeover, FANG stock is now up 11% in the last 12 months, but it continues to trail the broader market.
Occidental Petroleum (OXY)
Famed investor Warren Buffett can buy as many shares of oil producer Occidental Petroleum (NYSE:OXY) as he wants, it doesn’t make it a good investment. The share price performance of this leading oil producer remains awful. Consider that OXY stock is down 3% year-to-date has declined 10% in the last 12 months, and has fallen nearly 15% over the past five years. The shares look cheap right now trading at 12 times future earnings estimates, but it doesn’t mean investors should take a position in this dud. All in all, it’s one of those energy stocks to sell.
Like Diamondback Energy, Occidental Petroleum is involved in a takeover. The company announced in December that it’s buying privately held energy producer CrownRock in a deal worth $12 billion. While Buffett seems to like the acquisition, Wall Street seems to have given the purchase a thumbs down judging by the fact that OXY stock is currently trading near a 52-week low. The deal is expected to close in the current first quarter of 2024 and Occidental says it will be immediately accretive to its cash flow.
Any benefits remain to be seen. In the meantime, OXY stock continues to flounder, making it an energy stock to sell in February 2024.
Exxon Mobil (XOM)
Exxon Mobil’s $60 billion play for Pioneer Natural Resources is the biggest deal in the oil patch in a decade, surpassing Occidental Petroleum‘s purchase of Anadarko for $38 billion back in 2019. Once finalized, the takeover will make Exxon Mobil the dominant oil producer in the Permian Basin. However, Pioneer looks like a big pill for Exxon Mobil to swallow and it will likely be years before any benefits from the deal are realized.
In the meantime, the purchase of Pioneer Natural Resources comes at a time of dwindling profits at Exxon Mobil. At the start of February, Exxon reported net income of $7.63 billion, or $1.91 per share, for the fourth quarter of 2023, down 40% from the same period of 2022. The company produced 3.73 million oil-equivalent barrels per day in 2023, flat from a year earlier. XOM stock has also performed poorly, having fallen 13% over the last year. That makes it an energy stock to sell.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.