Two years later, oversupply hammered the global energy markets. We saw crude plunge under $40. 

That eroded shareholder confidence. Since then, activist investors have pushed aggressively for executives to enhance shareholder value. And as public policy tilts away from carbon-based fuel production, the cost of capital for new energy projects has soared. 

Today, I want to take you inside another big energy name that should be a part of any long-term portfolio. I consider it to be a top oil investment of 2023. It’s energy week here, and we’ll add another name to the list.

It’s Expensive to Drill

According to Goldman Sachs, the cost of capital in 2012 for new solar and energy projects was in the 8% to 9% range. Nearly a decade later, the cost of capital for new solar projects slumped to 3%, while crude projects increased to nearly 20%. 

Meanwhile, the impact of inflation is hammering this industry. New oil-well production is very capital-intensive. It requires spending on rising labor, mineral, and metal prices. 

It’s estimated that companies in the Exploration and Production space spent 20% of their CAPEX last year just to maintain current production due to inflation increases. 

The U.S. government hasn’t made it any easier on the sector. The White House has called on energy producers to increase production, but policies effectively strip the demand for crude from some of the nation’s largest markets by 2035. 

In California, a ban on new gasoline-powered vehicles would neuter the gasoline markets, thus dramatically cutting expected demand. 

When a company builds a well, these things have shelf lives of 20 to 30 years. But the government wants to effectively sunset that production in the next 15 years. Shareholders want nothing to do with this. 

That’s why companies are keeping their costs and production increases in check. In addition, they’re focused on improving shareholder value by increasing dividends, buying back stock, and paying off debt. 

All three of these things can make for an attractive investment. 

As I’ve noted, investors should look for oil producers with a Piotroski F Score of 9 – a perfect figure. This score suggests a very shareholder-friendly executive team, and a commitment to consistently delivering results. 

There are 11 companies in the drilling, E&P, and integrated oil industry space. From a value perspective, no name stands out more than Marathon Oil (MRO).

Digging Into the Eagle Ford Basin

Marathon Oil makes a lot of money in Equatorial Guinea. But it’s been increasing its output in the energy-rich Permian Basin in Texas and other shale locations over the years. 

It also operates in the Scoop/Stack basin, Eagle Ford, and the Bakken. A lot of investors are increasingly concerned that shale production may have peaked. 

The combination of rising oilfield services inflation and the dwindling of prime drilling acreage are weighing on that sentiment. The challenge is that costs will rise. 

But Marathon has increased its pipeline of energy production through a well-timed purchase of 130,000 new acres in the Eagle Ford formation.

With more than 600 drilling locations, the company has about 15 or more years of capacity that will fall under its portfolio. 

Meanwhile, MRO has been buying back stock, and if crude prices remain above $45 per barrel, there will be more cash to return to shareholders. They’ve been the most aggressive company among its peers to reduce its outstanding shares. 

Between Q3 2022 and 2021, the company reduced its share count by 14.5%. The next closest competitor in terms of outstanding share reduction during that period was 6.7% by Apache (APA). 

And, in this environment. A major geopolitical event in Ukraine or the Middle East could shock the global supply-demand imbalance overnight.  

Marathon has been a winner for the last two years. And with improving asset quality, a commitment to a strong balance sheet, and an industry that will likely see higher prices for longer, MRO is a great play for investors looking to squeeze every penny possible out of this business. 

My current upside target for MRO is $35 in a market that works through the economic kinks. Once the Fed pivots, I anticipate greater energy inflation in the future. MRO is a great place to park some cash for now.

To your wealth,


Garrett Baldwin

P.S. Please let me know if you have any feedback, questions about today’s issue, or anything else. Just email us at hubfeedback@wealthpress.com.

*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk. 

Market Momentum is Yellow

If you’re looking for value in the energy sector, visit my Tactical Wealth Investor. There, I offer you my favorite two energy plays that provide even greater shareholder value, strong dividends, and incredible upside. Momentum remains yellow at the moment, but investors can anticipate a possible move lower as we head into the final two weeks of February. 

And when oil prices plunged under $40 a year later, stock prices plunged. 

Despite oil prices pushing to $130 last year, many oil companies remained conservative with their approach to the markets. 

Good. Responsible management rewards investors with higher dividends, large stock buybacks, and debt repayment to improve the balance sheet. 

This week, I’m discussing my favorite oil stocks for the year ahead. If oil prices press back to $100, as OPEC suggested last week, these stocks could rocket in the months ahead. 

That said, I really like them all for the long term. Let’s visit what looks to be the top oil stock for 2023.

Focusing on the Permian

When discovering value, it’s always smart to see what other great value investors own. That brings us to Occidental Petroleum (OXY). 

The Houston-based energy company (they’re putting OXY patches on the Astros’ baseball jerseys this year) has long been a target of activist investors. 

The company largely operates in petroleum production across assets owned in four basins across the United States. But don’t be confused by this map. OXY is not only one of the nation’s largest oil and gas companies in the U.S., but it also has large operations in several countries worldwide.

The company also operates in Colombia, Qatar, and Oman.

That said, its growth in recent years is directly centered on its surging output in the Permian Basin in Texas. This region is one of the most profitable oil-producing shale formations in the world. 

Outside of production, Occidental owns assets in midstream and chemical businesses. It operates pipelines and storage facilities and produces petrochemicals for many industries.

From Activist to Value Investor

For years, activist hedge fund manager Carl Icahn pushed for dramatic changes to the company’s priorities. He exited his 10% stake in the company in March 2022 after three years of fighting with management over its planned purchase of Anadarko Petroleum. 

Icahn earned about $1 billion for his efforts, plus hundreds of millions of dollars in warrants. 

The same week that Icahn sold, Warren Buffett revealed a $5 billion stake in the company. And Buffett never stopped buying. Berkshire Hathaway has built an ever-larger stake in OXY for the last year. 

It just received regulatory approval to purchase 50% of the common stock in the company, up from its current stake of roughly 22%. Berkshire also owns about $10 billion in preferred OXY shares in 2019.

Good Management, Improving Balance Sheet

Despite the run-up in oil prices in 2022, and the current uptick in prices, Occidental’s board has prioritized shareholder returns. 

The company has a Piotroski F Score of 8, signaling that executives have improved the core parts of the balance sheet. Interestingly, the only point missing from a perfect score is the company’s limited efforts in reducing shares outstanding over the last year. 

However, just last week, the company’s CEO Vicki Hollub said it would prioritize share buybacks over production growth in the year ahead. In addition, it is considering a deal to redeem preferred shares owned by Berkshire Hathaway. 

“There won’t be significant growth from us because there’s still a lot more value to be gained for us by continuing to focus on delivering value to shareholders through share repurchases,” Hollub said in a recent interview.

In addition, the company should focus on paying off its debt. Fitch Ratings currently rates Occidental’s debt at BB+. 

It’s not very far away from moving into “Investment Grade” status, which could propel Berkshire Hathaway from buying more shares. The company has aggressively been paying down debt and exploring more buybacks in the future.

In the short term, even if the market does pull back, OXY will likely attract more investment from Buffett and his company. Since 2022, Berkshire has used every pullback in OXY to purchase more shares at around the $57 level. 

In addition, the company’s CEO spent millions of dollars last year on shares at a similar level. Any short-term pull back will likely see Berkshire pile back into the stock. Recent purchases have ranged in the $250 million range. 

According to my estimates, so long as oil prices remain above $42, it will remain profitable. With oil looking to move back above $100, according to OPEC, we could see a big move higher. 

Consider owning shares at today’s price and dollar-cost average. If shares pull back to the mid-$50s, the stock is a screaming buy. 

Buffett would love to buy the stock at a cheaper price. You should do the same.

To your wealth,

Garrett Baldwin

P.S. Please let me know if you have any feedback, questions about today’s issue, or anything else. Just email us at hubfeedback@wealthpress.com.

*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk. 

Market Momentum is Yellow

If you’re looking for value in the energy sector, head over to Tactical Wealth Investor.