Tough times face ASX listed oil stocks and investors alike in 2015.
After coasting for years on historically high oil prices, the crash of 2014 will reshape the investing landscape going forward with shares in major player Santos Ltd (ASX: STO) still down 42% on 2014.
So here is your guide to winning with ASX oil stocks in 2015.
Oil outlook
A quick show of hands: how many analysts (let alone investors) ever guessed oil would be languishing at just US$53 per barrel heading into 2015? Anyone? Probably not many. This proves how difficult it can be to forecast oil, even close in, but we can follow some general assumptions for the year ahead.
The U.S. Energy Information Agency (EIA) noted in its December short term outlook "EIA expects global oil inventories to continue to build over the next year, keeping downward pressure on oil prices. The forecast Brent crude oil price averages $68/bbl in 2015".
The EIA anticipates weakness in the first half of 2015, before climbing again in the second half of 2015.
If correct, this could suggest buying over-sold energy stocks today in anticipation their market value will rise later in 2015. But which companies should you consider?
The big players:
Woodside Petroleum Limited (ASX: WPL) has been one of the best to weather the oil price falls, with shares up 1.6% in 2014. Woodside's production is heavily weighted towards LNG production and has been increasing the contracted price received from its Pluto LNG operation during 2014. It pays a strong dividend in U.S. dollars which will remain attractive with the lower Aussie dollar.
Santos Ltd (ASX: STO) has a higher mix of oil than Woodside and its shares were hit hard as a result when oil fell. The company's production will jump with the start-up of the massive GLNG project in 2015. The company may represent good long-term value, but with LNG pricing tied to oil prices short term results may underwhelm.
Beach Energy Ltd (ASX: BPT) had production weighted almost 50/50 between oil and gas in 2014, and with a net asset backing of $1.45 per share, looks like a value buy relative to the current share price of $1.11.
The mid-caps
As the Aussie dollar continues to decline, some of the best opportunities may be the sold-off, emerging mid-cap energy stocks. Producers like Senex Energy Ltd (ASX: SXY) and Drillsearch Energy Limited (ASX: DLS) fell rapidly with oil prices, but are targeting long-term gas production for the East Coast states demand for which is anticipated to increase over the next five years.
A briefing paper by the NSW government recently noted "there is considerable uncertainty as to whether production is able to respond efficiently enough to meet LNG demand". This is likely to push up prices and these mid-cap companies are perfectly positioned to fill the gap.
