Many national governments have gotten on board with net zero emissions targets in the decades to come. Indeed, the clean energy transition is well underway, putting energy stocks at serious risk over time. Net zero goals are aimed at reducing energy-related carbon dioxide emissions to zero, in order to limit global temperature increases to 1.5 degrees Celsius.
Fossil fuels were formed by the decomposition of carbon-based organisms. When burned, fossil fuels release substantial amounts of carbon emissions that enter into the atmosphere and contribute to global temperature increases. The point here is that companies that sell fossil fuels have a target on their backs. Despite their recent strong performance, energy stocks remain a key target of ESG investors and governments looking to diversify their energy production mix.
Here are seven energy stocks I think are at greater risk, taking this trend into consideration.
| APA | APA Corp. | $33.41 |
| CHK | Chesapeake Energy | $81.22 |
| HAL | Halliburton | $30.17 |
| CPE | Callon Petroleum | $32.17 |
| SHEL | Shell | $60.42 |
| CEI | Camber Energy | $1.09 |
| WTI | W&T Offshore | $4.18 |
APA Corp. (APA)
APA Corp. (NASDAQ:APA) is an oil exploration stock, and one of the more obvious choices among companies at risk due to net zero goals.
The company is diversified geographically, with exploratory operations in the U.S., U.K., Egypt, and Suriname. Relative to some other exploration & production (E&P) firms it at least has an advantage in its diversified holdings. However, at the end of the day, APA Corp. is still a company completely invested in an at-risk asset.
APA Corp., like almost every energy firm, pays lip service to the idea of sustainability and a reduction of greenhouse gases across its business. Management points to potential future operational pivots that better address the energy transition. But these are little more than acknowledgment that the business is at risk. APA Corp. is an oil firm. It will do well when oil prices are and it’s drilling. That’s the bottom line. Shares were worth $8 in 2020, nearly $50 in 2022, and $32 currently. That should tell investors exactly how APA stock’s future will look as green energy becomes more and more prevalent.
Chesapeake Energy (CHK)
Chesapeake Energy (NASDAQ:CHK) is a bigger, better-known E&P stock than APA, but one that suffers from the same risks. Chesapeake Energy’s assets are solely domestic. That confers advantages and disadvantages that are as difficult to predict. When U.S. domestic factors are favorable, the company does well, and vice-versa.
In any case, the U.S. announced back in November that it is committed to net zero by 2050. So, Chesapeake Energy is facing a proverbial ticking clock.
Chesapeake Energy is also a company that filed for bankruptcy in June of 2020 and emerged as a new public equity in early 2021. The optimist says it’s a clean slate. The pessimist says Chesapeake was a poorly run firm and one determined to “continue to operate the business as usual.”
Chesapeake Energy is also a firm that is somewhat confusing. It lost money in Q1 ‘22 while providing net gains in Q1 ‘23. For more risk-averse investors Chesapeake is one to avoid, because absent an insider’s perspective, too much remains unexplained.
Halliburton (HAL)
Halliburton (NYSE:HAL) provides services and products to companies like Chesapeake Energy and APA Corp. that engage in oil exploration activities. Halliburton stock represents an investment in everything from site establishment to site abandonment services and products.
To be clear, Halliburton is clearly in no immediate danger. Likewise, a run to $0 is unlikely for every stock on this list. Investors should consider Halliburton and others when de-risking their portfolios over time.
Halliburton shares have also been sliding in 2023, even as revenues and operating income increased in the first quarter.
Halliburton is arguably an energy stock to avoid based on factors other than its long-term outlook. Several fundamental metrics suggest that the company is less than appealing. For example, the company’s price-earnings ratio is among the bottom 30% of competitors. That suggests it may be overpriced and at risk of a price correction. Likewise, revenues have fallen over the past three-year period, which is never a positive sign.
Callon Petroleum (CPE)
Callon Petroleum (NYSE:CPE) develops oil & natural gas assets in south and west Texas. It displays similar risks to the energy stocks already discussed on this list. But the reason investors should steer clear of Callon Petroleum isn’t only because of those long-term concerns.
Callon Petroleum is also operationally volatile from a management perspective. What I mean is this. The company reported a $7.715 million loss during the first quarter of 2022. However, it was doing much better at that time based on operating revenues of $777.2 million. Operating revenues have since decreased to $560.04 million in Q1 ‘23.
That begs the question of how Callon lost money despite strong sales. The answer is that Callon Petroleum likes to bet on derivatives, and derivatives are difficult to predict. The firm ate a $358.3 million loss on derivatives in Q1 2022, which became a $25.65 million win in the first quarter of this year.
Callon Petroleum then runs the risk of getting into deeper trouble again in the future which could logically be compounded by the clean energy transition.
Shell (SHEL)
Shell (NYSE:SHEL) stock showed its instability relative to other major oil firms at the very beginning of the pandemic. It was then that the company reduced its dividend for the first time since World War II. The decision was made in order to prepare the firm for a protracted slump due to the pandemic and shocked markets.
The point here is simple. If Shell, a noted oil major with a history of dependability can shock investors once, it can do so again.
Shell also finds itself among the energy stocks that are investing heavily in net zero. While Shell invested $4.3 billion in low-carbon energy solutions and invested in wind, solar, and Ev technology, the story remains the same for investors. Do investors direct their capital into SHEL stock because of what it is or what it is promising to become? The answer should be the former, not the latter.
Camber Energy (CEI)
Camber Energy (NYSEMKT:CEI) is among the smaller energy stocks I think is worth avoiding. Like other companies on this list, Camber Energy trades around $1 per share, putting this stock squarely into penny stock territory.
Camber Energy looks to be run by its CEO and CFO who, as its 10-K points out, are essentially irreplaceable. Management is essentially saying that if anything happens to either of those executives, this is among the energy stocks that won’t last long. Even if they continue to run the business, Camber is likely to remain a going concern.
Camber Energy’s financial statements are those that are typically found with an incredibly distressed firm. The company brought in approximately $0.5 million in oil and gas revenue in 2021 and 2022. However, the company also incurred massive losses in excess of $253 million and $107 million during those years, respectively. Long story short, Camber Energy is one of the energy stocks that appears to be doomed at some point in the near future.
The clean energy transition places a bit more stress on the firm which may help to accelerate that downfall.
W&T Offshore (WTI)
W&T Offshore (NYSE:WTI) is among the mid-cap energy stocks I think is worth avoiding. The company operates offshore oil rigs in the Gulf of Mexico, employing around 400 people. However, W&T is simply a mid-tier production firm that doesn’t stand out. It’s also among the energy stocks that qualify as a penny stock, which doesn’t help investors view it as particularly stable or investment-worthy.
W&T Offshore reported $131.7 million in sales during the most recent quarter, a drop on a year-over-year basis. However, positive derivatives activity meant that net income figures were better during the most recent quarter than they were in the comparable period a year before.
W&T Offshore operates 41 oil fields spread across the Gulf of Mexico, and its fundamental metrics are certainly encouraging. The company is profitable and growing quickly, but faces obvious risks should any Deepwater Horizon events occur again. In any case, W&T Offshore remains risky due to a combination of its size and unpredictable income over the recent past. Clean energy investors are likely to avoid it for other reasons as well.
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On the date of publication, Alex Sirois 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.