2 FTSE 350 oil stocks I’m watching for 2022

With oil prices continuing to rise, could these two FTSE 350 oil stocks be good investments for me this year?

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At the height of the pandemic, the West Texas Intermediate (WTI) oil price fell to -$37 per barrel. During this time the price of many oil stocks naturally plummeted, because a large number of oil-linked stocks essentially track the oil price. But since that time, the oil price has rebounded impressively. It now sits just shy of $80 a barrel. With this in mind, will these two FTSE 350 oil stocks prove to be good investments for me this year?

Oil stocks for my portfolio

These two oil stocks have vastly different market capitalisations. They range from £681m to £3.4bn. Tullow Oil (LSE: TLW) is the smallest of the two, but currently operates a number of explorations in Africa and South America. During the pandemic, Tullow performed relatively well in contrast with competitors in terms of its share price. In the past two years, its price fell ‘only’ 28.21%. This was noticeably less than the other oil stock I’m looking at. But revenue has been declining over the past three years and this is something that concerns me going forward. Furthermore, the company has been losing money and clearly failing to perform for shareholders. It also recently reported debt of $2.3bn. 

That all sounds like I should steer clear, but I already own this stock and I see upsides too. For a start, it has remained strong on free cash flow (FCF). And Tullow Oil recently exercised pre-emption rights on the Jubilee oil field in Ghana, that should lead to the production of 85,000 barrels of oil per day. Developments like this are key and I think that this stock has the best growth potential of the two, which is why I recently added it to my portfolio.

That strength in its FCF is consistent with the other oil business I’m looking at, Harbour Energy (LSE: HBR). Its market cap is £3.4bn, which is far greater than Tullow Oil, but Harbour Energy’s debt is higher too at $2.6bn. Admittedly, this is only marginally greater than Tullow Oil in the grand scheme of things. Harbour Energy is therefore potentially more than Tullow based on debt levels alone. Like other oil companies, however, Harbour Energy’s revenue slipped from 2019 to 2020.

But it has announced increased drilling activity in fields in the UK and Indonesia. And it has also recently announced the introduction of a dividend policy that amounts to $200m per year for an annual yield of 4.35%. I find Harbour Energy attractive because of this new dividend policy and on this front, it’s preferable to Tullow Oil, which hasn’t paid a dividend since 2019.

The oil price

The WTI oil price looks to be heading towards the high of around $85 per barrel recorded on 25 October 2021. There’s still a risk of further lockdowns denting the oil price. And this would severely impact oil firms’ stock prices. Conversely, the Organisation of Petroleum Exporting states (OPEC) may decide to vastly increase oil supply on account of the easing of pandemic restrictions. This may also negatively impact the oil price. But even though these risks can’t be ignored, I believe the oil price is set to go higher this year. So, I will be keeping my shares in Tullow Oil and buying Harbour Energy for a diverse oil portfolio to hold for the long term.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Andrew Woods owns shares in Tullow Oil. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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