Red Sea Disruptions Put Spotlight on Oil and Gas Producers' Vulnerabilities

Disruptions in the Red Sea are causing concern among oil and gas producers due to potential supply delays and increased shipping risks. When up to 5 million barrels per day of Saudi crude exports are at risk, even established companies can see their sentiment shift quickly as traders reassess supply security and transport expenses.

Viper Energy (VNOM) is one company that may benefit from this situation. The Midland-based firm owns and acquires mineral and royalty interests in oil and natural gas properties, primarily in the Permian Basin. It earns revenue when operators produce from those assets and has a market cap of $16.1 billion.

Viper Energy's asset light royalty model makes it an attractive option for investors looking to gain exposure to U.S. oil and gas royalties. The company is expanding its Permian Basin footprint through deals such as the Riverbend Oil and Gas IX acquisition, but investors should note that Viper Energy is currently unprofitable and has a dividend that is not covered by earnings or free cash flow.

Another company affected by Red Sea disruptions is Baytex Energy (TSX:BTE). The Calgary-based oil and gas producer acquires, develops, and operates crude oil and natural gas assets across the Western Canadian Sedimentary Basin. It generates approximately $1.5 billion in revenue from oil and gas exploration and production activities, entirely from Canada.

Baytex Energy is still loss-making, with a recent quarterly net loss and negative Return on Equity. The company relies on higher-risk external borrowing, making it vulnerable to setbacks in oil prices or tariffs. However, management is discussing efficiency gains in Eagle Ford and Duvernay, ongoing reserve replacement, and an active share buyback program.