12. April 2021 | 11:43 CET
BP, Saturn Oil + Gas, BASF - Fuel for the portfolio: lots of good news!
Opinions on the markets about where the oil price will stand in the short, medium and long term are becoming increasingly diverse. But there is also a lot happening strategically and operationally, which is easily lost in the jumble of information. Last week, British oil giant BP reported that it would reach its planned net debt target much earlier - as early as the first quarter. The highlight: The Group announced that it would again be buying back a large number of shares when it reached its target. How does Moody's rating change fit into the picture with an upgrade for the short-term and a downgrade for the long-term outlook? Below, we will take a closer look at the BP share, BASF's oil and gas shareholding developments and Wintershall Dea and its stock market plans. Also exciting is the opportunity presented by emerging Canadian oil and gas producer Saturn, which could enter a new dimension with a takeover.
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ISIN: GB0007980591 , CA80412L1076 , DE000BASF111
"[...] The Oxbow Asset now delivers a substantial free cash flow stream to internally fund our impactful drilling and workover programs. [...]" John Jeffrey, CEO, Saturn Oil + Gas Inc.
BP PLC - Shifting up a gear: extensive share buybacks ahead!
Currently, the British Company's shares are trading at around 300 pence, or about USD 4. Since the low at the end of October 2020, when the oil price was just below USD 40, the BP share has gained (a good) 50%, depending on the currency pair under consideration. The past fiscal year was marked by high losses for the oil company and called for debt reduction. Nevertheless, dividend payments continued, but share buybacks were stopped. With a company announcement last week, we expect share prices to rise further in the short term.
As part of the release of preliminary Q1 figures, the Group announced last week that it had already achieved its net debt target of USD 35 billion in the opening quarter, much earlier than planned. The news is very good for shareholders, as BP had promised to restart the buyback of its shares when this target was reached. At the same time, the scope of the planned measures is nothing to sneeze at. BP wants to use at least 60% of its "cash flow surplus" in the form of share buybacks. The Group will undoubtedly explain what this means in figures on April 27 when it presents its final quarterly data. One more important addition: the formula for carrying out the share buybacks contains a restriction. They are to be carried out on the premise of "maintaining a strong investment-grade credit rating."
Shareholders who think this is an insignificant footnote should know that the rating agency, Moody's, had already - with foresight and plausible justification - lowered the long-term rating to A2 at the end of March. This rating is still comfortably in the investment-grade range and raised the short-term outlook from "negative" to "stable." In the short term, the experts are convinced by the high level of liquidity on the balance sheet and the lower level of debt due to sales of corporate investments. In the long term, the credit analysts are skeptical due to the assumption of a declining oil price and the shareholder-friendly distribution policy (dividends, share buybacks). They say this will worsen the risk situation (credit metrics) of lenders and bondholders. In our view, developments at BP are positive and the share price will benefit from the buybacks. We do not see the risk of a dramatic deterioration in the Company's rating situation.
SATURN OIL + GAS INC - When will the knot burst?
For some time now, it has become somewhat quieter around the emerging Canadian oil and gas producer. The share price has almost doubled from the course low of the last 12 months to CAD 0.14. As a result, the producer has a market value of just CAD33 million with an industry-low cost position. Saturn is focused on acquiring and developing undervalued and low-risk oil and gas areas in Canada. Investors are still eagerly awaiting the acquisition that was promised late last year. The current operational focus is the province of Saskatchewan.
With completion, the Company could move into really new dimensions and this in two respects. Since the Canadians specialize in low-risk and cash-flow generating assets and can produce at the most favorable conditions in the industry, an acquisition will directly impact the figures and profitability. The share should then move explosively upwards.
The course for everything has been set. With the addition of the experienced Jean-Pierre Colin to the Saturn team as a consultant at the end of 2020, the Company has a seasoned expert with decades of experience on board who will actively support the next growth step. Saturn's efforts concerning sustainability and implementation of numerous measures are also positive and should convince more and more investors.
BASF - IPO of Wintershall Dea possible as of the fall
BASF is targeting an IPO of its Wintershall Dea shareholding from September. The oil and gas group was formed in 2019 from the merger of BASF subsidiary Wintershall with rival Dea. Wintershall Dea is now Europe's largest gas and oil producer. BASF is the major shareholder with around 67%. As the former owner of Dea, the LetterOne investor group holds the remaining shares. Last year's planned IPO was postponed due to the Corona pandemic.
The Company's goal is to continue growing and expanding its market position, particularly in the oil sector, focusing on capital allocation. Like the BP case, an attractive dividend policy is to be implemented, but with a view of maintaining an investment-grade rating. In terms of profitability, the Company benefits from its low-cost production base.
Apart from the financial parameters, the issue of sustainability plays a significant role for the Company. Wintershall Dea even calls it the "heart" of the business model. In any case, BASF shareholders should be keen to see the shareholding go public at a reasonable price. Apart from production, there are other fields in which the Company could delight in the future. Wintershall Dea has long been active in natural gas transportation. With its presence in the high-quality and stable midstream business, the entire value chain can be represented, which is an advantage that should not be underestimated in turbulent times.