28. July 2021 | 12:03 CET
BP, Saturn Oil + Gas, Gazprom - Oil companies offer great opportunities
The oil price came under pressure in mid-July following an OPEC meeting. Starting in August, production will be increased by 400,000 barrels per day. This arrangement is to apply initially until September 2022. From May 2022, the United Arab Emirates, Kuwait, Iraq, Saudi Arabia and Russia all want to increase their production capacities, which would mean additional production of around 1.6 million barrels per day. The price of crude oil subsequently slumped by around USD 10 to USD 65. However, the downward trend was already broken on July 20, and the price has since climbed back up to USD 72. Today we highlight three companies that produce oil.
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ISIN: BP PLC DL-_25 | GB0007980591 , SATURN OIL+GAS O.N. | CA80412L1076 , GAZPROM ADR SP./2 RL 5L 5 | US3682872078
"[...] 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 - In transformation
BP is one of the largest oil companies globally and, like all companies in the industry, is struggling with sustainability. In 2010, the Deepwater Horizon disaster occurred under which BP had to suffer for a long time. Environmental awareness plays an increasingly important role these days. Most recently, it was seen in the verdict against Shell in Amsterdam that all major oil companies have to change not to be perceived as polluters. BP has initiated this transformation process by investing more in renewable energies, natural gas and hydrogen.
The Company has set itself the goal of becoming climate-neutral by 2050. To achieve this, operational emissions are to be cut by 40-50% and oil and gas production reduced by over 40%. BP is transforming the filling station network, and more electric charging stations are being built. Since an e-car takes much longer to charge than a combustion car to fill up, they have acquired the Thorntons chain to provide a better experience for customers who now have to spend longer at the gas station. Currently, BP is benefiting from the high price of oil. The danger lies in decisions by OPEC, which can ramp up production at any time.
The Company wants to stick to its comparatively low dividend payout and prefers to buy back shares and reduce its debt in return. The stock marked its low last year in late October. Since then, it has gone up from EUR 2.10 to EUR 3.94. However, the upward trend was broken on July 19. Dividend hunters can open a first position here and expect about 5% dividend. The next support is at EUR 2.85.
Saturn Oil & Gas - Unique opportunity
Saturn Oil & Gas has transformed since May 13. On that day, the takeover of production of 6,700 barrels per day was announced. The necessary steps were successfully completed by June 7. Among other things, a private placement of CAD 32.2 million at CAD 0.12 was carried out. With the issuance of just over 268 million new shares, pressure came on the stock, and it went from CAD 0.215 back down to CAD 0.12. Some arbitrageurs probably just wanted to take the warrant.
The Company currently has a daily net production of 7,000 barrels of oil equivalent per day, consisting of 95% oil and 5% gas. Parts of the production are already hedged to ultimately pay off the Company's debt as soon as possible. In a July 27 interview, CEO John Jeffrey said the stated goal is to increase production to 8,000 barrels per day by the end of 2022. Management estimates reserves at more than 50 million barrels, so there are currently reserves for about 20 years.
The net asset value is estimated at CAD 294 million. All liabilities have already been deducted. Thus, the fair value is about CAD 0.59. In the study by GBC, the price target was given as CAD 0.46. The price-earnings ratio is 1 at a share price of currently CAD 0.12. Such a value is a unique opportunity. Comparable companies, when favorably valued, are at 10 and range up to 30. That shows the enormous potential of the share. Those who bring a little patience will have a lot of fun with an investment.
Gazprom - Nord Stream 2 has the green light
Angela Merkel and Joe Biden have officially given the green light for Nord Stream 2. This is excellent news for Gazprom, as it removes its dependence on Ukraine. Now that Germany is shutting down its last nuclear reactors and gradually phasing out coal-fired power plants, demand for gas is likely to increase. The "Power of Siberia" pipeline has also opened up the Asian market. As many purchase contracts are linked to the price of oil, high profits can be expected here.
However, it is not only gas that brings profits for the Group, but also oil. In 2020, 41.6 million barrels of crude oil were produced. Since the last OPEC meeting, it has been clear that Russia will expand production capacities from May 2022. Gazprom will also benefit from this. The subsidiary Gazprom Neft is the leader in oil production, and its main task, when the oil reserves are depleted, is to set up the Company in such a way that it can operate for other companies.
The only risk that could become dangerous for the Company is the EU's climate targets. Nevertheless, the hunger for energy must be satisfied, and the experience of recent years has shown that demand in Europe for natural gas has increased significantly. The current dividend yield is 4.6% and has been lower than in previous years due to Corona. The upward trend of the share is intact. Only a closing price below EUR 6.13 would cloud the chart picture.
Even if oil is not hip and trendy at the moment, the fossil fuel industry will still be around for a long time. BP must manage the transformation to an energy service provider. Other oil multinationals are already further ahead. Saturn Oil & Gas is hugely undervalued, and a price/earnings ratio of 1 is a unique opportunity. Gazprom is well-positioned thanks to its pipelines and Germany's exit from nuclear and coal-fired power.