25. October 2021 | 12:36 CET
BP, Saturn Oil & Gas, Royal Dutch Shell - Oil stocks take off
Anyone who has to fill up their car at the moment will not be thrilled. Prices at gas stations rose in some cases to over EUR 2. The reason is the further rising oil price. An end to this trend is currently not in sight. Morgan Stanley analyst Martijn Rats raised his forecasts for the first quarter of 2022 to USD 95 and sees the oil price at USD 70 per barrel in the long term. Falling supply due to scaled-back investments is causing prices to rise. Due to climate protection and the targets set, investments in the development of new oil wells have been significantly reduced. In 2014 it was still USD 740 billion; 6 years later, it is only USD 350 billion. Oil producers are currently benefiting the most from this development, so we take a closer look at three companies.
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ISIN: BP PLC DL-_25 | GB0007980591 , Saturn Oil + Gas Inc. | CA80412L8832 , ROYAL DUTCH SHELL A EO-07 | GB00B03MLX29
"[...] 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 - High margins accelerate transformation
BP is stepping up its efforts to manage the Group's transformation towards renewable energy and a better climate footprint. The high oil and gas prices are, of course, helping enormously. The gas price has also risen extremely recently, and the Group was able to sign a long-term purchase agreement with Shenzhen Sino Benny LPG on October 20. Starting in 2023, BP is to supply up to 300,000 tons of gas per year to Shenzhen.
A wind farm off the New York coast will be implemented in cooperation with Equinor. In total, 2.1 gigawatts of wind power are to be built. A cooperation agreement was also recently concluded with Lanxess to produce more sustainable plastics. Plastics for the automotive, electrical and consumer goods industries are to be based on biologically based raw materials. This investment has a promising future and could significantly improve the Group's carbon footprint in the long term.
Due to the sharp rise in raw material prices, the Company's valuation remains favorable. The Group itself also sees it that way and recently bought back 5.6 million shares. In addition to the good company news, this is undoubtedly one reason why the share price recently rose to EUR 4.34. Nevertheless, the dividend yield is still over 4%. With the profits, the transformation can continue to be driven forward faster.
Saturn Oil & Gas - Reverse split attracts new investors
The spectacular acquisition of a 6,700 barrel light oil production has put Saturn Oil & Gas (Saturn) in a whole new starting position. After a successful capital increase, there were about 270 million new shares and warrants. A 20:1 reverse split reduced this number to around 25 million shares. This was an essential step for the Company, which until then had been considered a penny stock. With the share price trading above 4 Canadian dollars (CAD), the market capitalization is more than CAD 100 million. These are both relevant facts that should now make an investment by larger funds possible.
Fittingly, Beacon Securities has initiated coverage. A study compared the Company with a peer group of 13 companies and found that Saturn is currently significantly undervalued in comparison. Production is expected to increase to 8,000 barrels of oil per day by the end of 2022, drawing on 400 existing wells that can be worked over. Debt is expected to be paid off in the first quarter of 2023. For 2022, the analysts expect a free cash flow of CAD 44 million. The analysts issued CAD 10.15 as a price target. Download Beacon Research Report
In his corporate presentation on October 14 at the International Investment Forum, CEO John Jeffrey confirmed that the Company's primary goal is to pay down its debt. Following the debt reduction, he held out the prospect of a dividend for the period after. The share is currently trading at CAD 4.14 and still offers a doubling potential even at this level. As an interested investor, you should take a close look at the figures for the third quarter at the end of November. Then one will know approximately how the figures will look in the coming quarters.
Royal Dutch Shell - Amsterdam verdict still weighs heavily
Royal Dutch Shell (Shell) has the biggest task among oil multinationals at the moment after the Amsterdam verdict and the mission of significantly reducing its CO2 emissions. On September 24, it became public that the Company had sold its Permian business to ConocoPhillips for USD 9.5 billion. That put the sale price 30% above book value. On the one hand, Shell can make good use of this money to pay off its debts, and on the other hand, to expand its renewable energy division to boost its carbon footprint.
The corporation has been a significant player in the wind farm sector for quite some time and has a presence worldwide. There are reports that Shell will participate in the auctions of seven large plots of land where wind farms are planned. These deals are important for the Company to improve its image and thus attract new investors in the long term. Considering sustainability in investment decisions is a rule for more and more funds.
The stock has gained over 20% in the last month. That is also due to the sale above book value. Currently, the price-to-book ratio is just above 1; a month ago, it was even below 1. Assuming that Shell's assets have an added value of 30%, the stock still has further upside potential. The dividend yield is just under 4% but was also recently increased by 4%. If the dividend yield is increased further, the stock could be attractive in the long term.
If the oil price remains high, all three companies will be doing very well. BP is undergoing restructuring but is currently benefiting enormously from the gas price. Saturn Oil & Gas has the lowest valuation of all the companies; this is where the greatest potential lies in the short term. Royal Dutch Shell is increasing its dividend yield, but it is currently having the most challenging time of all the oil multinationals.