March 9th, 2022 | 13:14 CET
BP, Saturn Oil + Gas, Shell - Oil as the winner of the crisis
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"[...] China's dominance is one of the reasons why we are so heavily involved in the tungsten market. Here, around 85% of production is in Chinese hands. [...]" Dr. Thomas Gutschlag, CEO, Deutsche Rohstoff AG
BP - Rosneft sale hits the Company
Oil giant BP has had to give up its stake in Rosneft due to the Ukraine crisis. The Company held 19.5% of the Russian Company and sold all its shares under pressure from the UK government. According to reports, the exit will cost up to USD 25 billion. As a result, the Company is suffering from the Ukraine conflict, and the share price has come under pressure. It is not yet clear whether there will be any compensation for giving up the shares. On the positive side, the Company has taken a big step forward in climate neutrality.
Despite the current difficulties, the Group was able to return to profitability in 2021. Earnings amounted to USD 12.8 billion. The dividend was increased again after 2020, and a share buyback program of USD 4.15 billion was approved. Despite all the good numbers, it is important to remember that the Group is in the middle of a transformation. CEO Bernard Looney said, "We have made great progress in our transformation into an integrated energy company. We have focused and highly valued our hydrocarbon business, we are growing in comfort and mobility, and we are disciplined in building a low-carbon energy business - now with over 5 GW of offshore wind projects - and with significant opportunities in hydrogen."
How much the Ukraine crisis is hitting the Company will likely be seen in its first-quarter numbers. Last year, Rosneft's stake contributed USD 2.4 billion and USD 640 million in dividends to group earnings. The quarterly figures are announced for May 3. Goldman Sachs has left the stock on its Conviction Buy list but lowered its price target to EUR 7.09. Since the interim low on March 4 at EUR 4.12, the stock has climbed to currently EUR 4.42. Considering that almost 25% of the annual profit was erased, the share is still holding up very well.
Saturn Oil & Gas - Newsflow coming up
The Canadian oil producer was able to take over the production of 6,700 barrels of light oil last year and paid only 93 million Canadian dollars (CAD) for it. With this production capacity, it achieved an EBITDA of CAD 17.2 million in the third quarter of 2021. There are currently 400 non-producing wells that the Company can bring back online at one-tenth the cost of a new well. At the International Investment Forum, CEO John Jeffrey outlined his strategy going forward. The Company will try to ramp up production depending on the oil price. If oil prices are above USD 75, production is to be ramped up to 8,200 barrels.
But now, oil prices are above USD 100, and the Company has already announced the acquisition of a 240 barrel light oil production for CAD 7.9 million on February 17. The property is located in the core business area of Viking production and therefore has synergy effects. In the same breath, a debt restructuring was undertaken. It can be assumed that this was the repayment of the Prudential loans. This will save high-interest payments in the future. In order to finance the debt restructuring and the takeover, CAD 18.2 million was issued in exchange for around 6 million shares at CAD 3. In addition, there was a warrant at CAD 4. The Company is thus financially well equipped and can ramp up production more quickly.
The capital increase was a tough pill to swallow for existing shareholders. On the one hand, there was a dilution, but on the other hand, they are now benefiting twice from the rising oil price. The takeover of the 240 barrels was based on the assumption of an oil price of USD 75 and should bring an annualized net operating income of CAD 4.5 million. Thus, the acquisition is currently flushing extra profit into the coffers every day, as the new productions are not hedged via options. With the capital increase, the share came under pressure and was pushed down to CAD 2.70. Currently, the price is at CAD 3.03 and should climb back up with the corporate updates announced from March 10.
Shell - No longer buying Russian oil
Shell has also stopped its activities in Russia. However, the damage is nowhere near as great as with BP. The Company wanted to be businesslike and bought cheap oil and gas from Russia on the SPOT market. On March 8, however, the Company went into reverse and announced that it would no longer buy Russian oil there and that existing contracts would not be renewed. Shell service stations in Russia will remain closed, and other business activities within Russia will also be put on hold.
In early February, fourth-quarter figures were announced and showed an adjusted profit of USD 6.4 billion. The dividend is expected to increase by 4%, and an USD 8.5 billion share buyback program has also been launched. Due to the high energy prices, the first quarter will be very strong. This will allow the Company to move forward with its restructuring to become a carbon-neutral company, such as the offshore wind farm in New York Bay.
The most recent buy recommendations came in March from Jeffries and RBC Capital Markets, which see a share price target of between EUR 28.83 and EUR 33.03. Since the beginning of February, the share has been moving sideways and is currently trading at EUR 24.21. The dividend yield is therefore almost 4%. However, as an interested investor, you should also keep an eye on the Group's debt, which currently stands at over USD 52 billion net. YOY, however, this figure has already been reduced by around USD 23 billion.
All three companies are benefiting strongly from the high oil and gas prices. While BP and Shell were active in Russia with their businesses and are now facing write-downs, the situation is different for Saturn Oil & Gas. The Company is only active in Canada and can profit from the Ukraine crisis.
Conflict of interest
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