April 17th, 2023 | 08:25 CEST
BP, Saturn Oil + Gas, Shell - Oil shares against inflationary pressure
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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 - New oil platform in operation
The challenges of the COVID-19 pandemic, inflation, and the conflict in Ukraine have made investing more difficult and require investors to adapt to changing market conditions. While the energy sector suffered significantly at the start of the pandemic, any lingering concerns have dissipated since the outbreak of the war in Ukraine. BP has benefited greatly from skyrocketing oil prices in 2022 and has seen its profits soar to a 14-year high. With Brent oil prices rising to USD 86.33 and WTI to USD 82.60 on Friday, the Company's prospects are looking good again.
The refining business has never been stronger as global inventories of oil and gas products are very low. BP is well-positioned to benefit from this favourable operating environment. On April 13, the Company announced that it had commissioned its 5th oil platform, Argos, in the Gulf of Mexico. It is the first new platform since 2008 and can produce up to 140,000 barrels of oil per day. CEO Bernard Looney was pleased to bring the most digital rig with the latest technologies into production. He also mentioned that he thinks the stock is undervalued and that a dividend increase is quite possible.
Last year, the Company initiated extensive share buyback programmes and increased the dividend. Despite its dependence on the weak natural gas market, BP seems to have further potential. The environment for this is currently favourable. At the current share price of EUR 5.96, the dividend yield is around 3.7 %. Out of 15 analysts, 6 have upgraded the stock to "Hold", 5 to "Buy" and 4 have issued a "Strong Buy".
Saturn Oil & Gas - On the growth path
Saturn Oil & Gas has had an impressive growth story. While production was still at a few hundred barrels at the beginning of 2021, the Company is now expected to surpass the 30,000 barrels of light oil per day mark this year. On March 28, the Company announced its annual figures for 2022 and set a series of new records. Production was increased by 133% to an average of 9,593 barrels per day. In Q4, however, production already averaged 12,514 barrels a day. The adjusted cash flow in 2021 was CAD 27.3 million, but in 2022 it was CAD 118.7 million - a plus of 335 %.
But the figures are already wastepaper because the recent acquisition of Ridgeback Resources will add about 17,000 barrels, corresponding to an increase of 140 %. Accordingly, the Company expects an EBITDA of CAD 475 million and a free cash flow of CAD 1.84 per share for 2023. The calculations are based on an assumed WTI oil price of USD 80. The current debt can be fully paid off within three years, even if the oil price collapses. 12,238 barrels of production are hedged with a cut of USD 71.66. 60 % of the cash flow goes towards debt repayment, and 40 % is used for drilling to expand production.
On March 14, the Company announced its reserves. It has a total of 62.9 million barrels of proven and probable reserves, up 24% from the previous year. The net asset value is CAD 6.92 per fully diluted share. Those interested in learning more about the Company should mark their calendars for 6 pm on May 10. Kevin Smith will then present Saturn Oil & Gas International Investment Forum at the 7th International Investment Forum and take questions from shareholders. The share currently stands at CAD 2.68, giving it a market capitalization of around CAD 371 million. That represents only 1.46 times free cash flow, which is a very cheap valuation.
Shell - 1st quarter outlook
The oil and energy company, Shell, is one of the largest companies in the world, with a market capitalization of almost USD 200 billion. However, it carries the burden of The Hague's 2021 court ruling that the Company must reduce its CO2 emissions by 45 % by 2030 compared to 2019. On April 14, the Dutch government announced it would support Shell in achieving this goal. The Company has been undergoing a transformation since the ruling, relying on a unique and decentralized business model to deliver high returns for its shareholders.
The Company gave an advance outlook for Q1 on April 6. Especially in gas production and liquefied natural gas, the production volume is to be increased significantly. In oil, there should be hardly any difference from the previous quarter. Due to one-off tax charges, an adjusted loss of between USD 900 million and USD 1.2 billion is expected. Renewables, which are becoming increasingly important, are expected to contribute between USD 100 million and USD 700 million to the adjusted result. So the sector still needs time to catch up with fossil fuels.
In Q4 2022, the Company delivered solid returns and announced a 15 % dividend increase. The dividend is also expected to increase by 4 % annually in the coming years. Even if oil prices fall significantly, the Company aims to generate decent shareholder returns. On May 4, the official figures for the 1st quarter will be presented. The share went out of trading on Friday at EUR 28.10. In April, there were 3 buy recommendations with price targets between EUR 29 and 33. The dividend yield is currently around 3 %.
Even though oil is frowned upon, it is still needed, and demand is rising. OPEC+ is cutting back production, thus ensuring a higher oil price, ultimately benefiting all oil companies. BP is paying out a lot of money to shareholders in the form of dividends and share buyback programmes. In addition, the dividend is expected to increase further. Saturn Oil & Gas does not yet pay a dividend but will be debt-free in 3 years. Then the share price should have reached entirely different levels. Shell is earning good money but is still struggling with the court ruling from the Netherlands.
Conflict of interest
Pursuant to §85 of the German Securities Trading Act (WpHG), we point out that Apaton Finance GmbH as well as partners, authors or employees of Apaton Finance GmbH (hereinafter referred to as "Relevant Persons") currently hold or hold shares or other financial instruments of the aforementioned companies and speculate on their price developments. In this respect, they intend to sell or acquire shares or other financial instruments of the companies (hereinafter each referred to as a "Transaction"). Transactions may thereby influence the respective price of the shares or other financial instruments of the Company.
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