September 21st, 2022 | 10:28 CEST
BP, Saturn Oil + Gas, Shell - Oil stocks benefit from the colder season
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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 - Performing despite falling oil price
BP is one of the major oil multinationals and thus benefits disproportionately from the current energy crisis. The energy sector is one of the big winners in 2022, while the indices suffered heavy losses in some cases. An end to the crisis, which is additionally fueled by inflation, is currently probably only possible through a global recession. This is also due to the ESG requirements, which have prompted the major oil companies to stop investing in developing new oil sources. Accordingly, the supply is gradually decreasing while the demand remains high, also because the earth is becoming increasingly populated.
The profits from oil and gas will enable BP to drive forward its transformation. CEO Bernard Looney confirmed as much during the Company's second-quarter figures, saying, "Our people have worked hard throughout the quarter to help solve the energy trilemma - secure, affordable and lower-carbon energy. We are doing this by delivering the oil and gas the world needs today while investing to accelerate the energy transition." Second-quarter profit was USD 9.3 billion. The dividend was increased by 10%, and a USD 3.5 billion share buyback program was initiated.
On September 12, the Group strengthened its presence in the US by having its US subsidiary acquire power and gas utility EDF Energy Services. The Group plans to present its next quarterly figures on November 1. After that, it will be possible to assess the extent to which the fall in the oil price has caused profits to melt away. The oil price consolidation did not affect the share price. Since the end of August, the share has been trading sideways just below its high for the year. At the moment, one pays EUR 5.25 for a share.
Saturn Oil & Gas - Drilling program boosts production
Saturn Oil & Gas has risen from a small oil producer to the TOP 10 in Canada within 18 months. On September 7, the Company reached a daily production rate of 12,000 barrels per day. However, this is not the end of the line. In the fourth quarter, production is expected to average 12,500 barrels; by the end of 2023, about 14,250 barrels per day are planned. Unlike the big oil multinationals, Saturn is investing in expanding its production, as is reflected in the latest Company news on September 19.
The drilling program has completed 23 wells so far, producing 1,615 barrels per day based on the first 30 days of production (IP30). On average, each well produces 70.2 barrels per day. Another 16 wells have been completed but are not yet 30 days into production. Another 21 wells are expected to be drilled by the end of November. The Company is now earning significantly more due to the latest acquisition. Whereas production was previously hedged at about USD 62, it is currently averaging USD 78.49 at 7,777 barrels per day. This significantly reduces hedge losses. The upcoming quarterly figures, which will be announced by the end of November at the latest, will then contain data on the new acquisition for the first time.
Until then, however, further newsflow regarding the drilling results can be expected. At the Annual General Meeting, all proposed resolutions were approved by a large majority. Of particular note was the election of Dr Thomas Gutschlag, Chairman of the Supervisory Board of Deutsche Rohstoff AG, to the Board of Directors. He brings with him a great deal of experience as the long-standing CEO of Deutsche Rohstoff. Those who want a more detailed picture of the Company should not miss Kevin Smith's presentation at the 4th International Investment Forum on September 27, live via Zoom. In contrast to the oil price, the share has been able to move upwards since mid-July and currently costs CAD 2.64. The market capitalization is thus just CAD 157.6 million, which is clearly too low considering the numbers.
Shell - New man at the top
Shell is facing upheaval. After the Group moved its headquarters to London due to the disputes in the Netherlands, a new era begins at the Group on January 1, 2023, as long-time CEO Ben van Beurden steps down. He will be replaced by Wael Sawan, who has been in charge of the Renewable Energies division since 2021. The move underscores the Group's transformation into a clean energy company. Since the appeal regarding the Dutch court ruling has not yet been decided, it must be assumed for the time being that the Group must reduce its CO2 emissions by 45% by 2030.
In line with this is the news that the Group believes that the new production plant in Pennsylvania, which cost USD 6 billion, will convert ethane into polyethylene. Ethane is a byproduct of natural gas production. That makes it suitable for use as a carbon storage center by producing blue hydrogen, i.e., from natural gas. It would be ideal for energy-hungry industries such as concrete and steel production to reduce their emissions. However, the Group is dependent here on politicians and corresponding legal regulations.
A total of 20 analysts regard the share as a buy and assign an average price target of EUR 34.30. The highest price target is EUR 40.18. This is also because the Company is well positioned with its gas division. The share is listed at EUR 26.44 and thus currently achieves a dividend yield of just over 3.1%. The next quarterly figures will be available on October 27. The new CEO will then present the figures for the fourth quarter. One can be excited about his visions.
Provided there is no global recession, the oil price should pick up again in the winter. BP will earn very well even at an oil price of USD 80. However, a large part of the profits will go into restructuring the Group. Saturn Oil & Gas, on the other hand, is investing in expanding its oil production. This will pay off in the long term. At present, the stock is fundamentally undervalued. A new era could begin at Shell with the new CEO on January 1, 2023.
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