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July 20th, 2022 | 13:08 CEST

BP, Saturn Oil + Gas, Shell - The right time to enter oil stocks?

  • Oil
  • greenhydrogen
Photo credits: pixabay.com

Since mid-June, the oil price has been on a downward slide. On the one hand, there are concerns about a recession. On the other hand, OPEC has increased the production volume by more than 600,000 barrels per day, at least until the end of August, in order to compensate for the loss of production by Russia. That increases the amount of oil produced worldwide because even Russia is still selling its oil to countries that have not joined the sanctions. So why are analysts like Goldman Sachs still bullish on oil? For one thing, the Ukraine conflict seems to be lingering. Also, China's zero-Covid strategy is currently far from its regular demand. If the Chinese government changes its approach, the oil price will continue to rise in the long term, also due to a lack of investment by oil multinationals.

time to read: 4 minutes | Author: Armin Schulz
ISIN: BP PLC DL-_25 | GB0007980591 , Saturn Oil + Gas Inc. | CA80412L8832 , Shell PLC | GB00BP6MXD84

Table of contents:


    John Jeffrey, CEO, Saturn Oil + Gas Inc.
    "[...] 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.

    Full interview

     

    BP - Away from oil

    Even though the oil price was recently below USD 100, the commodity is still up 30% since the beginning of the year. OPEC's production increase will not be enough to meet demand in the long term. In 2023, demand is expected to increase by 2.7 million barrels per day. The oil multinational BP already earned well last year and will do so again this year. The write-downs on Rosneft have already been booked in the first quarter. Therefore one can look forward to the results of the second quarter of 2022, which will be presented on August 2.

    Nevertheless, the Group continues to pursue its goal of becoming carbon neutral. In mid-June, the Company announced that it was divesting its 50% stake in the Sunrise oil sands project. The project will go to Cenovus Energy, and in return, BP will receive more shares in the offshore area in eastern Canada. In Western Australia, the Group acquired a 40.5% stake in the Asian Renewable Energy Hub. This will supply customers with electricity and produce green hydrogen and green ammonia. The project is to be expanded to a total capacity of 26 gigawatts.

    On July 11, a cooperation with ThyssenKrupp was agreed to decarbonize the steel industry and thus produce green steel. You can already see from the last three company announcements that the Group is aiming for a transformation. The share price has lost some ground with the falling oil price and is trading at EUR 4.50, giving the stock a price/earnings ratio of around 7, which can be regarded as favorable. The price-to-book ratio of about 1 also underlines that the share is not too expensive. In addition to a dividend, the Company also continues to buy back shares.

    Saturn Oil & Gas - Remains clearly undervalued

    The Canadian oil producer Saturn Oil & Gas has increased its production by 11,000 barrels of light oil per day within 14 months. These are impressive figures for the formerly small company. In addition, the Company has 489 drilling locations and 400 wells to be reworked. Sufficient potential to drive organic growth. With these specifications, one would think that the share price should have risen significantly by now. But this is not the case. The share is currently cheaper than before the start of growth. How is this possible? One has to take a closer look.

    On May 31, the Company announced plans to acquire an additional 4,000 barrels of light oil production, increasing the Viking asset's drilling inventory by 250%. The purchase price for the transaction, which closed July 7, was CAD 260 million. Part of the purchase price was raised through a bought deal in which about 27 million new shares were issued. Hedging at nearly USD 62 for the initial acquisition would have run through 2026, leaving Saturn with only USD 26.38 per barrel in first-quarter profit. By comparison, new production without the hedge flushed USD 91.53 per barrel into its coffers. That doubled Saturn's net profit per barrel to USD 51.15.

    In an interview, CEO John Jeffrey said new hedge positions will average USD 102 this year and USD 92 in 2023. With the drilling program launched, Saturn aims to produce an average of 12,400 barrels per day in the final quarter. In 2023, it is then expected to average 13,400 barrels per day. In 2023, management expects a cash flow of CAD 223 million, which currently corresponds to CAD 3.98 per share. The current share price is only CAD 2.12 and thus has a P/E ratio of less than 1. Fundamentally, the share is clearly undervalued. Further information can be found at researchanalyst.com.

    Shell - Well positioned in natural gas

    Shell CEO Ben van Beurden said, "I think our shares are clearly undervalued, and therefore it will be essential to return more to shareholders...". This statement is based on the fact that the Group set a record for quarterly profit in the first quarter, with a USD 9 billion profit posted. Oil prices are higher on average than in the first quarter, so the next record could beckon on July 28, when the 2nd quarter figures are presented.

    The Group also benefits from the fact that it is well positioned in the natural gas sector. Europe wants to become less dependent on Russia, and Shell is a reputable partner. On July 5, a partnership was concluded with QatarEnergy. As a result, Shell owns 25% of the largest single project in the liquefied natural gas industry. The total project has a natural gas capacity of 32 million tons per year. But Shell is also on the move in the renewable energy sector. On July 6, it was announced that Shell is building a 200-megawatt electrolyzer in the port of Rotterdam that will produce 60,000 kg of green hydrogen per day.

    If Nord Stream 1 delivers less gas than expected after scheduled maintenance, this will cause natural gas prices to climb further. A good thing for the Group, which is already preparing for the situation in which it will have to ration gas supplies in the winter. The price-earnings ratio is around 5, and the book value is below 1. If profits continue to rise, the dividend may continue to climb, according to the CEO. At the moment, one share certificate costs EUR 23.82. The upcoming quarterly figures will be interesting to see.


    Conclusion
    Even if the oil price were to fall to USD 80, the major corporations would still be earning splendidly. BP takes the money out of the oil business and invests in the future. Saturn Oil & Gas is fundamentally undervalued. In the future, it should go up significantly. Shell is well positioned in the natural gas sector and could benefit even more from the Ukraine conflict. It is worth keeping an eye on the news regarding Nord Stream 1.


    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.
    In this respect, there is a concrete conflict of interest in the reporting on the companies.

    In addition, Apaton Finance GmbH is active in the context of the preparation and publication of the reporting in paid contractual relationships.
    For this reason, there is also a concrete conflict of interest.
    The above information on existing conflicts of interest applies to all types and forms of publication used by Apaton Finance GmbH for publications on companies.

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    Der Autor

    Armin Schulz

    Born in Mönchengladbach, he studied business administration in the Netherlands. In the course of his studies he came into contact with the stock exchange for the first time. He has more than 25 years of experience in stock market business.

    About the author



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