BYD, Saturn Oil + Gas, Everfuel - Transformation in the oil market

The winners of the Crisis

Last year's crash, when the barrel briefly cost less than USD 20, was due to a sharp drop in demand caused by global lockdowns and massive inventory overhangs on the supply side. These have already been fully depleted, according to the International Energy Agency, IEA. Due to the lockdown easing, demand is rising significantly, especially in China and the US. Overnight, most oil producers were faced with an almost impossible task last year. In order to save their existence, production was cut to a minimum. Those who were able to react in time secured their production by hedging. Many oil producers got into difficulties, and some did not survive the Crisis. Since there are winners and losers in a crisis, financially strong companies took advantage of the weakness and took over competitors or properties at knockdown prices.

Promotion to a new league

A textbook takeover was delivered last week by Saturn Oil & Gas. The Company drills for oil in the province of Saskatchewan in Canada. Months were spent in due diligence and searching for a suitable, much larger project. John Jeffrey, CEO of Saturn Oil & Gas, was planning acquisitions that would fit the Company's strategy and immediately scale both revenue and cash flow in a tangible way. Now, the manager's dream has come true from many perspectives. For just under CAD 102 million, the Canadians acquired assets in the Oxbow area of southeastern Saskatchewan, one of the best economic areas in North America. The purchase price of the approximately 280,000 net acres area is an almost unbelievable 1.4 x cash flow by industry standards, or only about CAD 14,000 per flowing BOE. Recent competitors were putting more than CAD 30,000 per flowing BOE on the table.

Enormous catch-up potential

This acquisition will increase oil and gas production by more than 2,000% and PDP reserves by a whopping 1,300% compared to the Company's year-end 2020 reserves. Debt is expected to be completely paid off in just under 2 years. Daily production will increase tenfold to now 7,500 BOE/day of current production levels. With 85% of production already hedged at current price levels for four years, the new project will add CAD 65-70 million in net operating revenues annually to Saturn's coffers. For the next three years, the Company also identified the potential to generate annual free cash flow by optimizing more than 500 existing wells.

This acquisition transforms Saturn Oil & Gas into a major player in the North American light oil market. The favorable purchase price and the enormous economies of scale are not yet reflected in the valuation. The number of shares will only double, while production will increase tenfold. Prices between CAD 0.40 and CAD 0.50 would be appropriate compared to the peer group.

Bottoming out underway

In contrast, the Chinese electric car Company BYD suffered heavy losses. Now the chart of the Warren Buffett-backed Company is working to bottom out around EUR 16. Fundamentally, the Chinese were already able to shine in the April sales figures and even overtake Tesla. In April, BYD sold 16,114 BEVs (+62% compared to April 2020, but 1.1% less than in March.) In addition, there were 8,920 plug-in hybrids, which leads to NEV sales of 25,662 electrified vehicles. That is 97.5% more than April 2020 and 6% more than March 2021.

Yesterday also saw the announcement of a historic mark. The production of one million electrified automobiles was announced. Likewise, the previously announced expansion to Europe was explained in more detail. The first 100 units are ready for delivery to Oslo for the third quarter. A total of 1,500 Tang SUVs are to be delivered to Norway by the end of the year.

Everfuel with further order

Also delivering to Oslo is Everfuel. The Company was formed from a spin-off of parent Company Nel ASA. However, not delivering Tangs and HANs, but initially 100 Toyota Mirai hydrogen cabs. A cooperation agreement with Cabonline, the largest cab company in Scandinavia, was announced. Currently, the market-tight stock is struggling with the critical support line at EUR 6.50. A breakthrough could once again attack the IPO level at EUR 4. We currently advise against an entry here.