08. November 2021 | 11:28 CET
Deutsche Rohstoff, Saturn Oil + Gas, BP - Rise to hysteria
Energy prices in Germany continue to rise, driving inflation beyond the 4% mark. Heating oil alone increased in price by around 80% within a year. However, there is no end in sight to the rise. The supply bottleneck and immense demand are likely to push oil prices above the psychological USD 100 mark in the next few years. Analysts at JPMorgan even see a new supercycle approaching the world and renewed their forecast to an oil price of USD 190 in 2025.
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ISIN: DT.ROHSTOFF AG NA O.N. | DE000A0XYG76 , Saturn Oil + Gas Inc. | CA80412L8832 , BP PLC DL-_25 | GB0007980591
"[...] 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
Undervalued with high potential
The climate turnaround is supposed to come, politicians argue about the earliest achievement of climate neutrality. But the transformation will not work that easily or quickly. Alternative energy sources such as wind and solar power alone will not supply the population with sufficient energy. Due to the increasingly scarce supply - the major oil companies are shifting toward green energy - and with the rising demand, black gold will become more precious than ever in the coming years.
Companies that concentrate purely on the production of light oil will therefore profit. A prime example of this is Saturn Oil & Gas, which is increasing its daily production twentyfold to 7,000 barrels per day by acquiring new areas and, in one move, becoming one of the leading producers. At the same time, the current price of CAD 4.00 is far from reflecting the Company's potential.
The analysts at Beacon Securities, for example, see a buy candidate with a price target of CAD 10.15 at the opening of their coverage. The "massive" valuation discounts, according to the experts, should only last temporarily. Saturn is at the lower end of the range on almost all valuation parameters, they say. According to Beacon, as soon as investors are convinced that the Company can deliver the expected growth and that liabilities will be significantly reduced soon, the valuation should move closer to the peer group average. If that happens, analysts agree, the stock could trade at two to three times its current price.
Results from the latest drill programs at the Loverna property were announced last week. All three Loverna wells were successful, began production in October 2021, and are consistent with the Company's internal light oil production guidance. Justin Kaufmann, senior vice-president of Saturn Oil & Gas, expressed satisfaction with the program's results, especially the southernmost well: "It was executed in a section not previously explored for the Viking oil formation and is delivering the largest production of the three wells executed. It is further proof of our geological model in the area, supports the development of five contiguous land sections of Saturn and reduces the risk for up to ten new ERH well locations."
Deutsche Rohstoff opens up
Deutsche Rohstoff AG is capitalizing on the momentum and further accelerating oil and gas production. In the process, Bright Rock Energy, a Wyoming-based portfolio company of the Mannheim-based Company, is starting production earlier than planned. The drilling results will reveal important insights into the development of the very extensive areas that Bright Rock holds in the Powder River Basin. In addition, applications are underway by Deutsche Rohstoff AG to permit additional drilling.
As we reported months ago, the CEO, Dr. Thomas Gutschlag, plans with investments outside the oil sector. In particular, the investment focus should be on the boom topic of electromobility. Ceritech, a subsidiary in which Deutsche Rohstoff AG holds 73.45%, has now been floated on the stock exchange. At present, Ceritech is an empty shell company, and there is currently no operating business in the company, which is traded on the Düsseldorf stock exchange. Instead, mining projects in gold or battery metals are to be added to the portfolio. In this way, the Mannheim-based company is building up a second mainstay alongside its successful oil business. The share remains exciting.
Gas contracts are a burden
Although BP wants to transform itself into a green company in the next few years, the British Company still earns plenty from its traditional business. BP earned USD 3.32 billion in the past quarter, adjusted for special items such as valuation changes on oil inventories, beating analysts' estimates. A year ago, adjusted earnings were only USD 86 million due to lower oil prices.
Management plans to use the proceeds to buy back more shares. In this way, an additional USD 1.25 billion is to be freed up. Investment bank Jefferies kept the oil company on "hold" and raised the price target to GBP 360. With free cash flow yields above 10% for 2022, the sector remains cheap, it said.
Despite the shift from fossil fuels to renewables, oil will continue to be needed in the coming years. Tighter supply is being matched by rising demand. In addition to BP and Deutsche Rohstoff AG, the undervalued oil producer Saturn Oil & Gas also benefits from this.