29. October 2020 | 13:36 CET
ENI, Royal Dutch Shell, Saturn Oil & Gas - scandals and crash!
Six months ago, leading oil producers and the G20 energy ministers met to coordinate an emergency package of production cuts. The aim was to at least compensate for the drop in demand caused by the COVID-19 pandemic. At that time, it was impossible to know how significant the damage from the pandemic would be and for how long a real recovery would take. Now the production is somewhat lower, and existing oil stocks are gradually fading, but the uncertain prospects remain, as can be seen from the very low forward prices. In the longer term, producers are currently not very encouraged, as the curve shows that prices are unlikely to reach the USD 50.00 per barrel mark by the end of 2023. Those who want to bring about a shortage in the oil market have a monster task ahead of them, because "there is plenty of oil and a slowing economy".
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ISIN: CA80412L1076 , GB00B03MLX29 , IT0003132476
"[...] 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
Born in Munich, he first studied economics and graduated in business administration at the Ludwig-Maximilians-University in 1995. As he was involved with the stock market at a very early stage, he now has more than 30 years of experience in the capital markets.
ENI - A small Italian suspicion of corruption
As if there was not enough pressure in the industry, the management of the Italian oil giant ENI has to defend itself against renewed suspicions of corruption. Chief Executive Claudio Descalzi should be acquitted of corruption in a lawsuit concerning the purchase of an oil field in Nigeria, as there is no evidence for the prosecution, Descalzi's lawyer Severino told a Milan court last week. At the court hearing, Paola Severino said that the prosecution's trial against Descalzi consisted only of "suggestive elements" with no criminal significance, aimed at covering up a "lack of evidence".
Descalzi is one of 13 people indicted by the UN, among others, for international corruption for a deal to buy one of Nigeria's largest oil fields in 2011. The accusations also concern the oil Company Shell, which is involved in this deal. In one of the biggest potential scandals in the oil industry, Italian prosecutors claim that ENI and Shell acquired a Nigerian offshore oil field, even though they knew that the bulk of the purchase price of USD 1.3 billion would go to politicians and middlemen with bribes.
After all, former Minister of Justice, Severino, is trying to fend off the accusations against the ENI managers. The scandal accelerated the downward trend of the ENI share, which is at a 15-year low of just under 6.00 EUR and only has a dividend yield of 6.7%.
Royal Dutch Shell - Big targets, but still crash price
Royal Dutch Shell plc spoke to Ben van Beurden, Chief Executive Officer, in a recent interview about Shell's response to the COVID 19 pandemic and explains the driving force behind its increased ambition to become a net-zero emission energy Company. He outlines the direction of the ongoing restructuring process, in particular, to make the complex corporate structure more efficient. Among other things, this means a reduction to the key strategic sites, with more flexibility to adapt and further integration into the growing chemicals and trading business. The long-term goal is a customer-oriented organization across all divisions. Strategically, integrated power, biofuels and hydrogen are to have more weight, as they are future-oriented and competitive and complement existing business units perfectly.
Management expects that the reduced organizational complexity, together with other measures, will result in sustainable annual cost savings of USD 2.0 to 2.5 billion by 2022. These savings will partially contribute to the announced reduction in underlying operating costs of USD 3.0 to 4.0 billion by the first quarter of 2021. Job reductions of 7,000 to 9,000 are expected by the end of 2022, of which 1,000 are anticipated to retire voluntarily.
The Royal Dutch Shell share was trading at a 23-year low of EUR 10.00 yesterday, but the dividend yield of 5.8% is still respectable. Whether or not the downward trend will finally break is seemingly also due to the general weather situation in the oil business.
Saturn Oil - The little Canadians step on the gas
Saturn Oil & Gas Inc. is an even smaller Canadian oil producer. The Company benefits from the relatively low production price of around USD 12.00 relative to its competitors and a price hedging strategy that was concluded in time for the COVID-19 pandemic by February 2021. To expand its portfolio, Saturn is continually looking for new oil and gas deposits. As one hears, the Company is conducting many discussions with nearby operators. Saturn continues to apply a proven two-pronged approach, drilling itself on the one hand, and acquiring already developed oil fields on the other.
Since the share price has recovered only a little from the slump in spring, there is still enough potential to be seen here. If one considers available research studies, a tripling of the share price from today's basis should also be possible if oil and gas prices should recover again. The current crisis creates an enormous future opportunity for an undervalued stock because oil products, with and without a virus, will be in greater demand too next winter.
At the moment, the Saturn share has become very quiet. At least it can maintain its price level after the weak oil market development. The theoretical value has a capitalization of CAD 23.5 million at CAD 0.10 per share. The share price is unlikely to remain at this low level for long, as Saturn itself can be seen as a possible takeover target for the major players in the oil market, at any time, due to the low price level.