Oil at the beginning of a supercycle - ExxonMobil, Saturn Oil+Gas, Chevron

ExxonMobil - Beneficiary of the Ukraine war

It was expected that the oil multinationals would achieve record results due to the Ukraine conflict and the resulting explosion in oil and gas prices. ExxonMobil, the largest US oil company, has now presented its figures for the second quarter. As could be read in a press release at the end of last week, the US company increased its profit by USD 17.9 billion or USD 4.21 per share, which is more than a fourfold increase compared to the second quarter of 2021. At that time, only USD 4.70 billion gushed into the coffers. However, Exxon increased oil production by only an adjusted 4% quarter-over-quarter to 3.7 million barrels per day.

Cash increased by USD 7.8 million in the second quarter as strong cash flow from operations more than covered capital investments and distributions to shareholders. Free cash flow totaled USD 16.9 billion in the quarter. Total distributions to shareholders were USD 7.6 billion, including dividends of USD 3.7 billion.

Commenting on the record results, Darren Wood, Exxon chairman and CEO, said, "Earnings and cash flow benefited from increased production, higher realizations and tight cost control. The strong second quarter results reflect our focus on fundamentals and the investments we put in place several years ago and maintained during the pandemic."

Saturn Oil & Gas - Growth and debt reduction in parallel

Fears of a deep recession are growing, the dollar is strengthening, and Corona cases continue to increase in China, the world's second-largest oil consumer. Because of this, oil prices corrected by about 28% in recent weeks. In the short term, the correction could continue, but in the long term, black gold should make another run to new highs. Thus, the fundamental framework conditions with supply bottlenecks of OPEC+, low inventories, dwindling capacity reserves, and increasing demand, especially from China, will boost the prices. Analysts at the International Energy Agency (IEA) and the US Energy Information Administration (EIA) expect global oil demand to increase by at least 2 million barrels per day in 2023 to 101.3 million and 101.6 million barrels per day, respectively.

Supply will also be diminished as major oil majors more or less commit to a transformation to green energy. Saskatchewan-based Saturn Oil & Gas addressed the tight supply problem by making several strategically astute acquisitions in recent months that will explode production capacity from about 600 BOE per day to 12,000 BOE per day in the future within a year.

The acquisition of the recently completed Viking project brings the total inventory to over 500 wells, and, most importantly, the high cash flow is leading to rapid debt reduction. As of June 30, 2022, the Company still has approximately CAD 223 million in debt. This debt is expected to be reduced to CAD 183 million by the end of the year. In 2024, the Canadian producer then wants to be debt-free. As a result of the completed transaction, the forecasts have also been adjusted once again. In 2023, the Company's management expects a cash flow of CAD 223 million, which would correspond to around CAD 3.98 per share.

In contrast, the performance of Saturn shares has been more than disappointing, to put it mildly. At CAD 2.45, the share price is trading at the same level as before the transactions. One reason for the weak performance may have been the capital increases carried out for the acquisitions, which resulted in a dilution of the existing shareholders. Nevertheless, every long-term investor should prefer a relatively small slice of a cake to the entire, significantly less valuable cake. Now that the management, above all CEO John Jeffrey, has announced a new strategy of organic growth only, the value of the properties should be reflected in the coming results, which should lead to the share moving into line with its peers in terms of valuation. Analysts at Eight Capital recognized the potential of Saturn Oil & Gas and issued a buy rating with a price target of CAD 7.50 in their initial study, which would result in a price potential of more than 200%. In addition, the recently completed acquisition of the Viking areas is examined in more detail in an updated Report.

Chevron - With a record into the second half of the year

Another US energy company was also able to shine with records. The Dow Jones company Chevron drove in a profit of USD 11.6 billion in the months from April to the end of June, which means earnings per share of USD 5.95 per share. In the second quarter of last year, earnings were just USD 3.1 billion, or USD 1.60 per share. Revenues and other operating income were USD 65 billion in the second quarter of 2022, compared with USD 36 billion in the year-ago period.

In addition, the board of directors declared a cash dividend for the third quarter of USD 0.88, the same as the second quarter. That marks more than 100 years that Chevron has allowed its shareholders to share in its success and 39 consecutive years that it has increased its annual dividend payout to shareholders.

Although the oil price is correcting due to recession fears, black gold is likely facing a supercycle due to insufficient supply and rising demand. Saturn Oil & Gas has significantly increased its cash flow through several acquisitions and is undervalued by industry standards. Exxon and Chevron showed record results.