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August 10th, 2022 | 12:37 CEST

Oil will still be needed in 100 years! Fill up with these stocks: Shell, BP, Saturn Oil + Gas, BASF

  • Mining
  • Oil
  • chemicals
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With a view to the future energy supply, major question marks remain, especially in Europe. The dependency on Russia is historical, and the future relationship with the largest owner of raw materials in our latitudes will probably be rather frosty from a European perspective. EU Commission President Ursula von der Leyen recently presented a plan to break away from fossil fuels from Russia and, at the same time, accelerate the energy transition. But to become completely self-sufficient, the European Union would need to invest nearly EUR 300 billion in infrastructure and energy supply relationships by 2030. Meanwhile, there are secret winners in this predicament who are making a killing in the current environment.

time to read: 4 minutes | Author: André Will-Laudien
ISIN: Shell PLC | GB00BP6MXD84 , BP PLC DL-_25 | GB0007980591 , Saturn Oil + Gas Inc. | CA80412L8832 , BASF SE NA O.N. | DE000BASF111

Table of contents:

    Dr. Thomas Gutschlag, CEO, Deutsche Rohstoff AG
    "[...] 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

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    Shell or BP - Which energy giant to invest in now?

    Europe's fatal dependence on Russian energy supplies is fueling the political debate about alternatives that can be implemented quickly. The EU wants to increase the savings target from 9 to 13%, and the share of renewable energies is to be raised from 40 to 45% by 2030. It will require huge investments. But until this is implemented in just under 10 years, oil and gas will be in great demand.

    Currently, the oil multinationals are shining under the sanctions conditions against Russia. Russian oil is undoubtedly entering the world market through the Chinese back door, but this has not yet resulted in a significant drop in price levels. At least, however, the Brent and WTI prices of around USD 120 plus are probably history; most recently, both types of oil were trading about 20% below their highs. With recessionary prospects, it should not go too high here again.

    If one regards Shell and BP as the two largest European salesmen of mineral oil products from the analytical side, then both show up straight from the strongest side. Shell trades at a P/E ratio of around 5 and a dividend yield of 4%, while British Petroleum's ratios are 4 and 5%, respectively. Analysts clearly favor the larger Shell stock in the consensus, and it has also performed slightly better in the 12-month review. However, both fit into an old-style energy portfolio.

    Saturn Oil & Gas - Produce efficiently and fill up with cash flow!

    Canada's Saturn Oil & Gas compares poorly with Shell and BP, but the oil multinationals cannot trump its recent production growth rates. That is because, in Saskatchewan, where the Company is based, things have been really taking off for the past two years. After a transformational restructuring of the Company and a multiplication of production, the target for daily yield is now over 11,500 barrels (boe/d). That generates an operating profit (adjusted EBITDA) of about CAD 155 million for the full year. However, the stock is only valued at CAD 134 million, plus the debt from the expansion financing.

    The now ample cash flow is being used to develop new fields, and much of it is going toward paying down debt, which has grown to more than CAD 220 million due to the last two acquisitions. Based on this level, debt will decrease to about CAD 185 million by the end of 2022, and by the end of 2024 it will be only about CAD 75 million. Due to forward transactions, Saturn can already determine these figures with a high degree of certainty today. Currently, the Company benefits from the unhedged production shares, which can be sold at spot market prices. This generates additional funds and increases free cash flow, which should be available for distribution to shareholders in the medium term. Based on the strong economics of recent drilling programs, Saturn's Board of Directors has set the 2022 capital expenditure budget at CAD 77.2 million. With the new guidance, Saturn again noticeably increases its output, as the increased capital expenditures further change the projected and expected cash flows. The medium-term scenario for the share is thus getting better and better.

    The current research study by Eight Capital discounts the planned cash flows to the current year and arrives at a factor of 0.7 for the enterprise value (including debt). Within the industry, however, a factor of approx. 2.5 is currently applied, other things being equal. In other words, Saturn Oil & Gas is undervalued by a factor of about 3.5 times today's price of CAD 2.25. Mathematically, this yields CAD 7.87 - the analysts, therefore, vote with a Buy rating and price target of CAD 7.50. There is currently no cheaper oil share in North America, but the capital dilution without subscription rights has probably scared off some investors. The technical breakout will succeed above CAD 2.55, but then things will likely get down to business quickly.

    BASF - Mastering dependence on oil and gas wisely

    Ludwigshafen-based chemical giant BASF has made the headlines time and again recently because of its high dependence on gas. In the meantime, however, many alternative concepts are being discussed for the Group, and initial steps are already being implemented. At least there have been no production cuts yet, which means that the current half-year profits are rising for the time being due to the price jumps and the weak euro.

    Sales climbed by almost EUR 7 billion to EUR 46.1 billion from EUR 39.1 billion, and EBIT increased by over 10% to EUR 5.14 billion. Both figures were above analyst expectations; surprisingly, there was a forecast increase despite the adverse environment. Sales are now expected to exceed EUR 86 billion in 2022, after all, and the EBIT profit target is EUR 6.8 to 7.2 billion. It seems that management does not see the warlike conflict as particularly threatening for BASF. CEO Brudermüller comments: "Despite persistently high raw material and energy prices, we again achieved strong earnings in the second quarter." Nevertheless, management stresses that risks may arise, particularly from production interruptions at the major European sites due to further restrictions on gas supplies from Russia.

    As the Group has already calculated precautionary markdowns and announced cost reductions, the share price's downward slide could already be close to an end. If there are reports of gas stops, the medium-term investor can take advantage of the expected weakness and strike boldly.

    Energy markets remain tight as demand for fossil fuels remains high. Given global distortions and long-neglected investments during the pandemic, there are currently too few commodity explorations to meet the high demand in world markets. Shell and BP are profiteers from the current supply situation, and BASF could face even bigger problems. A real bargain, however, is the up-and-coming Saturn Oil & Gas from Canada, whose figures currently stand up to any comparison.

    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

    André Will-Laudien

    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.

    About the author

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