December 8th, 2021 | 11:48 CET
Royal Dutch, Saturn Oil + Gas, BP: The best oil stocks for 2022!
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"[...] The Oxbow Asset now delivers a substantial free cash flow stream to internally fund our impactful drilling and workover programs. [...]" John Jeffrey, CEO, Saturn Oil + Gas Inc.
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.
Royal Dutch Shell - One of the 2022 dividend stars
One of the largest private oil companies is the British-Dutch Royal Dutch Shell (RDS). Because the environmental lobby is getting stronger and stronger, Shell wants to subject its projects to a closer sustainability check. The Company's withdrawal from a controversial project in the northern Atlantic Ocean, in which it has a 30% stake, therefore came as little surprise.
The economic arguments in favor of the investment were probably not strong enough to push through the Company's own goals against environmental activists. The project to develop an oil field on the seabed west of the Shetland Islands, known as "Cambo," has long been heavily criticized by environmental organizations; one probably recalls the BP "Deepwater Horizon" disaster in the Gulf of Mexico. The majority shareholder, Siccar Point Energy, expressed disappointment at Shell's decision but announced that it would stick with the project. The environmental organization Greenpeace and the Labor opposition, on the other hand, welcomed Shell's withdrawal. Ultimately, it is an admission of higher ecological principles; they suit Royal Dutch Shell quite well.
RDS showed its usual strength again in the last quarter with a profit in the billions. In keeping with tradition, shareholders are allowed to share in this success. The dividend is increasing again, and a share buyback of USD 2 billion is on the agenda. Due to the current strong correction in the share price to below EUR 19 at times, the dividend yield is now 4.2%. Royal Dutch Shell is a long-term basic investment for risk-conscious investors because of its broad positioning. Give preference to A-shares due to simpler withholding tax processing.
Saturn Oil & Gas - It seems the market didn't understand that
There were ups and downs in the last few months after the reorganization of Canadian Saturn Oil & Gas. At first, the share price started upward and doubled from its pre-deal level. However, the much-discussed takeover of the Oxbow properties did involve high debt requirements. In return, however, production output increased twenty-fold to nearly 7,000 barrels per day, with the effect that Saturn can now repay all loans from cash flow by mid-2023. There are hardly any oil companies that operate virtually debt-free.
Of course, leading the way for the deal was the perpetually low WTI price in 2020, between USD 30 and USD 50 per barrel. The discounting models thus made a moderate purchase price possible, which was now also translated into reality in mid-2021. Currently, however, WTI light crude is again hovering between USD 68 and USD 78, and the financing calculations from the spring are based on a price assumption of USD 60. So, there remains a lot of buffer for reaching the targets.
Now there is news that could turn the recent selling pressure into the opposite. Saturn Oli & Gas is getting additional funding of CAD 2.1 million from the provincial government of Saskatchewan under the so-called Accelerated Site Closure Program (ASCP). This harmonizes 100% with the Company's commitment to be an ESG leader in oil production. Saturn has been awarded a total of CAD 13.6 million in ASCP funding for its sustainable treatment of depleted properties. A clear commitment by the regional government to provide maximum support to resident oil companies in the "going green process."
The total budget used by Saturn to rehabilitate 400 wells and 200+ well reclamations will be CAD 20 million; some inactive wells will be reconnected in the process. The total number of inactive wells is thus expected to be reduced by over 50% in the next three years. However, Saturn's cash flow will not be affected by this land reclamation program. Operationally, the Company reports two new successful horizontal wells that will come online before the end of December. Currently, the share price has some catching up to do on the upside. However, the trading lows of late November are history again with currently CAD 3.40. The research house Beacon says "BUY" and expects CAD 10.15 in 12 months. Stock up!
BRITISH PETROLEUM - A new hydrogen project in England
British Petroleum (BP), green-yellow in its logo, wants to get even greener in its business strategy. A new project by the London-based oil company made headlines in early December. BP is planning a major project in Teesside, in northeast England, to produce green hydrogen. According to the Company, the project, called "HyGreen Teesside," could provide up to 500 MW of electricity for hydrogen production by 2030. It is planned to start multi-stage production in 2025 with an initial capacity of about 60 MW. However, the final investment decision for the project will not be made until 2023, according to BP.
"HyGreen Teesside" complements the blue hydrogen project "H2Teesside" already initiated by BP. There, blue hydrogen is produced with natural gas and the resulting emissions are captured by process technology. Green hydrogen, on the other hand, is produced exclusively with renewable energies. According to BP, HyGreen Teesside and H2Teesside together could contribute 30% to the UK's national target of 5 GW of hydrogen production by 2030.
Commodity analysts see the oil market well poised for 2022, with production rates adjusting to the pandemic and many oil producers exploring interesting new ways to diversify their service portfolios. BP stock is an innovative representative of the industry. From a chart perspective, a breakout above EUR 4 now opens the way to the highs of EUR 4.30. However, the 5-year high of EUR 6.60 is still some way off. The current dividend is just under 7%. All parameters speak for a long-term investment.
If you are looking for a good return and share price performance in the oil market, you are on the safe side with multinationals. However, they are also repeatedly in the spotlight with many controversial projects. By comparison, Saturn Oil & Gas is a small Canadian producer but is making a name for itself with its ESG commitment and extremely low valuation.
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