07. June 2021 | 08:40 CET
Royal Dutch Shell, BP, Saturn Oil + Gas: Starting signal for the "green" oil megatrend
"This will influence climate legislation around the world," was the headline in the Frankfurter Allgemeine Zeitung, referring to the ruling by the District Court in The Hague against the Royal Dutch Shell corporation. The court ordered the corporation to reduce its CO2 emissions by 45% by 2030 compared to 2019. Never before has a court forced a corporation to take such drastic climate protection measures. What does this mean for the sector now?
Despite this development, Saturn Oil & Gas announced on Friday after the end of the trading day the successful placement of the capital increase, which had already been adjusted upwards several times, including the greenshoe, now totaling CAD 32.8 million. The use of the proceeds from the placement is quite interesting.
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ISIN: GB00B03MLX29 , GB0007980591 , CA80412L1076
"[...] 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.
Why Shell and BP are just the tip of the iceberg
The already latent pressure to become more sustainable is likely to increase further. Royal Dutch Shell had already formulated clear climate targets and wanted to be CO2-neutral by 2050, but this was not enough for the court in The Hague. However, the ruling is not yet set in stone: The Group has already filed an appeal. It remains to be seen what the legal situation will be once this appeal is concluded. On the stock market, the consequences for the Royal Dutch Shell share have been limited. Within the past three months, the share price has fallen by around 6.7%. In the past five trading days, the bottom line has even seen a gain.
The reason for the market's indifference could be that oil and gas will be needed as energy sources for a long time to come. The US investment house Western Asset Management emphasized this a few months ago. Several months ago, the investment experts cited that although per capita energy consumption in industrialized countries is falling, absolute energy consumption worldwide is rising for several reasons. It will therefore be essential to continue tapping fossil energy sources.
The Hague ruling could even be detrimental to efforts to improve climate protection. That is if Western oil companies such as Royal Dutch Shell or BP are deprived of their business basis, while producers in Saudi Arabia or Russia continue to operate without an ESG profile. After all, BP and Royal Dutch Shell are committed to climate neutrality and want to achieve this by 2050 at the latest. The companies are already trying to keep environmental impacts as low as possible and find the best possible solutions for employees and local residents. That these efforts are insufficient from the perspective of climate protectionists may be understandable from their point of view - but from a global perspective, this argumentation makes no sense. What is the point of putting additional pressure on a corporation that has already imposed climate targets on itself in court while coal-fired power plants in China and other regions are running at full capacity?
The oil industry is going green
It is not yet clear whether the ruling against Shell in The Hague will stand. What is clear, however, is that energy companies in Europe will continue to be under scrutiny. The next lawsuits are probably already being prepared. It will therefore be difficult for investors. If large corporations have to reinvent themselves within less than ten years due to court rulings, returns are likely to fall by the wayside. An alternative could be smaller oil and gas producers from outside Europe. One example is Saturn Oil & Gas.
Saturn Oil & Gas operates in the Canadian district of Saskatchewan and produces oil there. The Company imposed strict ESG guidelines on itself at an early stage and is in tune with the spirit of the times. In addition to environmental policies and a clear commitment to social working practices and exemplary leadership, Saturn Oil & Gas is also committed to gender equality. It offers female students exclusive internships in the energy industry. The aim is to make the industry more diverse and to leverage additional employee potential. Incidentally, the commitment should also positively impact the Company's ESG rating and attract investors in the long term.
Saturn Oil & Gas: Growth and sustainability
Saturn Oil & Gas is currently working on the acquisition of the new Oxbow oil field. Upon completion of the transaction, production is expected to increase by 2,000% - to over 7,200 barrels per day. Net operating income is expected to be between CAD 65 million and CAD 70 million annually after the deal is completed. Currently, the entire Company is valued much lower. More and more pieces of the puzzle are coming together and, as of today, almost give the overall picture of a successfully completed takeover: the equity financing of over CAD 32 million was successfully completed after market on Friday and the closing of a debt financing of CAD 82 million has already been indicated. The new oil field is also connected to the pipeline network and can be operated thanks to low decline rates very sustainably. Profitability and sustainability go hand in hand at Saturn Oil & Gas.
The Company is undergoing a realignment. Just recently, it announced a reverse split for treasury shares in a ratio of up to 20:1. The move is expected to be approved and implemented this summer. Saturn Oil & Gas would then no longer be a penny stock. It would be able to use its shares even better than before as a takeover currency - after all, the Company has already emphasized its intention to continue buying up promising oil properties in the future and operate them sustainably.
At a time when the big oil multinationals are under legal pressure, the young and sustainably conceived Company Saturn Oil & Gas could become a profiteer. It seems clear that fossil fuels will be needed for a long time to come. Provided they are produced sustainably, there is nothing wrong. In the medium term, courts and investors are likely to see it that way. The analysts at GBC Investment Research recently issued a price target of CAD 0.46 with a rating of 'Buy' on Saturn's stock (Link to Research Report). On Friday, On Friday, the stock closed the day at CAD 0.17.