Global oil and gas markets are undergoing an unprecedented transition. As lower demand and a decline in average realised prices took a toll on companies’ revenues and earnings creating a perfect storm, 2020 shaped out to be one of the industry’s worst years. Then came 2021, with its vaccine rollouts, steady improvement in the macroeconomic environment and a recovery in commodity prices which led to a solid rally in the shares of companies operating in this sector. With crude oil prices red-hot during the first half of the year and WTI (West Texas Intermediate) rallying more than 50% from January through June of 2021, oil and gas companies have had an impressive rebound and according to analysts, these strong market conditions should continue in 2022 and beyond.
As many market leaders are feeling the pressure to switch fuel sources and ditch carbon-emitting and climate change-causing fossil fuels, many are pivoting towards cleaner alternative energy sources. Yet, this transition won’t be happening overnight and conventional energy will continue to play a critical role in the economy, while companies will rely on fossil-fuel-related revenues to boost their cash flows.
Below are some of the top oil and gas companies that have not only benefitted from the current economic environment, but are also leading the charge in developing clean energy infrastructures that are set to offer further headwinds.
Chevron Corp (CVX)
Stocks that exhibit surging profit levels tend to attract investors’ attention and Chevron is no exception. A global integrated oil company, it has one of the greatest project pipelines in the business thanks to its prime position in the lucrative Permian Basin. While its historical EPS growth rate has been that of 8.5%, this figure is expected to grow 4275.7% in 2021, crushing the industry average. Indeed, for the full year, the oil giant earned $15.6 billion, compared to a loss of $5.5 billion in 2020, while it also saw record cash flow of $22.1 billion, whereas debt was reduced by $12.9 billion. At the same time, it is considered a top dividend stock thanks to its solid financial position and cash flow generation capabilities that helped it pay $2.6 billion in dividends in the third quarter of 2021, while it appears to have sufficient liquidity to continue paying quarterly dividends to its stockholders.
In December of 2021, the company unveiled its capital strategy for 2022, whereby it forecasted $15 billion in capital and exploration expenditures, marking a 20% increase from 2021 levels. And this year’s budget is more than 11% higher than the company’s 2020 spending of $13.5 billion. Meanwhile, the oil giant’s announcement that it will expand its share repurchase forecast to between $3 and $5 billion per year has been positively received. As a result, Wall Street analysts have praised Chevron’s growth prospects, many of which have given the company a Buy rating.
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With global transportation and trade restarting, the global economy’s recovery has boosted oil and natural gas prices, which in turn have bolstered Shell’s shares. In fact, its stock has been having an incredible run, with its price rising more than 40% over the last 12 months. And after seeing an increase in quarterly profit, the company decided to boost its dividend for the second consecutive quarter. According to its second quarter 2021 report, the oil major’s CCS earnings attributable to shareholders amounted to $2.6 billion in the second quarter of the year compared to the $4.3 billion in the first quarter of 2021 and compared to a loss of $18.4 billion in the second quarter of 2020. In the meantime, on February 3, 2022, it reported adjusted earnings for the fourth quarter of 2021, which came in at $6.4 billion, 55% more than the third quarter result of $4.1 billion and 16 times higher than fourth quarter 2020 earnings of $393 million.
Moving into 2022, Shell has been keen to highlight several of its sustainability initiatives, while it has continued to expand its renewables business and divesting its oil and gas refineries and drilling sites. The company’s Shell New Energies subsidiary completed the acquisition of Savion, a large utility-scale solar and energy storage developer in the U.S., an acquisition that is likely to strengthen Shell’s Renewables & Energy Solutions Integrated Power business, while last month Shell and ScottishPower secured joint offers for seabed rights to develop large-scale floating wind farms as part of Crown Estate Scotland’s ScotWind leasing.
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PetroChina Co Ltd (PTR)
One of the largest integrated oil companies in China, PetroChina Co’s stock has increased 15.58% over the past quarter, while it has gained an impressive 67.49% in the last year. As for its financials, in its latest earnings call, the company reported that for its first three quarters of 2021, its revenue topped RMB 1,880.34 billion, which represents an 31.8% year-on-year increase. The company’s strong financials come at a time when PetroChina is pushing forward its green and low-carbon transformation, production and operation and as it is in the midst of grasping the favourable opportunities that have come to the fore from China's rapid economic recovery, together with the rebound of the oil and gas market demand and the rise in international prices.
Meanwhile, the company said that it will continue to focus on its major development strategies, namely innovation, resources, market internationalisation, as well as green and low-carbon, as it continues to boost its operational efficiency, market competitiveness and value creation capacity so that it can increase its efforts towards generating greater returns to its shareholders.
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TotalEnergies SE (TTE)
Just as was the case with its competitors, TotalEnergies’ full year 2021 profit skyrocketed. The world’s fourth-largest, privately-owned oil and gas producer announced full year 2021 adjusted net income at $18.1 billion, compared to adjusted net income of $4.1 billion and a net loss of $7.2 billion the previous year. In addition, the oil major announced a final dividend of €0.66 per share, upping the total for 2021 to €2.64 per share, while it announced that it is planning $2 billion in share buybacks for the first half of the year. As for its stock, this has been up more that 16% year to date.
TotalEnergies has also been shifting its portfolio to renewable energy, after shareholders voted in favour of the move and approved the firm’s aim to reach carbon neutrality by 2050, in part by investing in more solar and wind power projects. The company has recently signed an agreement with Veolia to produce biomethane from the latter’s waste and water treatment facilities, which operate in more than 15 countries. The aim is to produce up to 1.5 TWh (terawatt-hours) of biomethane per year by 2025 and this production of renewable gas made from organic waste is set to be equivalent to the average annual natural gas consumption of 500,000 residents. Already a segment leader in France with close to 500 GWh (gigawatt-hours) of production capacity and active across the entire biomethanee value chain, the project forms part of TotalEnergies’ transformation into a broad energy company.
BP plc (BP)
BP has certainly been on fire since the end of 2021, with its stock currently trading at $33.34 as of February 8, up over 85% since the pandemic lows, while profits hit their highest in eight years, lifted mainly by soaring gas and oil prices as the company boosted share repurchases and accelerated plans to cut emissions with increased spending on low carbon energy. More specifically, its annual profit rebounded to $12.85 billion, whereas in the fourth quarter of 2021, its net earnings reached $4.1 billion, exceeding analysts’ expectations for a $3.93 billion profit. BP also maintained its dividend at 5.46 cents per share, while it boosted its share repurchase targets to $1.5 billion per quarter from $1.25 billion.
While focused on maintaining its strong financial performance, it is also transitioning into a leading renewable energy provider, hitting some important milestones as of late. Its renewable energy production pipeline hit a projected 21 GW/day and already stood at an impressive 3.7GW/day production level. Meanwhile, its continued investments saw it hit 10,0000 EV (electric vehicle) charging points. In the midst of a transition that forms part of its broader effort to be carbon neutral by 2050, these investments are set to help the company reap long-term benefits as the reliance on fossil fuels wanes globally.
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Sinopec Shanghai Petrochemical Co Ltd (SHI)
A subsidiary of Sinopec, also known as China Petroleum & Chemical Corporation, the company is one of the largest petrochemical enterprises in Mainland China and is engaged in the production of ethylene, fiber, resin and plastics. According to analysts, Sinopec Shanghai’s revenue growth outlook for the first half of this year may be challenging due to factors such as the Winter Olympics and the highly infectious Omicron variant. In effect, in the first half of 2020, the company recorded a loss and its gross profit of products decreased dramatically. However, as market demand increased and prices of major products picked up, the company seized the opportunity to better optimise its business operation, enhance its efficiency and focus on cost reduction, all of which have helped improve its operating results. As a consequence, Sinope Shanghai Petrochemical expects its 2021 net profit to rise to between 207% and 238% year-over-year and more specifically, to between 1.9 billion and 2.1 billion yuan from the 628.1 million yuan reached a year earlier.
It still remains to be seen whether China will maintain its staunch zero-COVID policy, which could mean that the more infectious Omicron variant could lead to tighter restrictions and perhaps lockdowns in the country, which in turn could potentially decrease domestic energy demand.
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Enbridge Inc (ENB)
Enbridge’s oil pipelines transport approximately 30% of all the oil produced in the U.S., while its natural gas pipelines move about 20% of all the gas consumed in the country. In its latest earnings call, the company reported a strong third quarter, with GAAP earnings of $682 million or $0.34 per common share and according to Enbridge, its various investments have the potential to support 5% to 7% annual cash flow per share growth through at least 2024. Yet, there’s another appealing factor to the stock. Enbridge is considered a top-notch dividend stock, currently boasting a good 6.15% dividend yield as of February 8, 2022.
And just like its counterparts above, Enbridge understands that despite the fact that fossil fuels supply the bulk of its revenues, the road to success is one - to slowly pivot toward cleaner energy. The company already has a sizable pipeline of clean energy infrastructure projects like natural gas pipelines and offshore wind farms in Europe which are set to drive growth in the near term. At the same time, it is investing in emerging clean energy projects, such as hydrogen and carbon capture and storage, which could also serve as major growth drivers in the future. Bearing in mind its generous dividend yield, reasonable valuation, investments and projected growth, Enbridge is expected to deliver good returns over the next few years.
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