Despite the rise of renewable energy sources, the demand for oil and gas is projected to keep growing. Moreover, the extended production cuts by oil-producing countries and the expected rise in oil demand boost the industry’s near-term prospects.
Therefore, investors could consider buying fundamentally strong oil and gas stocks BP p.l.c. (BP), Eni S.p.A. (E), and Koninklijke Vopak N.V. (VOPKY).
Before delving deeper into the fundamentals of these stocks, let’s discuss the factors driving the industry’s prospects.
Fears of supply shortages brought on by the embargo on Russian gas and oil supplies in the wake of its invasion of Ukraine caused oil and gas prices to skyrocket last year. But as supply stabilized toward the end of last year, oil prices lost steam. However, oil prices resumed their momentum, breaking the $90 per barrel level for the first time since November 2022.
Since then, despite the production restrictions declared by Russia and the OPEC+ countries and the continuous hostilities between Israel and Hamas, oil prices have fallen. Oil prices have also been falling as China's recovery does not appear to be progressing as expected, as seen by a drop in its most recent manufacturing activity figures.
Also, the recent EIA data showed that stockpiles rose more than expected. Moreover, the supply fears arising out of the conflict in the Middle East are easing. However, crude oil prices are expected to rise again following Russia’s and Saudi Arabia’s statements reaffirming production cuts through the end of 2023.
While Russia will continue with its 300,000 barrel per day (bpd) export cut, Saudi Arabia will extend its voluntary production cut of 1 million bpd until the end of the year. Additionally, OPEC has not altered its global oil demand projection for 2023 and 2024. It predicted that worldwide solid economic expansion and ongoing progress in China would propel oil consumption in 2024.
OPEC believes world oil demand will rise by 2.25 million barrels per day (bpd) in 2024 and grow to 2.44 million bpd this year. JP Morgan believes world oil demand will reach 106.9 mbd by 2030, a 5.5 mbd rise from 2023. It believes oil prices could spike to $150/bbl in the near to medium term and $100/bbl over the long term.
Considering these conducive industry trends, let’s evaluate the three Foreign Oil & Gas picks, starting with number 3.
Stock #3: BP p.l.c. (BP)
Headquartered in London, United Kingdom, BP produces natural gas and integrated gas and power, gas trading, onshore and offshore wind power operation, and hydrogen and carbon capture and storage facilities. The company operates through Gas & Low Carbon Energy, Oil Production & Operation, and Customers & Products segments.
On November 6, 2023, BP announced it had successfully begun production from the Seagull oil and gas field in the UK North Sea. Seagull is the first tieback to the ETAP hub in 20 years. The new field is expected to produce around 50,000 barrels of oil equivalent gross per day at peak production.
In terms of the trailing-12-month levered FCF margin, BP’s 7.81% is 35.7% higher than the 5.76% industry average. Likewise, its 39.31% trailing-12-month Return on Common Equity is 104.2% higher than the industry average of 19.25%. Furthermore, the stock’s 0.80x trailing-12-month asset turnover ratio is 42.5% higher than the industry average of 0.56x.
BP’s total revenues and other income for the third quarter ended September 30, 2023, came in at $54.02 billion. Its profit for the period came in at $5.07 billion, compared to a loss for the period of $1.98 billion. The company’s operating cash flow rose 5.5% year-over-year to $8.75 billion. Also, its EPS per ADS came in at $1.66, compared to a loss per share of $0.69 in the prior-year quarter.
Analysts expect BP’s EPS for the quarter ending June 30, 2024, to increase 35.3% year-over-year to $1.20. Its revenue for the quarter ending March 31, 2024, is expected to increase 6.2% year-over-year to $59.69 billion. Over the past year, the stock has gained 2.2% to close the last trading session at $34.46.
BP’s POWR Ratings reflect its solid prospects. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #11 out of 44 stocks in the A-rated Foreign Oil & Gas industry. It has an A grade for Momentum and a B for Value and Quality. Click here to see the other ratings of BP for Growth, Stability, and Sentiment.
Stock #2: Eni S.p.A. (E)
Headquartered in Rome, Italy, E explores, extracting, manufacturing, and marketing crude oil and natural gas, oil-based fuels, chemical products, and energy products from renewable sources. It operates through Exploration & Production; Global Gas & LNG Portfolio (GGP); Refining & Marketing and Chemicals; Plenitude & Power; and Corporate and Other Activities segments.
On October 23, 2023, E signed a long-term contract with QatarEnergy LNG NFE (5), the joint venture between E and QatarEnergy for the development of the North Field East (NFE) project in Qatar, delivering up to 1.5 bcm/year of LNG. LNG will be delivered at the receiving terminal “FSRU Italia,” located in Piombino, Italy, and expected deliveries are starting from 2026 with a duration of 27 years.
On June 23, 2023, E announced that, along with Vår Energi ASA, it acquired Neptune Energy Group Limited. E will acquire assets comprising Neptune’s entire portfolio other than its operations in Germany and Norway. The acquisition complements E’s key areas of geographic focus and supports its objective of increasing the share of natural gas production to 60% and reaching net zero emissions from the Upstream business by 2030.
In terms of the trailing-12-month asset turnover ratio, E’s 0.64x is 13.2% higher than the 0.56x industry average.
For the fiscal third quarter ended September 30, 2023, E’s total revenues came in at €22.65 billion ($24.21 billion). Its adjusted operating profit stood at €3.01 billion ($3.22 billion). The company’s adjusted net profit attributable to E’s shareholders came in at €1.82 billion ($1.94 billion).
For the quarter ending December 31, 2023, E’s revenue is expected to increase 3.7% year-over-year to $34.34 billion. Over the past year, the stock has gained 10.8% to close the last trading session at $31.61.
E’s POWR Ratings reflect this positive outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
Within the same industry, it is ranked #9. It has an A grade for Momentum and a B for Growth, Stability, and Sentiment. To see the other ratings of E for Value and Quality, click here.
Stock #1: Koninklijke Vopak N.V. (VOPKY)
Headquartered in Rotterdam, the Netherlands, VOPKY is an independent tank storage company. It stores and manages liquid chemicals, gases, and oil products. The company owns and operates terminals, including storage tanks, jetties, truck and rail loading stations, and pipelines, as well as provides access to road, rail, and pipeline networks.
In terms of the trailing-12-month EBITDA margin, VOPKY’s 50.24% is 39.1% higher than the 36.12% industry average. Likewise, its 30.88% trailing-12-month EBIT margin is 35% higher than the industry average of 22.88%. Furthermore, the stock’s 95.76% trailing-12-month gross profit margin is 102.4% higher than the industry average of 47.32%.
VOPKY’s revenues for the third quarter ended September 30, 2023, rose 0.7% year-over-year to €352 million ($376.28 million). Its cash flows from operating activities increased 28.4% year-over-year to €245.60 million ($262.54 million). The company’s net profit attributable to holders of ordinary shares rose 79.1% over the prior-year quarter to €144.20 million ($154.15 million).
Also, its return on capital employed (ROCE) came in at 12.2%, compared to 10.4% in the prior-year quarter. In addition, its EPS came in at €1.15, representing an increase of 79.7% year-over-year.
Street expects VOPKY’s revenue for fiscal 2023 to increase 4.1% year-over-year to $1.52 billion. Over the past year, the stock has gained 58.7% to close the last trading session at $33.50.
VOPKY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It is ranked #7 in the Foreign Oil & Gas industry. It has an A grade for Stability and a B for Growth, Momentum, and Quality. Click here to see the other ratings of VOPKY for Value and Sentiment.
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BP shares rose $0.36 (+1.04%) in premarket trading Thursday. Year-to-date, BP has gained 3.28%, versus a 15.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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