Sustained demand for oil and gas, driven by economic activity, surge in population worldwide, and increased usage in residential, industrial, and transportation sectors, create high-growth opportunities for exploration and production companies in the energy business. Moreover, expectations of higher global oil demand and tight supply would drive oil prices up.
Amid this backdrop, fundamentally sound energy stocks Eni S.p.A. (E), Sasol Limited (SSL), and Transportadora de Gas del Sur S.A. (TGS) could be promising buys now for potential gains.
OPEC forecasts world oil demand to increase by 2.44 million barrels per day (bpd) to average 102.1 million bpd in 2023. Next year, world oil demand is expected to rise by 2.25 million bpd. Developing economies, led by China, will account for most of this year’s demand growth, OPEC said in its Monthly Oil Market Report (MOMR).
Moreover, the oil producer group raised its medium- and long-term forecasts for global oil demand. In Its 2023 World Oil Outlook, OPEC said it projects world demand to reach 116 million bpd by 2045, an increase from 99.6 million bpd in 2022 and nearly 6 million more bpd than it forecasted in last year’s report.
In the medium term, the group expects global oil demand to reach 110.2 million bpd in 2028, up 10.6 million bpd compared to 2022. The upward oil demand revision is due to a combination of less strict policies and faster economic growth, which leads to increased industrialization, an expansion in transport services, enhanced energy access, and a shift to modern energy sources.
As a result, most oil consumption sectors will expand faster than previously expected, including industrial, aviation, petrochemicals, and residential. Similarly, global demand for natural gas will likely increase in the coming years, with emerging economies supporting overall demand.
Although the rally has flattened lately, crude oil prices have risen since June this year amid robust oil and gas demand and constrained supplies. The Brent crude oil price averaged around $94 per barrel in September, $8/b higher than in August and up $19/b from June.
Oil prices surged to almost $98 per barrel in mid-September after major global oil exporters Saudi Arabia and Russia extended their voluntary production cuts through the end of 2023.
Further, the U.S. Energy Information Administration (EIA) anticipates oil prices to rise in the coming months, reflecting its expectations of tightening balances in world oil markets. Also, fears of a broader conflict in the Middle East could disrupt oil supplies, putting upward pressure on energy prices.
In its October Short-Term Energy Outlook (STEO), EIA expects the Brent spot price to average $91/b in the fourth quarter of 2023. In addition, the agency forecasts the Brent spot price next year to average $95 per barrel, $7 per barrel higher than in the prior month’s STEO.
Considering these favorable trends, let’s look at the fundamentals of the three best Foreign Oil & Gas stock picks, beginning with number 3.
Stock #3: Eni S.p.A. (E)
Headquartered in Rome, Italy, E engages in exploring, 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.
In October, E announced a vital gas discovery at Geng North-1, an exploration well drilled in the North Ganal PSC, off Indonesia, with the preliminary estimated discovered volume of 5 trillion cubic feet (tcf) of gas and 400 MMbbl condensate in place.
This gas discovery, coupled with the pending completion of the acquisition of Neptune owns shares in the assets in the area and the recent purchase of Chevron interests in the Rapak and Ganal PSC blocks, opens up enormous potential in the Indonesia gas sector, benefitting Eni significantly.
In the same month, E signed a long-term contract with QatarEnergy LNG NFE (5), the joint venture between Eni 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.
For the third quarter that ended September 30, 2023, E reported sales from operations of €22.32 billion ($23.58 billion), and its adjusted operating profit came in at €3.01 billion ($3.18 billion). Adjusted net profit attributable to Eni’s shareholders was €1.82 billion ($1.92 billion).
As of September 30, 2023, the company’s fixed assets of €84.25 billion ($89 billion) increased by €3.21 billion ($3.39 billion) from December 31, 2022.
Analysts expect E’s revenue for the fourth quarter (ending December 2023) to increase 3.1% year-over-year to $34.16 billion. The company’s revenue for the next year (ending December 2024) is expected to grow 2.4% from the prior year to $106.23 billion.
E’s stock has gained 8.6% over the past six months and 26.3% over the past year to close the last trading session at $32.46.
E’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Momentum and a B for Sentiment and Stability. It has ranked #15 out of 44 stocks in the A-rated Foreign Oil & Gas industry.
In addition to the POWR Ratings I’ve just highlighted, you can see E’s ratings for Growth, Quality, and Value here.
Stock #2: Sasol Limited (SSL)
SSL is an integrated chemical and energy company. It provides alumina, cobalt fischer-tropsch, carbon-based products, and graphite electrodes. The company also explores, develops, produces, markets, and distributes natural oil and gas and associated products; markets fuels and lubricants; and offers engineering services. SSL is based in Johannesburg, South Africa.
On October 23, Sasol Chemicals, a business unit of SSL, launched CARINEX and LIVINEX, two brands that will expand Sasol’s offerings of sustainable products. Sasol Chemicals previously announced plans to begin exploring alternatives to traditional surfactants.
In March last year, the company announced a strategic partnership with Holiferm Limited to develop sophorolipids, a fermentation-derived biosurfactant offering an extensive reduction in carbon footprint compared with petroleum or bio-based surfactants. The new product offerings are expected to extend Sasol’s market reach and drive its growth.
On October 20, SSL and the Council of Geoscience (CGS) signed a Memorandum of Understanding (MoU) to collaborate, explore, and develop carbon capture and utilization and storage (CCUS) potential in South Africa. This partnership marks another step in accelerating the trajectory toward achieving a low-carbon economy via strategic initiatives.
Also, on September 6, SSL entered a three-year partnership with Vertree Partners Limited, a global carbon solutions provider. Vertree will assist SSL in creating effective strategies for reducing carbon emissions, mitigating related risks, and making impactful investments in carbon reduction and removal initiatives as part of SSL’s commitment to achieving a net-zero carbon footprint.
During the first quarter of 2024, SSL’s mining productivity of 1025 t/cm/s is 9% higher than a year ago. Internal sales of fuels were 5.4 mm tons, up 2% year-over-year. Also, in Mozambique, the gas production for the first quarter was 11% higher than the previous year due to increased gas availability from the additional wells online.
For the fiscal year that ended on June 30, 2023, SSL’s turnover increased 6.2% year-over-year to R289.70 billion ($15.35 billion). Its operating profit before remeasurement items was R55.42 billion ($2.94 billion), up 7.6% from the prior year. The company’s earnings for the year came in at R9.33 billion ($494.26 million) and R13.02 per share, respectively.
In addition, cash generated by operating activities grew by 15% to R64.60 billion ($3.42 billion) compared to the previous year. The company’s cash and cash equivalents were R53.93 billion ($2.86 billion), compared to R43.14 billion ($2.29 billion) as of June 30, 2022.
Street expects SSL’s EPS for the fiscal year (ending June 2024) to grow 20.4% year-over-year to $3.45. The company’s revenue for the ongoing year is expected to grow 0.3% year-over-year to $15.71 billion.
Shares of SSL have gained 2.6% over the past six months to close the trading session at $13.11.
SSL’s POWR Ratings reflect a solid outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
The stock has an A grade for Momentum and Sentiment. Also, it has a B grade for Quality. Within the A-rated Foreign Oil & Gas industry, SSL is ranked #9 of 44 stocks.
To see additional POWR Ratings for Growth, Value, and Stability of SSL, click here.
Stock #1: Transportadora de Gas del Sur S.A. (TGS)
Based in Buenos Aires, Argentina, TGS engages in the transportation of natural gas and the production and commercialization of natural gas liquids internationally. The company operates through four segments: Natural Gas Transportation Services; Liquids Production and Commercialization; Other Services; and Telecommunications.
On October 16, TGS launched its Prediktor PowerView™ platform, an enterprise asset management solution for utility-size solar plants and portfolios. This platform empowers solar companies in the U.S. to access high-quality operational data, convert it into actionable insights, and optimize performance, productivity, and profitability. This new launch should bode well for the company.
TGS’ revenue increased 66.6% year-over-year to $225.45 million for the third quarter that ended September 30, 2023. Its operating profit grew significantly from the year-ago quarter to $26.16 million. Its net income and earnings per share came in at $16.78 million and $0.13, compared to a net loss of $1.74 million and loss per share of $0.02 in the prior year’s quarter, respectively.
Furthermore, TGS’ free cash flow was $44.80 million versus $6.20 million in the third quarter of 2022. As of September 30, 2023, the company’s current assets stood at $562.82 million, compared to $403.95 million as of September 30, 2022.
The consensus revenue estimate of $932.24 million for the fiscal year (ending December 2023) reflects a 27.8% rise year-over-year. For the fiscal year 2024, analysts expect TGS’ revenue and EPS to increase 6.7% and 290.3% year-over-year to $994.69 million and $1.21, respectively.
The stock has gained 4.4% over the past month and 32.7% over the past year to close the last trading session at $11.15.
TGS’ promising prospects are reflected in its POWR Ratings. The stock has an overall rating of A, equating to Strong Buy in our proprietary rating system.
TGS has a B grade for Value, Momentum, Sentiment, and Quality. It is ranked #4 in the same industry.
Click here for additional POWR Ratings for Growth and Stability for TGS.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
E shares rose $0.86 (+2.65%) in premarket trading Monday. Year-to-date, E has gained 17.28%, versus a 8.58% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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