Tag: Occidental Petroleum Corporation (OXY)

Oil Stocks on the Rise: Pro-Oil Stance from Trump Boosts Sector

Posted on by The INO.com Team

The recent presidential debate between President Joe Biden and former President Donald Trump has stirred significant movements in the equity markets, especially within the energy sector. Biden’s shaky performance drove sentiment around Trump’s odds of securing a second term in the White House, propelling stocks of private prisons, credit card companies, and health insurance firms.

However, the most notable surge has been in oil stocks, reflecting Trump’s pro-oil policies and the market’s anticipation of potential benefits under his presidency.

Trump’s Pro-Oil Policies: A Catalyst for Growth

Trump’s administration has consistently advocated for deregulation and expansion of oil drilling activities, and a second term could amplify these policies. Last month, Donald Trump told Senate Republicans he would restart oil drilling in Alaska’s Arctic National Wildlife Refuge if re-elected. This promise is seen as a green light for increased oil production, potentially boosting the profitability and growth of oil companies.

Moreover, Trump offered to roll back environmental regulations, hasten permitting and leasing approvals, and enhance tax benefits that the energy industry enjoys if top U.S. oil executives agreed to donate $1 billion for his White House re-election. Lower regulatory hurdles could lead to cost reductions for oil companies, making exploration and drilling more economically viable.

In the wake of the debate, energy stocks emerged as some of the best performers of the S&P 500 index despite a slight dip in Brent crude and West Texas Intermediate prices. Baker Hughes Co. (BKR) led the sector’s rally, with Valero Energy Corporation (VLO), Phillips 66 (PSX), Targa Resources Corp. (TRGP), and Occidental Petroleum Corporation (OXY) following suit.

This recent surge is primarily driven by the market’s reaction to Trump’s potential White House re-election, which is perceived to favor the oil and gas industry significantly.

Top Beneficiaries of Pro-Oil Stance From Trump

Phillips 66 (PSX)

Valued at a market cap of $59.51 billion, Phillips 66 (PSX) is a global energy manufacturing and logistics company. It operates in four segments: Midstream; Chemicals; Refining; and Marketing and Specialties (M&S). The company’s diversified operations could benefit from reduced regulatory pressures and expansion of oil drilling activities supported by Trump’s pro-oil policies.

On May 21, Phillips 66 agreed to acquire Pinnacle Midland Parent LLC from Energy Spectrum Capital in a strategic move to expand its natural gas gathering and processing footprint in the Midland Basin. Pinnacle’s assets encompass the newly built Dos Picos natural gas gathering and processing system: a 220 MMcf/d gas processing plant, 80 miles of gathering pipeline, and 50,000 dedicated acres through high-quality producers in one of PSX’s focus basins. 

Mark Lashier, Chairman and CEO of Phillips 66, said, “Pinnacle is a bolt-on asset that advances our wellhead-to-market strategy and complements our diversified and integrated asset portfolio. Further, this transaction aligns with our long-term objectives to build out our natural gas liquids value chain, be disciplined with our capital allocation and create sustainable value for our shareholders.”

Also, in April, PSX’s Board of Directors approved a quarterly dividend of $1.15 per share, representing a rise of 10%. The dividend was paid on June 3, 2024, to shareholders of record as of the business close on May 20, 2024. The dividend increase demonstrates the company’s confidence in its growing mid-cycle cash flow generation and disciplined capital allocation strategy, which includes maintaining a secure and competitive dividend.

Since its establishment in 2012, Phillips 66 has consistently increased its dividend, resulting in a CAGR of 16%. Moreover, the company is well-poised to continue delivering substantial shareholder value by executing its strategic priorities, including returning $13-$15 billion to shareholders via dividends and share repurchases from July 2022 to the year-end 2024.

For the first quarter that ended March 31, 2024, PSX reported revenue of $36.44 billion, beating analysts’ estimate of $33.56 billion. Its adjusted earnings were $822 million, or $1.90 per share, respectively. During the quarter, refining operated at 92% crude utilization. As of March 31, 2024, the company had cash and cash equivalents of $1.60 billion and $3.50 billion of committed capacity available under its credit facility.

Further, Phillips 66, through the successful execution of its strategic priorities, remains committed to increasing mid-cycle adjusted EBITDA to $14 billion by 2025 and returning more than 50% of operating cash flow to shareholders.

PSX’s stock is up around 5% year-to-date and has gained more than 45% over the past year.

Occidental Petroleum Corporation (OXY)

Occidental Petroleum Corporation (OXY) also stands to gain significantly from Trump’s pro-oil stance. OXY is a leading energy company with assets mainly in the U.S., the Middle East, and North Africa. The company’s extensive operations in the Permian and DJ basins and offshore Gulf of Mexico, coupled with potential regulatory rollbacks, could enhance its production capabilities.

Over the past six months, shares of OXY have surged more than 3% and approximately 46% over the past year. Moreover, the stock has already shown positive movement following the presidential debate, reflecting investor optimism.

Last month, OXY and BHE Renewables, a wholly-owned subsidiary of Berkshire Hathaway Energy, formed a joint venture for the demonstration and deployment of TerraLithium’s Direct Lithium Extraction (DLE) and associated technologies to extract and commercially produce high-purity lithium compounds from geothermal brine.

By utilizing Occidental’s expertise in managing and processing brine within its oil & gas and chemicals businesses, combined with BHE Renewables’ extensive knowledge in geothermal operations, OXY is exceptionally equipped to advance a more sustainable method of lithium production.

During the first quarter that ended March 31, 2024, OXY posted an adjusted net income attributable to common stockholders of $604 million, or $0.63 per share. Notably, midstream and marketing surpassed guidance for pre-tax income by nearly $100 million. Also, OxyChem exceeded guidance with a pre-tax income of $260 million.

In addition, Occidental’s total production was $1,172 Mboed near the mid-point of its guidance. Solid operational performance drove cash flow from operations of $2 billion and cash flow from operations before working capital of $2.3 billion.

“Operational excellence is fundamental to everything we do at Occidental, and our teams delivered at a high level across all segments during the first quarter of 2024,” stated OXY’s President and Chief Executive Officer Vicki Hollub. “We are executing in all areas of our diversified portfolio and positioned for free cash flow growth.”

Analysts expect OXY’s revenue and EPS for the second quarter (ended June 2024) to increase 3.5% and 26.4% year-over-year to $6.97 billion and $0.82, respectively. Also, the company has topped the consensus EPS estimates in three of the trailing four quarters.

Targa Resources Corp. (TRGP)

With a $29.62 billion market cap, Targa Resources Corp. (TRGP) is a prominent provider of midstream services. The company primarily engages in the gathering, compressing, treating, processing, transporting, and selling of natural gas; transporting, storing, fractionating, treating, and purchasing and selling natural gas liquids (NGLs) and NGL products, like services to LPG exporters; and gathering, terminaling, and purchasing and selling crude oil.

TRGP, with its focus on natural gas and NGLs, stands to benefit from the Trump administration’s favoring fossil fuels. TRGP’s stock has soared more than 14% over the past month and around 52% over the past six months. Moreover, the stock is up nearly 72% over the past year.

Targa recently began operations at its new 120 MBbl/d Train 9 fractionator in Mont Belvieu, TX. Further, construction continues on Targa’s 275 MMcf/d Greenwood II plant in Permian Midland and its 230 MMcf/d Roadrunner II and 275 MMcf/d Bull Moose plants in Permian Delaware. In the Logistics and Transportation (L&T) segment, construction continues on Targa’s 120 MBbl/d Train 10 fractionator in Mont Belvieu, its Daytona NGL Pipeline.

In May, TRGP, to increase production and meet the rising infrastructure needs of customers, announced the construction of a new 275 MMcf/d cryogenic natural gas processing plant in Permian Midland (Pembrook II plant) and the construction of a new 150 MBbl/d fractionator in Mont Belvieu (Train 11).

Moreover, in April, Targa Resources’ Board of Directors declared an increase to its quarterly cash dividend to $0.75 per share, or $3 per share annually, for the first quarter of 2024. This dividend represents a 50% rise from the dividend declared in the first quarter of 2023. The dividend increase indicates the company’s solid financial health and confidence in its continued growth.

In the first quarter that ended March 31, 2024, TRGP’s revenues increased 1% year-over-year to $4.56 billion. Its adjusted operating margin grew 3% from the prior year’s quarter to $622.10 million. Its NGL pipeline transportation volumes were $717.80 million, up 34% year-over-year.

Additionally, the company’s adjusted EBITDA rose 2.7% from the year-ago value to $966.20 million. Its adjusted cash flow from operations was $738.40 million for the quarter.

Street expects TRGP’s revenue for the fiscal year (ending December 2024) to increase 22.9% year-over-year to $19.74 billion. The consensus EPS estimate of $5.36 for the current year indicates an improvement of 46.4% year-over-year.

Bottom Line

The recent debate between President Joe Biden and former President Donald Trump has underscored the potential for significant market shifts based on political outcomes, particularly within the energy sector. With Trump’s pro-oil policies gaining renewed attention, companies like Phillips 66, Occidental Petroleum, and Targa Resources are well-positioned to capitalize on a supportive regulatory environment and expansion of drilling activities.

As the election approaches, the energy sector’s trajectory will likely remain closely tied to political developments. Investors should remain vigilant and consider the implications of potential policy changes on their portfolios. The solid financial performance and strategic initiatives of PSX, OXY, and TRGP, combined with the potential regulatory shifts under the Trump administration, could drive growth and deliver significant shareholder value in the upcoming years.

Investing Like a Billionaire: Everything Berkshire Hathaway Offers to Ordinary Investors

Posted on by The INO.com Team

With a $867.46 billion market cap, Berkshire Hathaway (BRK.A) (BRK.B), a diversified holding company, is led by Warren Edward Buffett, who is one of the world’s renowned investors with a long track record of successful capital allocation and value creation. As of May 8, 2024, he has a net worth of $133.50 billion, making him the eighth-richest person in the world.

Buffett’s substantial wealth primarily stems from his significant holdings in Berkshire Hathaway, a conglomerate with assets exceeding $1 trillion. Under Buffett’s expertise and exceptional leadership, Berkshire has historically delivered robust and consistent long-term growth, outperforming various other investment options.

From 1965, when Warren Buffett took control of the company, to 2023, Berkshire’s share price surged by a staggering 4,384,748%, surpassing the total return of the S&P 500 with dividends included of 31,223%. Additionally, Berkshire has continued its solid performance into 2024, with a double-digit percentage gain.

Berkshire’s Portfolio Reflects Buffett’s Investment Strategy

Known as the “Oracle of Omaha,” Warren Buffett stands out as one of the most accomplished investors of all time. He follows the Benjamin Graham school of value investing, seeking out securities with unreasonably low prices compared to their intrinsic worth. He often assesses the company’s long-term potential rather than short-term market trends.

Buffett considers company performance, profit margins, management team, and business model. He believes in investing in high-quality businesses with solid competitive advantages or “economic moats,” enabling them to maintain or expand their market share over time.

Sticking to his investment policy, Buffett’s holding company, Berkshire Hathaway, aims to “buy ably-managed businesses” possessing various characteristics, such as enduring competitive advantage, at extremely low prices.

For instance, the acquisition of See’s Candies in 1972 demonstrated Buffett’s strategy, as the company's robust brand and loyal customer base made it a highly profitable long-term investment. He favors companies with strong brands and business models that own their market niche, creating formidable barriers for competitors trying to enter and beat them at their game.

Berkshire Offers Diversification Across Industries

Berkshire Hathaway’s top holding is Apple Inc. (AAPL). Thanks to its strong brand and customer loyalty, it has remained one of Buffett’s favorite stocks for a long time. He has previously referred to AAPL as the “best business I know in the world.”

BRK.B recently disclosed that it had cut its stake in Apple by around 13% in the first quarter. It was reported that Berkshire’s Apple bet was worth $135.4 billion, implying nearly 790 million shares. Despite this trim, the iPhone maker is still Berkshire’s biggest holding by far, with a 39.8% weight in its publicly traded portfolio.

Another consumer goods company that Buffett loves is The Coca-Cola Company (KO). He recognized the company’s iconic brand, attractive dividends, and market advantages. Coca-Cola’s robust brand has enabled it to mitigate the impact of inflation by transferring higher costs to customers while still being able to generate growth.

At around 6.9%, KO is the fourth-largest holding in Berkshire’s portfolio. Berkshire owns a 9.3% stake in the company.

Meanwhile, Warren Buffett holds significant investments in the energy sector. During the fourth quarter of 2023, Buffett’s Berkshire increased its stakes in two major oil and gas companies, Chevron Corporation (CVX) and Occidental Petroleum Corporation (OXY).

Berkshire Hathaway owns about a 6.7% stake in CVX. According to Berkshire’s February shareholder letter, the firm also holds a 27.8% stake in OXY and has warrants to increase its ownership further at a fixed price.

Chevron (about 5.5% of the portfolio’s total weight) and Occidental (4.5%) provide investors with exceptionally good returns amid the inflationary periods and pay attractive dividends.

In addition, Buffett is fond of financial institutions and insurance companies, viewing them as a strategic bet on the long-term health of the U.S. economy. Berkshire's top two financial holdings are Bank of America Corporation (BAC) and American Express Company (AXP). These financial stocks comprise approximately 21% of the Berkshire portfolio’s total weight.

Outstanding First-Quarter Operating Earnings and Record Cash Hoard

For the first quarter that ended March 31, 2024, Berkshire’s total revenues increased 5.3% year-over-year to $89.87 billion. Revenues from Railroad, Utilities and Energy rose 11.2% year-over-year, and revenues from Insurance and Other grew 3.2%.

The Warren Buffett-led conglomerate reported first-quarter operating profit, which encompasses earnings from the company’s wholly-owned businesses, grew 39% from the year-ago period to $11.22 billion. This remarkable surge was led by a 185% year-over-year increase in insurance underwriting earnings to $2.60 billion. Insurance investment also soared 32% to over $2.50 billion.

However, net earnings attributable to Berkshire Hathaway shareholders declined by 64.2% year-over-year to $12.70 billion.

During the first quarter, the company’s cash pile reached a record high of $188.99 billion, up from $167.60 billion in the fourth quarter.

“We had much-improved earnings in insurance underwriting. And then our investment income was almost certain to increase,” Buffett said at Berkshire’s annual shareholder meeting in Omaha, Nebraska. “And I said that in the annual report because yields are so much higher than they were last year. And we have a lot of fixed, short-term investments that are very responsive to the changes in interest rates.”

Bottom Line

Berkshire Hathaway, led by a well-known investor, Warren Buffett, follows an intrinsic value investing approach, aiming at buying undervalued companies with solid fundamentals, competitive advantages, and long-term growth potential. Berkshire owns a diverse portfolio of businesses, including insurance, utilities, transportation, retail, and technology, among others.

Moreover, Berkshire’s top five holdings pay attractive dividends, which indicates Warren Buffett’s interest in stocks that offer a stable income stream.

Buffett’s conglomerate recently reported a significant surge in operating earnings in the first quarter of fiscal 2024, primarily driven by an increase in insurance underwriting earnings and a record cash pile that nears $200 billion.

USB analyst Brian Meredith maintained a Buy rating on Berkshire, citing the recent earnings beat and noting that Geico is on track to catch up to rivals Progressive and others on data analytics by 2025.

Berkshire Hathaway has historically delivered impressive and consistent returns. From 1965 to 2023, its share price skyrocketed 4,384,748%, more than 140 times the total return of the S&P 500, with dividends included. Moreover, Berkshire shares have already outperformed this year, with each share class having advanced more than 12%, while the S&P is up by nearly 8%.

Shares of BRK.B have gained approximately 16% over the past six months and more than 22% over the past year.

Looking ahead, analysts expect BRK.B’s EPS for the fiscal year (ending December 2024) to increase 14.6% year-over-year to $19.70. Further, the company’s EPS and revenue for the fiscal year 2025 are expected to grow 1.4% and 5.6% from the prior year to $19.97 and $376.61 billion, respectively.

Thus, by owning BRK.B shares, investors can gain exposure to Berkshire’s diversified portfolio of businesses, Buffett’s expertise, and stable growth and performance.

Occidental Petroleum (OXY): Buying for Dividends or Growth?

Posted on by The INO.com Team

Occidental Petroleum Corporation (OXY) is positioned in stark contrast to some of its rivals. Although the company operates as one of the largest oil and gas producers in the United States, it is also significantly diversified in its operational structure, providing a revenue base across market segments.

Last year, OXY generated $5.48 billion in free cash flow before working capital, and this year, the energy giant is expecting growth. That, coupled with a long history of dividend payments, compels further insight into the stock. Let’s look into it…

Diversification: Does it work for OXY?

Apart from the core consumer base in its oil and gas segment, OXY’s chemicals segment, “OxyChem,” sells basic elements, operating in stable markets with constant demand. In 2023, the company’s adjusted income from the chemical segment came in at $1.53 billion.

While this figure indicated a 39% reduction from the prior year, this exceeded company guidance and nearly matched its second-highest pre-tax income record. This is notable considering the fact that a total complex outage for maintenance was carried out at OxyChem’s Ingleside, Texas, plant in the fourth quarter.

In 2024, the company expects a midpoint income of $1.10 billion for the segment, which is close to its fourth-best year ever, despite challenging market conditions such as PVC price decline and pressure on export prices from China.

Looking beyond seasonal market pressures, the company might reap benefits from significant investment in its OxyChem Battleground facility and other plant enhancement projects, resulting in $300 million to $400 million per year potential increments to its EBITDA upon completion.

A prowess in a niche market such as chemicals could mean significant expansionary success for this energy sector powerhouse, especially since chemicals play a major role in global net-zero ambition, enjoying demand from their usage in approximately 96% of manufactured goods.

OXY is also developing multiple nascent technologies to find fuel solutions aiming toward net zero. One such development is the large-scale carbon capture, utilization and storage (CCUS), which provides a strong likelihood for near-term emission reduction, aligning with the company’s sustainability aims.

Moreover, notable strides in its Low Carbon Venture (LCV) business were reported last year. Primary among them is the acquisition of Direct Air Capture (DAC) technology innovator Carbon Engineering Ltd. for approximately $1.10 billion and the formation of a joint venture with BlackRock, Inc. (BLK) to develop STRATOS, the world’s largest DAC facility, expected to capture up to 500,000 tonnes of CO2 per year.

Besides sustainability, the company’s diversified operations should prevent OXY’s profitability from being highly subjected to oil price volatility. For instance, last year, OXY reported a total adjusted oil and gas income of $6.26 billion, down about 50% year-over-year, while the company’s worldwide sales were 1,222 thousand barrels of oil equivalent per day (MBOE/D), up 5.4% from 2022. A decline in crude prices and higher lease operating expenses caused the comparative downturn in income.

Should Income Investors Be Interested in OXY?

As a longstanding energy giant, OXY has a history of returning capital to its shareholders through dividends, starting from the 1980s. On February 8, 2024, the company’s Board of Directors declared a regular quarterly dividend of $0.22, payable to shareholders on April 15, compared to the previously declared dividend of $0.18. The annual dividend rate going forward is $0.88, yielding 1.45% at the current price level.

However, the company is not shy about slashing its dividend payouts when it faces a cash crunch. Evidently, when oil prices took a hit during the global pandemic, OXY decreased its quarterly dividend from $0.79 to $0.01 per share. Hence, over the past three years, its dividend payouts have decreased at a 4.2% CAGR.

Contrarily, last year, OXY paid $600 million of common dividends as its robust cash flow supported payouts. Additionally, the company is eyeing a massive $12 billion acquisition of CrownRock L.P., expecting to enhance its Permian portfolio by adding 170 Mboed of high-margin, lower-decline unconventional production in 2024 and increasing its free cash flow per diluted share, with a $1 billion increase in the first year.

The acquisition is anticipated to strengthen OXY’s balance sheet and free cash to support a growing dividend. On the other hand, the deal has come under the scrutiny of the Federal Trade Commission (FTC). However, OXY’s Chief Executive Vicki Hollub hopes that the acquisition will close in the second half of 2024.

Bottom Line

Occidental Petroleum is endeavoring to expand through multiple acquisitions, as well as focus on its sustainability initiatives through diversification of its operations. On the other hand, the company remains embedded in the oil and gas sector, owing the majority of its revenues to conventional energy sources. The broader oil market is prone to its ebbs and flows as geopolitical factors shape the course of the commodity market.

The Middle-Eastern conflict has raised concerns about a supply shortage despite the International Energy Agency (IEA) assessing that in the absence of actual supply losses, the oil market is well-supplied this year. IEA expects oil demand to grow by 1.2 million barrels per day (bpd) in 2024, compared to 2.3 million bpd in 2023, due to a sharp drop in gasoline usage.

On the other hand, the OPEC group shows a lot more optimism, expecting demand to rise by 2.5 million bpd this year. It might be a factor that OPEC can influence global oil supply and, by extension, oil prices.

On top of it, Warren Buffett is increasingly betting on OXY this year. Buffett’s investment firm, Berkshire Hathaway, has shown its support for the energy company since its mega-acquisition of Anadarko Petroleum in 2019. After a recent buy of 4.30 million shares, as of February 5, Berkshire owns 248.02 million shares of OXY.

According to Reuters, OXY is exploring a sale of Western Midstream Partners, which has a market value of about $20 billion. This divestment is expected to help the company reduce its debt accumulated through multiple acquisitions. This strategy might help OXY to bolster its balance sheet.

While near-term weaknesses could affect Occidental’s performance, its long-term goals remain set toward further diversification and growth through expansion of operations. In addition, the company is committed to returning value to shareholders through its growing dividend, debt reduction, and a robust capital allocation program to free up cash flow. Hence, the stock might be a portfolio addition now based on both its growth initiatives and dividend payouts.

4 Stocks Set to Benefit From Natural Gas Pipeline

Posted on by The INO.com Team

 

Natural gas is used as a fuel to make materials and chemicals. It is also used for electricity generation, heating, cooking, and as a transportation fuel. In the United States, natural gas accounts for about 30% of the energy used. The exploration, drilling, and production of natural gas affect the environment and is one of the significant contributors to climate change.

The ambitious Mountain Valley Pipeline (MVP) project has been in the news lately. It is a natural gas pipeline system that spans about 303 miles from northwestern West Virginia to southern Virginia. It will be regulated by the Federal Energy Regulatory Commission (FERC).

The pipeline has faced several challenges since construction began in 2018. The project found opposition from groups that claimed it would contribute to climate change by increasing the use of natural gas.

The project got a boost after President Biden signed the debt limit bill, which canceled the $31.4 trillion debt ceiling. Raising the national debt ceiling helped acquire the necessary permits, authorization, and verifications for Mountain Valley’s construction and initial operation at full capacity.

Earlier this year, Energy Secretary Jennifer Granholm, in a letter to the Federal Energy Regulatory Commission, said, “MVP project will enhance the Nation’s critical infrastructure for energy and national security.”

On August 11, 2023, a three-judge panel of the 4th U.S. Circuit Court of Appeals in Richmond, Virginia, rejected a challenge to the federal approvals for the Mountain Valley Pipeline, ending the long legal battles which have delayed its construction and operation.

On July 27, the U.S. Supreme Court lifted orders of temporarily blocking construction issued by the 4th U.S. Circuit Court of Appeals in the final 3.5-mile section of the pipeline, dealing a blow to the environmental groups protesting against the pipeline construction. The pipeline will transport natural gas from the Marcellus and Utica shale formations to the growing markets of the mid-Atlantic and southeastern regions of the United States.

The MVP will have a delivery capacity of 2 billion cubic feet per day of natural gas, approximately one-third of marketed natural gas produced in West Virginia. The MVP will ensure reliable and affordable access to domestic energy while providing national energy security at the same time.

Although the project is due for completion this year, the Pipeline and Hazardous Materials Safety Administration have notified MVP’s owner Equitrans Midstream to undertake safety inspections across the 300-mile project. The agency wants the safety inspections to be conducted as the segments of pipe left exposed or buried since the project’s inception could pose a safety risk.

In a Notice of Proposed Safety Order, the agency said, “The commissioning and operation of the MVP pipeline without appropriate inspection and corresponding corrective measures first being undertaken would pose a pipeline integrity risk to public safety, property, and the environment.”

Despite the order, the MVP project will likely come live this year. This is expected to benefit fundamentally strong natural gas companies like Shell plc (SHEL), Occidental Petroleum Corporation (OXY), Cheniere Energy, Inc. (LNG), and Chesapeake Energy Corporation (CHK).

Let’s discuss these stocks in detail.

Shell plc (SHEL)

Headquartered in London, the United Kingdom, SHEL operates as an energy and petrochemical company. The company operates Integrated Gas, Upstream, Marketing, Chemicals and Products, and Renewables and Energy Solutions segments. It explores for and extracts crude oil, natural gas, and natural gas liquids; markets and transports oil and gas; produces gas-to-liquids fuels and other products.

On February 20, 2023, SHEL’s wholly owned subsidiary Shell Petroleum NV, announced the completion of the acquisition of 100% of the shares of Nature Energy Biogas A/S (Nature Energy). Nature Energy is Europe’s largest renewable natural gas (RNG) producer. The acquisition would help SHEL build an integrated RNG value chain globally and profitably grow its low-carbon offerings to customers across different sectors.

On July 25, 2023, SHEL’s subsidiary Shell Upstream Overseas Services (I) Limited, announced that it had agreed to sell its participating interest in Indonesia’s Masela Production Sharing Contract to Indonesia’s PT Pertamina Hulu Energi and Petronas Masela Sdn. Bhd. SHEL’s Integrated Gas and Upstream Director said, “The decision to sell our participation in the Masela PSC is in line with our focus on disciplined capital allocation.”

In terms of the trailing-12-month levered FCF margin, SHEL’s 8.72% is 42.3% higher than the 6.13% industry average. Likewise, its 12.27% trailing-12-month Return on Total Capital is 18% higher than the industry average of 10.40%. Furthermore, the stock’s 0.83x trailing-12-month asset turnover ratio is 36.1% higher than the industry average of 0.61x.

In terms of forward non-GAAP P/E, SHEL’s 7.33x is 29.9% lower than the 10.45x industry average. Its 3.56x forward EV/EBITDA is 38.7% lower than the 5.80x industry average. Likewise, its 5.32x forward EV/EBIT is 44.3% lower than the 9.56x industry average.

SHEL’s revenue for the second quarter ended June 30, 2023, declined 25.5% year-over-year to $74.58 billion. Its adjusted earnings decreased 55.8% year-over-year to $5.07 billion. Its adjusted EBITDA declined 37.6% over the prior-year quarter to $14.44 billion. The company’s adjusted EPS came in at $0.75, representing an increase of 51.3% year-over-year.

Analysts expect SHEL’s EPS and revenue for fiscal 2024 to increase 2.5% and 3.3% year-over-year to $8.49 and $352.16 billion, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 15.1% to close the last trading session at $60.68.

Occidental Petroleum Corporation (OXY)

OXY engages in acquiring, exploring, and developing oil and gas properties. It operates through three segments: Oil and Gas, Chemical, and Midstream and Marketing.

On August 15, 2023, OXY announced the acquisition of Carbon Engineering Ltd. for $1.1 billion to help it develop a string of carbon-capture sites. OXY President and CEO Vicki Hollub said, “We expect the acquisition of Carbon Engineering to deliver our shareholders value through an improved drive for technology innovation and accelerated DAC cost reductions.”

“The technology partnership also adds new revenue streams in the form of technology licensing and royalties. Importantly, the acquisition enables Occidental to catalyze broader development partnerships for DAC development in the most capital-efficient and valuable way,” she added.

In terms of the trailing-12-month net income margin, OXY’s 21.55% is 53.3% higher than the 14.06% industry average. Likewise, its 51.70% trailing-12-month EBITDA margin is 38.2% higher than the industry average of 37.40%. Furthermore, the stock’s 18.31% trailing-12-month Capex/Sales is 33.9% higher than the industry average of 13.68%.

In terms of forward non-GAAP P/E, OXY’s 17.01x is 62.7% higher than the 10.45x industry average. Its 6.02x forward EV/EBITDA is 3.8% higher than the 5.80x industry average. Likewise, its 2.69x forward Price/Book is 60.8% higher than the 1.67x industry average.

For the second quarter ended June 30, 2023, OXY’s revenues and other income declined 37.3% year-over-year to $6.73 billion. Its adjusted income attributable to common stockholders decreased 79.6% over the prior-year quarter to $661 million. Its adjusted EPS came in at $0.68, representing a decline of 78.5% year-over-year.

Street expects OXY’s EPS for the quarter ending March 31, 2024, to increase 6.2% year-over-year to $1.16. Its revenue for fiscal 2024 is expected to increase 3.3% year-over-year to $28.81 billion. Over the past three months, the stock has gained 7.6% to close the last trading session at $62.55.

Cheniere Energy, Inc. (LNG)

LNG is an energy infrastructure company that is engaged in LNG-related businesses. The company provides clean, secure LNG to integrated energy companies, utilities, and energy trading companies worldwide. The company owns and operates two natural gas liquefaction and export facilities at the Sabine Pass LNG and Corpus Christi LNG terminals. It also owns the Creole Trail pipeline.

On June 26, 2023, LNG announced that its subsidiary Cheniere Marketing, LLC, entered into a long-term liquefied natural gas sale and purchase agreement with ENN LNG (Singapore) Pte. Ltd., a wholly-owned subsidiary of ENN Natural Gas Co., Ltd. ENN agreed to purchase approximately 1.8 million tonnes per annum of LNG under the sale and purchase agreement.

In terms of the trailing-12-month EBIT margin, LNG’s 48.11% is 98.9% higher than the 24.18% industry average. Likewise, its 52.11% trailing-12-month EBITDA margin is 39.3% higher than the industry average of 37.40%. Furthermore, the stock’s 0.70x trailing-12-month asset turnover ratio is 14.8% higher than the industry average of 0.61x.

In terms of forward non-GAAP P/E, LNG’s 7.83x is 25.1% lower than the 10.45x industry average. Its 5.12x forward EV/EBIT is 46.5% lower than the 9.56x industry average.

On the other hand, its 7.57x forward EV/EBITDA is 30.4% higher than the 5.80x industry average.

LNG’s revenues for the second quarter ended June 30, 2023, declined 48.8% year-over-year to $4.10 billion. Its consolidated adjusted EBITDA decreased 26.5% over the prior-year quarter to $1.86 billion. The company’s net income attributable to common stockholders rose 84.8% year-over-year to $1.37 billion. Also, its EPS came in at $5.61, representing an increase of 93.4% year-over-year.

For fiscal 2023, LNG’s EPS is expected to increase 479.3% year-over-year to $32.67. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past three months, the stock has gained 12.1% to close the last trading session at $160.19.

Chesapeake Energy Corporation (CHK)

CHK is an independent exploration and production company that engages in acquiring, exploring, and developing properties to produce oil, natural gas, and natural gas liquids from underground reservoirs in the United States. The company holds an interest in natural gas resource plays in the Marcellus Shale in the northern Appalachian Basin in Pennsylvania and the Haynesville/Bossier Shales in northwestern Louisiana.

On August 14, 2023, CHK announced its agreement to sell its remaining Eagle Ford assets to SilverBow Resources, Inc. (SBOW) for $700 million, taking the total proceeds from the Eagle Ford exit to more than $3.5 billion.

CHK’s President and CEO Nick Dell’Osso said, “We are pleased to have successfully completed the exit of our Eagle Ford asset, allowing us to focus our capital and team on the premium rock, returns, and runway of our Marcellus and Haynesville positions.”

In terms of the trailing-12-month net income margin, CHK’s 58.38% is 315.4% higher than the 14.06% industry average. Likewise, its 60.28% trailing-12-month EBITDA margin is 61.2% higher than the industry average of 37.40%. Furthermore, the stock’s 19.55% trailing-12-month Capex/Sales is 43% higher than the industry average of 13.68%.

In terms of forward EV/EBITDA, CHK’s 4.95x is 14.8% lower than the 5.80x industry average. Its 8.33x forward EV/EBIT is 12.9% lower than the 9.56x industry average. Likewise, its 1.11x forward Price/Book is 33.5% lower than the 1.67x industry average.

On the other hand, its 2.79x forward Price/Sales is 87.3% higher than the 1.49x industry average. Its 3.10x forward EV/Sales is 39.2% higher than the 2.23x industry average.

CHK’s total revenues and other income for the second quarter ended June 30, 2023, declined 46.3% year-over-year to $1.89 billion. Its net income available to common stockholders decreased 68.4% year-over-year to $391 million. Also, its EPS came in at $2.73, representing a decline of 67% year-over-year.

Analysts expect CHK’s EPS and revenue for fiscal 2024 to increase 45.5% and 1.5% year-over-year to $6.28 and $3.98 billion, respectively. It surpassed the consensus EPS estimate in each of the trailing four quarters. Over the past three months, the stock has gained 4.1% to close the last trading session at $82.58.

Was Debt-Ceiling Standoff a Concern? Not for These Stocks

Posted on by The INO.com Team

“The hardest thing when studying history is that you know how the story ends, which makes it impossible to put yourself in people’s shoes and imagine what they were thinking or feeling in the past.” — Morgan Housel.

We can count ourselves fortunate to be blessed with the benefit of hindsight before it was due. While the U.S. Treasury was set to exhaust its ‘extraordinary measures’ to manage the national debt as early as the revised deadline of June 5, calmer and more rational heads prevailed in Washington D.C., albeit at the eleventh hour.

President Joe Biden and House Speaker Kevin McCarthy agreed to suspend the current $31.4 trillion statutory debt ceiling until January 1, 2025, in exchange for discretionary spending caps for six years, conditional on the approval of Congress.

While fractiousness, delays, and hiccups are still expected in the legislature amid some opposition from Republican Freedom Caucus and progressives in the Democratic Party, it seems highly likely that we will be out of the woods by the end of this week and manage to sweep the mushrooming national debt under the rug once again.

However, we imagine a scenario in which the responsibility to ensure economic stability would have been undermined in the interest of power tussles, communication breakdown, and zero (or negative) sum game. We imagine how the situation would have unraveled (it still could) had the world’s richest economy, which also issues the global reserve currency, run out of cash and failed to meet its obligations.

While envisioning what Treasury Secretary Janet Yellen has termed an “economic catastrophe” if the United States wouldn’t be able to pay its dues and alternatives, ranging from the gimmicky minting of the trillion-dollar platinum coin to more serious options such as invoking the 14th Amendment, fail, we discuss three antifragile stocks that could have gained from the disorder.

Since Murphy’s Law states that anything that can go wrong will go wrong, the investments could come in handy if and when history (of debt-ceiling negotiations) fails to repeat itself.

The Worst-Case Scenario

Most businesses and economies globally operate on a key and time-tested assumption that the U.S. government always pays its debts. Hence, while fixed-income investors look for instruments that promise returns commensurate to their inherent credit risk, U.S. Treasury bonds are considered free of such risks and promise the lowest rates of interest and yields.

Consequently, U.S. government debt acts as a benchmark against which almost all other debtors price the cost of their borrowings while raising capital by issuing debt. Short-term government debt is equivalent to cash since nothing else is considered safer and pays less.
Hence, U.S. treasury bonds and bills have become a mainstay of risk-free component portfolios of individuals, businesses, banks, and even foreign governments.

A debt-ceiling debacle could impact the bonds and, by extension, the broader economy in two ways.

Even if the government does not default, a drawn-out deadlock between both sides of the aisle could increase anxiety among investors about the creditworthiness of the bonds in which they have parked their money. The Big Three credit rating agencies could share similar concerns and downgrade the US AAA credit rating like S&P did back in 2011, the last time it got this far and came this close.

Worse, however, if Congress doesn’t raise the debt ceiling and the U.S government misses its payment to its suppliers, employees, beneficiaries of social security, etc., it could trigger a mild recession in an economy that has been battered by persistent inflation and overburdened with increasing borrowing costs to contain the inflation.

In the worst-case scenario, if the government misses its payment to the investors holding its bonds, it would be considered a default, and all hell could break loose. With the safety of the benchmark out of the window, the bonds could significantly depreciate in value, thereby leading to a surge in demanded yield and interest rates, as was being teased by the ominously climbing treasury yields and falling AAA-rated corporate bond yields.

Such a catastrophe could trigger massive hikes in borrowing costs, which could effectively bring the economy to a standstill and trigger a financial crisis comparable in proportions to that in 2008. That could lead to a loss of more than 7 million jobs and $10 trillion in household wealth and trigger various higher-order effects, with shockwaves spreading throughout the global financial system.

Safe Havens and Insurances

Now that we have stared into the abyss, here are a few stocks that could protect and perhaps even increase investors’ wealth amid a market turmoil.

NextEra Energy, Inc. (NEE)

NEE is an electric power and energy infrastructure company that operates through FPL and NEER segments.

While the economy has been overheated with persistent inflation and weighed down by aggressive interest rate hikes by the Federal Reserve to counter the former, on May 19, NEE’s segment FPL proposed a $256 million rate reduction with the Florida Public Service Commission to take effect in July.
The rate reduction aims to pass on the benefit of reduced fuel costs due to continued downward revisions in projected natural gas costs for 2023. In this context, macroeconomic turmoil would have benefited the company by helping it improve its bottom line through greater savings from plummeting fuel prices.

Occidental Petroleum Corporation (OXY)

The international energy giant is Warren Buffett’s new love, with Bershike Hathaway Inc. (BRK)upping its stake to 24.4%. The company assets are primarily in the United States, the Middle East, and North Africa. It operates through three segments: oil and gas; chemical; and midstream and marketing.
Due to strong operational performance during the first quarter of the fiscal year 2023, OXY’s production of 1,220 Mboed exceeded the mid-point of guidance by 40 Mboed. As a result, the company reported an adjusted income attributable to common stockholders of $1.1 billion, or $1.09 per diluted share, and raised its full-year production guidance to 1,195 Mboed.

A debt default by the U.S. would have resulted in the devaluation of the currency. This would play into the hands of OXY, which would have benefited from the dual tailwind of the increased dollar-denominated price of crude oil and favorable exchange rates for more lucrative exports.

B2Gold Corp (BTG)

BTG is a low-cost international gold producer based in Vancouver, Canada. It has three operating mines: Fekola Mine in Mali; the Masbate Mine in the Philippines; and the Otjikoto Mine in Namibia. In addition, it has numerous exploration and development projects in Canada, Mali, the Philippines, Namibia, Colombia, Finland, and Uzbekistan.

The extent to which markets have been on edge over the state of the global economy that even ten interest-rate hikes by the Federal Reserve in just over a year haven’t been able to diminish the luster of gold. Despite the historical negative correlation of the yellow metal with the global reserve currency, the demand for gold from central banks worldwide totaled 1,136 tonnes in 2022.
Recession fears, bank failures, sovereign debt-default risks, de-dollarization, geopolitical conflicts, and the odd black-swan events are all expected to keep gold shining in the foreseeable future.