Tag: Shell plc (SHEL)

Top Energy Stocks Amid Hurricane Season & Summer Demand

Posted on by The INO.com Team

Since April, oil has continued to trade at its highest levels, supported by robust energy demand and tight supplies. WTI crude oil futures inched up $82 per barrel yesterday, following the EIA report indicating a larger-than-expected drop in US crude stockpiles. US crude oil inventories decreased by 3.444 million barrels, surpassing the projected decline of 3 million barrels.

Meanwhile, the heightened travel and mobility and increased air conditioning usage during the summer months continue to push oil demand higher. Amid solid seasonal demand and the looming threat of hurricanes and geopolitical instability, investors could take advantage of surging oil prices by watching key energy stocks Shell plc (SHEL), BP p.l.c. (BP), Phillips 66 (PSX), and Valero Energy Corporation (VLO).

Impact of Hurricane Beryl and Potential Future Storms on Oil Production and Prices

Hurricane Beryl battered Southeast Texas with powerful winds and torrential rain, forcing the closure of oil ports, the cancellation of hundreds of flights, and leaving around 2.7 million homes and businesses without power. Beryl shut U.S. refineries and ports along the Gulf of Mexico, raising concerns about oil production and transportation disruptions. Oil output from the Gulf of Mexico is generally about 1.8 million barrels per day.

Historically, hurricanes have significantly resulted in production halts and evacuation of rigs and refineries, leading to supply constraints, which typically push oil prices upward. The impact of these weather events is two-fold: immediate supply disruption and longer-term infrastructure damage, which can keep prices elevated even after the storm has passed.

Increased Travel and Cooling During Summer Driving Higher Oil Prices

The summer season traditionally sees a surge in travel and mobility alongside air conditioning usage, driving up oil demand. This year is no exception, with intense summer demand for gasoline and jet fuel contributing to rising oil prices. OPEC maintained its forecast for robust global oil demand growth in 2024, citing resilient economic growth and a solid rebound in air travel during the summer.

In its latest Monthly Oil Market Report (MOMR), OPEC expects global oil demand to increase by 2.25 million barrels per day this year.

“Expected strong mobility and air travel in the Northern Hemisphere during the summer driving/holiday season is anticipated to bolster demand for transportation fuels and drive growth in the United States,” the agency said in the report.

Robust seasonal demand translates into higher revenues for companies involved in oil exploration, production, refining, and distribution, presenting an opportune time for investors to evaluate their energy sector portfolios.

Key Energy Stock Picks Amid Summer Demand and Tight Supply

Shell plc (SHEL)

Valued at a market cap of $228.02 billion, Shell plc (SHEL) is a prominent energy and petrochemical company. The company operates through Integrated Gas; Upstream; Marketing; Chemicals and Products; and Renewables and Energy Solutions segments.

Tobago Ltd., a subsidiary of SHEL and Shell Trinidad, recently took Final Investment Decision (FID) on the Manatee project, an undeveloped gas field in the East Coast Marine Area (ECMA) in Trinidad and Tobago. Manatee will enable Shell to competitively expand its Integrated Gas business by capitalizing on development efforts in the ECMA, one of the country’s most prolific gas-producing regions.

"This project will help meet the increasing demand for natural gas globally while also addressing the energy needs of our customers domestically in Trinidad and Tobago," stated Zoë Yujnovich, Shell’s Integrated Gas and Upstream Director.

Shell aims to expand its LNG business by 20-30% by 2030 compared to 2022. LNG liquefaction volumes are projected to increase by 25-30% relative to 2022, as outlined at the company’s Capital Markets Day in 2023.

During the first quarter that ended March 31, 2024, SHEL reported LNG sales volumes of 16.9 MT in the Integrated Gas segment. Its adjusted earnings increased 5.9% quarter-on-quarter to $7.73 billion, reflecting solid operational performance across its business. Its adjusted earnings per share was $1.20, up 8.1% from the previous quarter.

The company’s adjusted EBITDA was $18.71 billion, up 14.5% from the prior quarter. Its cash flow from operating activities (CFFO) grew 6% sequentially to $13.33 billion. Also, its free cash flow came in at $9.80 billion, an increase of 41.7% from the previous quarter.

In the last earnings release, Shell also announced that it commenced a $3.5 billion share buyback program, anticipated to be completed by the second-quarter 2024 results announcement. Over the past four quarters, total shareholder distributions amounted to 41% of CFFO.

Analysts expect SHEL’s revenue and EPS for the second quarter (ended June 2024) to increase 21.1% and 31.2% year-over-year to $90.27 billion and $1.92, respectively. For the third quarter ending September 2024, the company’s revenue and EPS are expected to grow 24.5% and 14.3% year-over-year to $95.06 billion and $2.13, respectively.

Over the past six months, shares of SHEL have surged more than 15% and approximately 21% over the past year.

BP p.l.c. (BP)

With a $100.95 billion market cap, BP p.l.c. (BP) engages in the production of natural gas, and integrated gas and power; trading of gas; operation of onshore and offshore wind power, as well as hydrogen and carbon capture and storage facilities; and production of crude oil. It operates through Gas & Low Carbon Energy; Oil Production & Operations; and Customers & Products segments.

On June 13, BP’s subsidiary, Archaea Energy, and Republic Services, Inc. (RSG) celebrated the first renewable natural gas (RNG) plant in the companies’ Lightning Renewables joint venture (JV). The Archaea Modular Design (AMD) plant at Republic’s National Serv-All Landfill in Fort Wayne, Indiana, is the first of nearly 40 landfill gas-to-RNG projects targeted by the JV and is expected to come online this summer.

The Lightning Renewables JV portfolio supports Archaea’s goal of increasing production to more than 50 million mmBtu per year by 2030.

Also, in April, BP, as the operator of the Azeri-Chirag-Gunashli (ACG) project, announced the start-up of oil production from the new Azeri Central East (ACE) platform. This platform is part of the ACG field development in the Azerbaijan sector of the Caspian Sea and is the first remotely operated offshore platform in the Caspian.

In the first quarter that ended March 31, 2024, BP’s reported production from the Oil Production & Operations segment was 1,463 mboe/d, up 7.6% from the first quarter of 2023. Its upstream production grew 2.1% year-over-year. Its underlying replacement cost (RC) profit was $2.72 billion, or $16.24 per share, respectively.

Furthermore, the company’s adjusted EBITDA for the quarter was $10.31 billion. Profit for the period attributable to BP shareholders rose significantly quarter-on-quarter to $2.26 billion.

“We’ve delivered another resilient quarter financially and continued to make progress on our strategy. Oil production was up and our ACE platform in the Caspian is now producing. We are simplifying and reducing complexity across bp and plan to deliver at least $2 billion of cash cost savings by the end of 2026 through high grading our portfolio, digital transformation, supply chain efficiencies and global capability hubs,” said BP’s CEO, Murray Auchincloss.

Moreover, the $1.75 billion share buyback program announced for the first quarter of 2024 was completed on May 3, 2024, part of the company’s $3.5 billion commitment for the first half of 2024. A resilient dividend is BP’s top priority within its disciplined financial frame. For the first quarter, the company announced a dividend per ordinary share of 7.27 cents ($0.0727).

Street expects BP’s revenue for the second quarter (ending June 2024) to increase 4.4% year-over-year to $50.65 billion. The consensus EPS estimate of $1.07 for the current year indicates an improvement of 19.7% year-over-year. Additionally, BP’s stock has gained marginally over the past six months.

Phillips 66 (PSX)

With a market cap of $56.54 billion, Phillips 66 (PSX) is a leading energy manufacturing and logistics company. It operates in four segments: Midstream; Chemicals; Refining; and Marketing and Specialties (M&S).

In May, Phillips 66 agreed to acquire Pinnacle Midland Parent LLC from Energy Spectrum Capital to expand its natural gas gathering and processing footprint in the Midland Basin. Pinnacle’s assets consist of 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. 

Pinnacle is a bolt-on asset that enhances PSX’s wellhead-to-market strategy and complements its diverse and integrated asset portfolio. Moreover, this acquisition aligns with its long-term goals of expanding its natural gas liquids value chain, maintaining disciplined capital allocation, and creating sustainable value for its shareholders.

On April 3, the Board of Directors of Phillips 66 declared a quarterly dividend of $1.15 per share, representing an increase 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.

Since its formation in 2012, PSX has consistently raised 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.

During the first quarter that ended March 31, 2024, PSX posted revenue of $36.44 billion, exceeding analysts’ expectations 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 under its credit facility.

In addition, 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.

Shares of PSX have surged around 3% over the past six months and more than 33% over the past year.

Valero Energy Corporation (VLO)

Valued at a market cap of $47.65 billion, Valero Energy Corporation (VLO) manufactures, markets, and sells petroleum-based and low-carbon liquid transportation fuels and petrochemical products internationally. The company operates through Refining; Renewable Diesel; and Ethanol segments.

VLO owns 15 petroleum refineries in the U.S., Canada, and the United Kingdom, with a total throughput capacity of about 3.2 million barrels per day. Additionally, Valero is a joint venture partner in Diamond Green Diesel Holdings LLC, which owns two renewable diesel plants in the Gulf Coast region with a combined production capacity of nearly 1.2 billion gallons per year.

Valero also owns 12 ethanol plants in the Mid-Continent region, with a combined production capacity of around 1.6 billion gallons per year.

In the last earnings report, the company provided a strategic update on the Sustainable Aviation Fuel (SAF) project at the DGP Port Arthur plant. The project is progressing ahead of schedule and will likely be operational in the fourth quarter of 2024. It is anticipated that this will give the plant the flexibility to upgrade about 50% of its current 470 million gallons annual renewable diesel production capacity to SAF. Once completed, DGD is expected to become one of the world’s largest SAF manufacturers.

VLO reported revenues of $31.76 billion for the first quarter that ended March 31, 2024. The company’s net income and earnings per common share were $1.33 billion and $3.75, respectively. Net cash provided by operating activities was $1.80 billion for the quarter.

During the quarter, Valero returned $1.4 billion to stockholders, including $356 million paid as dividends and $1 billion as the purchase of about 6.6 million shares of common stock, resulting in a payout ratio of 74% of adjusted net cash provided by operating activities. The company paid a regular quarterly cash dividend of $1.07 per share on June 28, 2024.

VLO’s stock has soared over 16% over the past six months and is up approximately 28% over the past year.

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.