World oil prices are recovering and have surpassed the $80 per barrel mark. Saudi Arabia is cutting production, the US is replenishing its strategic reserve of “black gold”, and Russian oil producers are benefiting from the weak ruble.
In these favourable oil price rises, we have researched the oil and gas sector and made recommendations.
We talk about five oil and gas stocks that are promising for investors in 2023.
Halliburton
In the US, according to experts, it is worth paying attention to the oilfield services sector. According to S&P Global estimates, global investments in oil exploration and production in 2022 increased by 39% to a record for 8 years level of $499 billion. According to the forecast, they will continue to increase and will grow to $597 billion by 2025 and to $640 billion by 2030.
Halliburton is an oilfield services company whose operations cover all oil production activities, from drilling to bringing a well into production. It is also the world’s third largest in terms of market share. According to Finam analysts, the company’s strength is its high share of the promising North American market in revenue.
In addition, due to strong free cash flow, the company’s debt load may decrease, which will increase its capitalisation. Halliburton’s board of directors has decided to pay out 50% of the free cash flow in the form of dividends and share repurchases. The total return on payments to shareholders in 2023 may reach 3.6%.
Our analysts recommend to “Buy” Halliburton shares with a target price of $44 and a 15% upside.
China Oilfield Services
China Oilfield Services is a leader in offshore production. The company’s key market is China. It accounts for 84% of revenue. The parent company of China Oilfield Services is oil and gas giant CNOOC Limited, which plans to increase hydrocarbon production by 17-19% by 2025 and a record investment programme of 100-110 billion yuan in 2023. Meanwhile, China Oilfield Services’ revenue may grow 12% to 40 billion yuan this year, and will also continue to increase in the future.
China Oilfield Services’ business has also been supported by the lifting of coronavirus restrictions in China. In the future, the company can benefit from the steadily increasing demand for hydrocarbons in the Middle Kingdom. The Chinese government estimates that oil demand in the country will peak only by 2030.
Our analysts recommend a “Buy” on China Oilfield Services shares with a target price of HK$10.88 and a potential upside of 18.5%.
LUKOIL
Russian oil producers have found themselves in a favourable position. On the one hand, global oil prices are rising, while on the other hand, the discount on Urals export oil is being reduced to $20 per barrel. In July, the cost of Russian oil for the first time exceeded the G7 ceiling of $60 per barrel. At the same time, the domestic sector is still faced with the risks of growing tax burden due to the budget deficit and the possibility of production cuts.
“LUKOIL is one of the largest Russian oil companies. Against the general background it stands out with attractive dividends. The company pays 100% of its free cash flow to shareholders and may pay 700-800 roubles of dividends per share this year. This is a yield of 12.5%-14.3%.
Our analysts put LUKOIL shares on review, but are positive on the stock and plan to raise the target price to RUB 6300-6500 per share.
Surgutneftegaz
“Surgutneftegaz is Russia’s fourth largest oil company by production.
While the shares of most Russian oil companies added more than 30% last year, Surgutneftegaz ordinary shares have been an exception, as they are independent of the company’s business fortunes, with dividends per ordinary share of RUB 0.8 or a 2.8% yield over the past two years.
The most attractive for investors in Surgutneftegaz remains its multi-billion dollar “coffers”. Thus, at the end of 2022, the amount of cash on the company’s accounts was RUB 4.3 trillion with a capitalisation of about RUB 1.39 trillion.
During the sector rally, Surgutneftegaz shares remained among the catching up and therefore retained their growth potential.
Our analysts recommend BUYing Surgutneftegaz ordinary shares with a target price of RUB 32.2 and a growth potential of 11%.
NOVATEK
NOVATEK is Russia’s largest natural gas producer. It also continues to strengthen its leading position in the LNG market. “NOVATEK continues to build an LNG plant in the Murmansk region. In addition, the company bought a 27.5 per cent stake in the Sakhalin-2 project, which could boost NOVATEK’s profits by about 10 per cent.
In July, the company reported for the first half of 2023 for the first time in a year and a half. Thus, net profit for the six months totalled 155.644 billion rubles, which is only 6% lower than for the same period in 2021.
Due to the decline in gas prices after last year’s high levels, the company’s profit, according to Leonid Mikhelson, head of NOVATEK, may drop by 30 per cent. The company’s dividends for 2023 may amount to 76 rubles – a 5.1% yield. At the same time, NOVATEK’s profit may start growing again in 2024 due to the commissioning of the first line of Arctic LNG-2.
Experts believe that the company’s projects, the value of which is not yet reflected in its shares, are more important than a temporary reduction in dividends.
Our analysts put NOVATEK shares on review and plan to raise the target price to RUB 1,650-1,700 per share.
*The message is informational in nature and does not constitute an individual investment recommendation or an offer to purchase the mentioned securities. Acquisition of foreign securities is associated with additional risks.
