Shell shares, Halliburton shares & Co.: How investors use the oil and gas boom

by Klaus Schachinger, Euro on Sunday

Ehe spirit of optimism prevails in the Texan cities of Midland and Odessa. The two sites, 20 miles apart, are the hubs of the Permian Basin, America’s largest and most profitable area for oil and gas fracking. With technology that uses high-pressure liquids to break up rocks and the mineral reserves of the 220-square-kilometer Permian Era sedimentary basin, the United States has risen from being an importer to the world’s largest exporter of oil and gas in recent years. The oil region of western Texas and southeastern New Mexico provides 40 percent of America’s oil and gas production.

In the Permian Basin, with oil prices in excess of $46 per barrel, companies are operating profits. This makes it America’s most profitable region for fracking. On the raw material markets, oil of the WTI grade is currently being sold for Traded $87 a barrel. Profits in the oil and gas industry are bubbling all over the world.

At the end of January the price of oil was higher than it had been for seven years. In Europe, because of the continent’s heavy dependence on supplies from Russia, gas prices are also increasing at an above-average rate. Added to this is the risk of a Russian invasion of gas transit country Ukraine.

Meanwhile, in the USA, the oil price is also being boosted by the optimism of chief virologist Anthony Fauci about a possible abatement of the effects of the corona variant Omikron on the economy. Stocks of oil and gas have fallen. At the same time, consumption in the economy is picking up. Experts therefore expect high prices for oil and gas throughout the year. Barclays Bank raised its forecast for WTI oil by five to $82 a barrel. In February, the Permian Basin is expected to produce more than five million barrels per day for the first time.

The Anglo-Dutch energy giant Shell sold its business in this region to US competitor ConocoPhillips for $9.5 billion in September as part of a major climate-friendly overhaul of its business model. Like Shell, all European oil companies are realigning their business. The goal: climate neutrality by 2050. The annual oil and gas production will be reduced, instead a lot of money will flow into CO2-free renewable energy sources such as solar and wind parks.

In their refineries, where the fossil raw materials are chemically processed, Shell & Co will replace gas with climate-neutral raw materials in the long term. Meanwhile, America’s energy giants are using the big green transformation of their European competitors to expand their oil and gas businesses, like ConocoPhillips recently.

Nevertheless, America’s energy giants also want to be climate-neutral by 2050. Primus ExxonMobil, which has been under pressure for some time from the activist investor Engine One, only recently committed itself to climate neutrality by then. However, America’s oil and gas giants are not investing in renewable energy from solar and wind farms. For example, ExxonMobil only wants to close the methane gas leaks that are common in production and will no longer vent and flare gases in the future. That’s not enough for large shareholders like the Swiss financial group UBS. You keep pushing.

Meanwhile, the world’s largest equipment suppliers to the oil industry, Halliburton and Schlumberger, are delighting their shareholders with strong numbers. Halliburton, the world’s largest supplier to the fracking industry, is benefiting most from the boom in its home market.

Dividend is doubled

The group from Houston in Texas imports 40 percent of 15.3 billion dollars in sales for 2021 in the USA. Fourth-quarter revenue of $4.28 billion, up 32 percent year-on-year, was well above analysts’ highest estimate of $4.17 billion. Quarterly earnings doubled to 36 cents a share. Halliburton’s shareholders will share in the success with a doubling of the dividend.

The group is fully utilized, reports boss Jeff Miller. In the new business year, a lot of money should therefore flow into additional capacities. Overall, analysts at the US stock exchange service Bloomberg also expect that outfitters who are primarily active in North America will increase their budgets for 2022 by an average of 25 percent. World No. 1 Schlumberger is particularly strong outside the US. In order to cope with the high growth expected for the next few years, the Houston-based group intends to invest two billion dollars in new capacities this year, 18 percent more than in the previous year.

The five largest oil companies in the world, ExxonMobil and Chevron from the USA as well as BP, Shell and TotalEnergies from Europe, can currently afford to let their shareholders participate more in the upturn in the industry. Despite the increased investments and new share buybacks, the five giants had a combined cash position of over $163 billion at the end of the third quarter of 2021 – a new record.

In the Eldorado of the industry in Texas, a long-term exit from oil and gas production is not an issue. The Permian Basin now has “the greatest leverage in supplying the world with oil and gas,” says Bill Farren-Price, director at US market research company Enverus.

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Image sources: Schroders