The extended 1 million bpd crude oil production cut by Saudi Arabia is anticipated to fuel further oil price surges, while increased electric power sector demand is set to drive growth in the natural gas industry.
Considering these events, it could be wise to add fundamentally sound energy stocks Petróleo Brasileiro S.A. - Petrobras (PBR), Transportadora de Gas del Sur S.A. (TGS), and Repsol, S.A. (REPYY) to your portfolio for potential gains. Before delving into the highlighted stocks, let's explore what’s happening in the energy space.
In its initial proposal, Saudi Arabia suggested a voluntary 1 million bpd supply reduction for July only. However, it has now decided to prolong this voluntary 1 million bpd crude oil production reduction until the end of this year, as announced by the official Saudi Press Agency.
Saudi Arabia's move effectively revises its annual crude oil production target to 9 million bpd. With this extension of the production cut and the market's ongoing assessment of Saudi Arabia's announcement, the market anticipates further fluctuations in oil prices. Brent crude oil is trading just below the $90 per barrel mark.
Commodity experts forecast that Brent crude will have an average of $82.45 per barrel in 2023, surpassing the July consensus of $81.95. Additionally, WTI crude is anticipated to average $77.83 per barrel for the entire year, up from the previous projection of $77.20.
Given the backdrop of decreasing crude inventories, the consensus on average prices may appear rather conservative. However, experts foresee inventory tightening as the prevailing force influencing prices in the upcoming months.
In addition, according to Cole Smead, President and Portfolio Manager at Smead Capital Management, there is a potential for crude oil prices to surge to $100 or even $120 per barrel. This suggests a compelling rationale for proactive investment strategies in the oil market at this juncture.
On the gas side, the expansion of the natural gas sector is attributed to heightened global economic activity, a rise in electricity consumption, and the growing demand for refined petroleum in developing nations. Furthermore, an anticipated uptick in the electric power sector's usage is poised to be a key driver of future growth in the natural gas industry.
That said, according to ReportLinker, the global natural gas market is projected to grow at a 7.3% CAGR and reach $1.03 trillion in 2023.
Considering these conducive trends, let's take a look at the fundamentals of the three best Foreign Oil & Gas stocks, starting with number 3.
Stock #3: Petróleo Brasileiro S.A. - Petrobras (PBR)
Based in Rio de Janeiro, Brazil, PBR engages in prospecting, drilling, refining, processing, trading, and transporting crude oil from onshore and offshore fields. The company's segments include Exploration and Production; Refining, Transportation and Marketing; and Gas and Power.
On September 4, PBR announced a memorandum of understanding with MIC Capital Partners (Brazil Strategic Opportunities), a Multi-strategy Equity Investment Fund of the Mubadala Capital Group.
The collaboration explores opportunities in the downstream segment, with a focus on a potentially lucrative biorefining project. It aligns with PBR's 2024-28 Strategic Plan, enhancing sustainability and revenue diversification while supporting emissions reduction goals.
On August 30, PBR announced that its CEO, Jean Paul Prates, engaged with Chinese company CEOs and formalized collaboration agreements within the energy sector. These partnerships could potentially enhance PBR's financial prospects by opening new avenues for energy-related ventures and investments.
During the second quarter that ended June 30, 2023, PBR’s total comprehensive income increased 213.4% year-over-year to $9.65 billion. As of June 30, 2023, the company’s cash and cash equivalents stood at $10.35 billion, compared to $8 billion as of December 31, 2022. Its total assets amounted to $205.52 billion, compared to $187.19 billion as of December 31, 2022.
For the fiscal year ending December 2024, analysts expect PBR’s revenue to marginally increase year-over-year to $99.39 billion. The stock has gained 60.6% year-to-date, closing the last trading session at $14.80.
PBR’s robust prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
PBR has an A grade for Momentum and Quality. It is ranked #11 out of 43 stocks in the B-rated Foreign Oil & Gas industry.
Click here to access the additional PBR ratings (Value, Sentiment, Growth, and Stability).
Stock #2: Transportadora de Gas del Sur S.A. (TGS)
TGS, based in Buenos Aires, Argentina, primarily engages in public natural gas transportation and natural gas liquids production and sales. The company operates through four segments, Natural Gas Transportation Services; Liquids Production and Commercialization; Other Services; and Telecommunications.
On August 28, TGS revealed an exclusive four-year collaboration deal with Apparition Geoservices GmbH. Over this period, TGS and Apparition will jointly research, develop, and test Apparition technology for ocean bottom nodes, towed streamers, and XHR data acquisition programs.
This partnership is expected to enhance TGS' operational efficiency and reduce acquisition program timelines.
On August 17, TGS unveiled a strategic partnership with ROGII Inc. to provide an integrated solution. This enables engineers and geologists to easily access TGS-licensed well data through ROGII's cloud-based platform, Solo Cloud.
The collaboration not only reinforces TGS' commitment to delivering cutting-edge solutions but also promises financial benefits by expanding its reach and potentially increasing revenue streams through wider accessibility to its good data.
For the second quarter that ended June 30, 2023, TGS’ POC revenues increased 77.9% year-over-year to $241.17 million. Its POC EBITDA grew 28.5% from the year-ago value to $131.95 million. As of June 30, 2023, the company’s total assets stood at $1.95 billion, compared to $1.84 billion as of December 31, 2022.
The consensus revenue estimate of $1.07 billion for the fiscal year ending December 2024 reflects a 62.1% rise year-over-year. Likewise, the consensus EPS estimate of $1.21 for the ongoing year exhibits an 86.2% year-over-year improvement. TGS’ shares have gained 71.3% over the past year to close the last trading session at $11.92.
TGS’ solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
TGS has a B grade for Value, Momentum, and Quality. It has ranked #10 in the 43-stock Foreign Oil & Gas industry.
In addition to the POWR Ratings I’ve just highlighted, you can see TGS’ ratings for Growth, Stability, and Sentiment here.
Stock #1: Repsol, S.A. (REPYY)
Based in Madrid, Spain, REPYY's Upstream segment explores, develops, and produces crude oil and natural gas. The Industrial segment encompasses refining, petrochemicals, trading, and transportation of oil and gas. The Commercial and Renewables segment focuses on low-carbon power generation.
On May 24, Repsol Ibereólica Renovables Chile, co-owned by REPYY and the Ibereólica Renovables Group, commenced electricity generation into the grid via their inaugural solar project in the Andean nation, the Elena photovoltaic plant's first phase, with an eventual total capacity of 596 MW.
The strategic partnership aligns with REPYY's expansion objectives, particularly in Chile, a nation ripe for asset development, propelling REPYY toward its 2025 target of 6,000 MW in operational capacity.
On May 17, REPYY unveiled plans to develop renewable projects in Italy, with a combined capacity of 1,768 MW. This expansion includes 943 MW of wind and 825 MW of photovoltaic solar projects, significantly augmenting the company's global renewable portfolio. Over 60% of these Italian projects are in advanced development stages.
REPYY's strategic focus on Italy aligns with its ambition to establish a prominent presence in the international renewable energy sector. Italy, being a key European market, offers substantial opportunities for REPYY to fortify its position as a global renewable energy player and achieve its international growth objectives.
For the six months that ended June 2023, REPYY’s cash inflows from operating activities increased 39.5% year-over-year to €3.25 billion ($3.50 billion). As of June 30, 2023, the company’s cash and cash equivalents were €5.25 billion ($5.64 billion), while its total assets stood at €59.36 billion ($63.79 billion).
Over the past year, the stock has gained 17.7%, closing the last trading session at $15.67.
REPYY’s positive outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
REPYY has an A grade for Momentum and a B for Value. It is ranked #6 out of 43 stocks within the same industry.
Click here to access additional REPYY ratings for Growth, Stability, Quality, and Sentiment.
What To Do Next?
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PBR shares were trading at $14.91 per share on Wednesday afternoon, up $0.11 (+0.74%). Year-to-date, PBR has gained 44.55%, versus a 17.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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