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A Global Trio to Energize your Holdings
12/09/2019 5:00 am EST
Increases in global population, urbanization, and economic development are set to drive world energy demand higher in 2020 and beyond; global oil demand is forecast to reach a record-setting 100 million barrels per day next year, explains Luke Burgess, contributing editor of Energy & Capital.
Meanwhile, the demand for natural gas is expected to overtake “king” coal as the world's second-largest contributor to the energy mix thanks to the development of the LNG industry.
America will remain the world's largest producer and consumer of both crude oil and natural gas. Yet as much as the United States consumes, Americans only use a little over 20% of the world's energy supply.
The remaining 80% of energy demand is spread around the globe. As such, a properly balanced energy portfolio should include both U.S. and foreign oil stocks.
After combing through dozens of the world largest non-domestic energy companies, we present to you what we believe are the top three foreign energy stocks to own for 2020.
Royal Dutch Shell is the largest public oil and gas company by production, with output around 3.8 million barrels of oil equivalent per day (Mboe/d).
It's also the largest public energy company by revenue. Last year Shell reported its highest annual revenue since 2015, totaling over $388 billion — and the company nearly doubled net income attributable to shareholders from the previous year to $23.4 billion, giving it an annual EPS of 2.82.
Analysts expect slightly lower revenue and EPS for this year and next. But we believe lower revenue expectations are already priced in at current levels.
Royal Dutch took a hit following disappointing 2Q 2019 earnings in mid-August. A solid recovery since then leads us to feel confident that the worst for RDS is over for now.
Compared to its peers, Shell is a bit undervalued. Shell's price-to-book (P/B) ratio is average compared to the company's European competitors BP and Total S.A. But compared to U.S. majors like ExxonMobil (XOM), ConocoPhillips (COP), and Chevron (CVX), Royal Dutch Shell is priced competitively with a 1.26 P/B ratio.
In 2018, Shell began a share buyback program that intended to buy back at least $25 billion of the company's own shares by the end of 2020. In its 3Q 2019 financial report, Shell reports it has bought (or has already committed to buying) back $12 billion in shares for cancellation. So the company will buy another +$12 billion in shares next year, which might also be already priced into the stock.
Mostly overlooked by investors, however, is Shell's position in the LNG market. Royal Dutch Shell has been in the LNG game since day one. The company was the first to build a commercial LNG liquefaction plant way back in 1964. And today it continues that legacy as an LNG market leader and driver in innovation and technology.
Shell is one of the world's largest LNG shipping operators, managing 90 carriers — which accounts for about 20% of the global LNG shipping fleet. The company buys and sells LNG to partners and third parties helping meet their energy needs.
Today the company has two LNG supply projects around the world, major interests in two regasification plants, and is building the world’s largest floating LNG production facility.
Robust demand for LNG is forecast through the next decade. Bloomberg New Energy Finance expects global LNG demand to rise from current levels of about 284 million tonnes (Mt) of LNG product to 450 Mt by 2030.
As an established leader, Shell is very well positioned to take advantage of the LNG market boom. Shares are reasonably priced now, and we suggest buying as a medium- to long-term hold.
Total S.A. (TOT)
France-based Total S.A. is another supermajor oil powerhouse with operations in over 130 countries and output of around 2.8 Mboe/d. Last year the company increased total revenue by 23% to $184 billion and net income for shareholders by 72% to $11.4 billion, giving it an EPS of 4.27.
Based on sales growth, analysts are expecting higher earnings for TOT this year and next, which might already be priced in. Like Shell, Total S.A. has a P/B ratio comparable to its European competitors. But compared to American oil majors, TOT is priced competitively, with a 1.23 P/B ratio.
Also similar to Shell, Total is doing its own buyback program. Beginning in 2018, Total started a program to buy $5 billion worth of its own stock back. This program is slated to run through 2020.
What’s mostly overlooked is Total S.A.'s foothold in the LNG market. Total S.A. has also been in the LNG game for decades, with a history dating back 40 years. Today it exists as second after Shell in LNG market leaders with a 10% market share.
The firm currently has 12 producing LNG projects currently producing around 40 million tons of product and another eight under construction or planned.
As another established leader in the LNG market, Total is very well positioned to take advantage of the market boom. The company's finances are strong, and shares are reasonably priced. Buy some TOT as a medium- to long-term hold.
PetroChina Company (PTR)
You can't have a well-rounded energy portfolio without exposure to China. China and other Asian countries like India are key drivers in global energy demand. And PetroChina is Asia's largest oil and gas producer.
Last year the company produced about 890 million barrels of oil, which is down from the 971 Mboe PetroChina produced in 2015. Still, the firm's total revenue has increased 36% since then. Income attributable to shareholders has also increased 48% since.
Like Shell and Total, PetroChina has also entered the LNG market. In August 2009, PetroChina signed a $34 billion deal with ExxonMobil to purchase LNG from the Gorgon field in Western Australia, which was the largest contract ever signed between China and Australia.
The deal ensures China a steady supply of LNG fuel for the next 20 years.To add to that, PetroChina has additional LNG facilitates around the world, including in Russia and Canada.
Despite all this, shares of PetroChina have been falling for years. Unlike most (if not all) of the company's competitors, PetroChina hasn't recovered from the 2014 crash in oil prices. It's believed that between +$100 oil prices and rapid growth in China, speculation drove shares of PTR to a wildly unsustainable bubble — which popped so hard that shares haven't been able to recover in five years.
But at current levels, the stock is dirt-cheap. And it can't be ignored. Share of PetroChina are trading below book value by a wide margin. Right now the stock carries a $137 billion market cap, with shares trading just over $47. The book value per share is over $100.
With a commanding energy presence in China, China's LNG market, and shares being outrageously cheap right now, we think PetroChina is a good stock to buy and hold for the medium to long term.
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