Some investors have started to see oil and gas stocks as income investment stocks rather than boom-and-bust cyclical stocks, as many others still believe. Record cash flows and profits of the past two quarters have prompted many oil and gas firms to boost dividends or pay special variable dividends, as is the case with U.S. shale producers.
Many more expanded and increased their share buyback programmes. The record profits and the cash flow bonanza could lay the foundations for more stable dividend payouts to shareholders, some investors believe. But others continue to see the industry as a cyclical business that slashes dividends when oil prices plunge.
The question for all investors going forward will be whether the industry will continue to keep disciplined spending and use more of its cash flows to reward shareholders.
Oil firms have pledged this much over the past two quarters, looking to attract investors and pay current shareholders who have stuck with their stocks through thick and thin over the past few years.
But what will oil companies do during the next bust? Will they be able to keep the current policy of rewarding shareholders more? Or will they resort, once again, to slashing or suspending dividends, as they did in the two major oil price busts of the past decade?
“The industry has seen a permanent transition to almost a high-yield, income space,” Morningstar analyst, David Meats, told Bloomberg while noting that the almost income-investment profile of oil stocks is unlikely to persist.
The current high dividend yields could be seen as a risk premium for investors for the cyclical nature of the stocks, Meats said.
Right now, oil stocks are looking attractive by some metrics. Analysts say that energy stocks are much cheaper than other sectors based on forward-year price-to-earnings (P/E) ratios.
Year to date, the energy sector has been the top-performing sector in the S&P 500 index, according to market data compiled by Yardeni Research.
The energy sector in the S&P 500 had gained 31.9 percent year to date to September 29. In comparison, S&P 500 is down 23.6 percent, and all other sectors have also lost ground since January.
Equity strategists, portfolio managers, and retail investors have grown increasingly bullish on energy stocks, the latest Bloomberg MLIV Pulse survey carried out in early September shows.
The poll of 814 respondents, including retail and portfolio investors, risk managers, buy-side and sell-side traders, equity strategists, and economists, showed that two-thirds of all respondents intended to increase their exposure to energy-related stocks and bonds over the next six months.
Moreover, nearly half—or 44 percent—of respondents say the current price of oil doesn’t adequately reflect actual supply and demand.
Stocks could remain attractive in the medium term, too, some analysts say.
“With the average company approaching ‘debt free’ status by early 2023, their ability to increase shareholder returns in the form of dividends and buybacks may be much greater,” Eric Nuttall, Senior Portfolio Manager at Ninepoint Partners, said this week.
“Even with the rally earlier this year, energy stocks remained inexpensive and failed to even moderately embed an oil price above $100,” Nuttall added.
Stacey Morris, head of energy research at VettaFi, commented in mid-September on the observation that “energy stocks and oil happily decouple.”
“Oil prices typically dictate the direction of energy stocks, but thankfully for energy investors, that has not been the case over the last several weeks. Oil prices have seen three straight months of price declines and are down more than 30 percent from their relative high in June, but one may not realize that by looking at energy stock performance,” Morris said.
And she asked the million-dollar question: “Are investors finally looking past the volatility in oil prices to the actual merits of energy companies and the way they are returning cash to investors?”
By: Tsvetana Paraskova
Paraskova reports for Oilprice.com.
DAPPMAN Raises Concern Over FG’s New Tax Regime
The Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN) has expressed concern over the new 0.5 per cent tax on gross turnover of the petroleum marketing firms proposed by the Federal Government.
Executive Secretary, DAPPMAN, Mr Olufemi Adewole, said at the maiden edition of the Platforms Africa Continental Forum in Lagos, that the tax would put many firms out of business.
Adewole said there were indications that fuel distribution crisis may soon hit the country, if the government implemented the new tax regime.
He was emphatic that more than half of the fuel marketing firms in Nigeria would close down, if the tax burden was slammed on them.
According to him, the imminent closure of businesses poses threat to the smooth distribution of petroleum products across the country.
“The petroleum marketing firms’ trading margin is too small that they cannot pay such amount sustainably.
“Petroleum marketers operate a very low margin but the turnover is very huge. Unfortunately the margin does not correspond with the turnover,” said Adewole.
He added that the margins they made when fuel sold at N40 per litre was the same when the price rose to N160 per litre and N200 per litre respectively.
According to him, “The Finance Act 2020 says the marketers have to pay 0.5 per cent from their gross turnover by the end of this year.
“It is unimaginable that probably half of the petroleum marketing firms existing now may go under, if the new tax regime is implemented.
“Except the regulator which is Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) approves a new margin for the marketers.”
He said the association had called on government to give petroleum marketers access to foreign exchange at the official Central Bank of Nigeria (CBN) rate to enhance the supply and distribution of Premium Motor Spirit (PMS) across the nation this yuletide season.
According to DAPPMAN, shortage of foreign exchange (forex) coupled with several unauthorised levies, bad roads are among the factors making fuel importation and distribution burdensome for members.
The Tide source reports that the fuel marketers recently bemoaned the acute scarcity of forex in the official market, which is currently threatening the importation, distribution and impacting deeply on prices of petroleum products across the country.
Niger Wants NNPCL To Establish Truck Transit Parks
Niger State Government has urged the Nigerian National Petroleum Company Ltd. (NNPCL) to establish truck transit parks in some strategic parts of the state to reduce traffic on highways.
The government identified towns such as Tafa, Suleja, Mokwa, Bida, Tegina, Lambata and Minna as major areas to be given attention in that regard.
The Permanent Secretary in the Ministry of Mineral Resources in Niger State, Alhaji Abubakar Idris, made the call during the meeting of National Council on Hydrocarbons organised by the Ministry of Petroleum Resources in collaboration with the State Government.
According to him, the establishment of the parks in the identified areas will reduce traffic on highways and generate revenue for the state and country at large.
In the meeting entitled: “Roadmap and Strategic Option towards achieving energy transition in Nigeria”, Idris presented a memorandum from the State Government to the council on the need for the establishment of the transit parks.
He explained that it would also create a partnership between the state and federal government to reduce the negative effects of heavy road traffic on highways.
He explained further that the trucking industry was indispensable to the Nigerian economy as “truckers are responsible for delivering fuel from depots to filling stations where they are dispensed.
“For these reasons, funds need to be released to build truck parks for ease of operations”, he said.
He also called for the establishment of a frontier basin development commission with its headquarters in Niger State.
According to him, the establishment of the commission will expedite the effective implementation of Petroleum Host Community Trust Fund and frontier basin exploration fund as captured in the Petroleum Industry Act 2021 with headquarters in Niger.
He said Nigeria’s frontier basins consist of Anambra basin, the lower, middle and upper Benue trough, the South eastern sector of the Chad basin, the Mid-Niger (Bida) basin and Sokoto basin.
According to him, the basins would be better positioned for the opportunities in the hydrocarbons natural gas, oil and other minerals.
He noted that the establishment of frontier basin development commission would offer greater opportunities to actualise the state dream of oil and gas economic value-chain and industrialisation in Nigerian frontier basins.
Motorists Groan Over Fuel Scarcity
Long queues resurfaced in Lagos as motorists spent hours at filling stations to buy Premium Motor Spirit (PMS), popularly known as petrol.
The situation was worse on Ikorodu Road, Maryland, Ikeja, Anthony, Bariga, Ilupeju and Gbagada areas as motorists were agitated for spending hours on queues.
The Tide source reports that the development left commuters stranded with gridlocks in major areas of Lagos as motorists queued to buy the product.
The source also reports that only filling stations owned by Major Oil Marketers Association of Nigeria (MOMAN) had petrol and sell at the regulated price of N170 per litre.
Some stations owned by Independent Petroleum Marketers Association of Nigeria (IPMAN) sell between N200 and N210 respectively.
A motorist, who identified himself as Mr Foluso Saliu, told the source that he had been on the queue since 6.30 a.m. hoping to get fuel and return to work.
He said government should find a lasting solution to petrol supply in Lagos to avoid panic-buying.
“Scarcity has been frequent during the ember months and l hope it will be addressed,” he said.
Another motorist, Mr Julius Albert, urged filling stations to avoid selling petrol in jerry cans to allow vehicles to buy on time.
Albert appealed to the government to fully deregulate the downstream sector of the petroleum industry if that was the solution to availability of petrol without stress.
According to him, the product seems to be available in some filling stations but they choose to hoard it and sell at higher prices.
Queues were seen at Mobil, NNPC, Conoil, Oando and Nipco filling stations on Ikorodu Road.
Also, queues were cited at TotalEnergies, TMAAC on Bank Anthony Road and Conoil, opposite LASUTH.
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