Oil stocks are back in volatility mode as the global crude market ebbs and flows. While oil in storage appears to be depleting, investors are concerned that a global recession will scupper demand. In any case, the oil and gas outlook remains stable, so for investors willing to weather the storm, it could continue to prove a profitable place to invest. Three companies we’re taking a look at today are TotalEnergies SE (NYSE: TTE), Phillips 66 Company (NYSE: PSX), and Tellurian Inc (NYSEAMERICAN: TELL).
Is TTE Stock a Buy?
TotalEnergies SE (NYSE: TTE) is a French company focused on fuel, natural gas, and low-carbon electricity exploration and production. The $153bn company has a sprawling international presence and is potentially undervalued in comparison to US peers.
In recent news, TTE is suing Greenpeace over a damning emissions report that TotalEnergies asserts is ‘false and misleading.’ Meanwhile, the company is also reportedly in talks with Saudi Aramco to invest in the Jafurah development in Saudi Arabia.
Last month, TotalEnergies agreed to sell its subsidiary, TotalEnergies EP Canada Ltd, to Suncor Energy Inc for CAD6.1 billion ($5.5bn), comprising cash and potential additional payments of up to $600m. The sale signals an exit from the Canadian oil sands including Total's 31% share in the Fort Hills oil sands project and 50% stake in Surmont in situ asset. The deal is anticipated to be finalized in Q3, pending customary closing conditions, regulatory approvals, and ConocoPhillips' Right of First Refusal on the Surmont in situ project.
In a recent review of Q1 2023, the board decided to distribute at least 40% of cash flow from 2023 operations, which is attractive for shareholders. The buyback was maintained at $2bn in Q1 and Q2. Meanwhile, TotalEnergies' Integrated LNG and Integrated Power segment results were disclosed for the first time, showing 9.9% of the company's total investments.
As of May 8, 2023, TotalEnergies’ stock is trading at $61.92, which remains flat YTD. Meanwhile, it’s up 23% in 12 months.
Based on its most recent financials, TotalEnergies’ EPS is 7.98, rising 32% Y/Y, which is an encouraging sign of growth.
TTE has a P/E ratio of 7.4, in line with the industry average, as is its P/S ratio of 0.6 and its P/BV of 1.3. The company has a 54% Debt-to-Equity ratio, which suggests it is not heavily indebted. TTE stock comes with a 3.8% dividend yield.
TotalEnergies maintains its guidance for 2023 net investments at $16bn to $18bn, which includes acquisitions and divestments. The company is focused on controlling costs and ensuring the successful relaunch of its Mozambique LNG project.
TotalEnergies has stated that disagreements over the costs of repairing the facilities at its Mozambique project have complicated the restart of production. The project was suspended in 2021 due to a terrorist attack and the company is currently in discussions with the Mozambican government and its partners to find a solution.
In its recent earnings call, Patrick Pouyanné, Chairman and CEO of TotalEnergies, talked about the good timing for marketing PNG LNG globally, considering the better price environment. He also discussed the appetite of Chinese players to secure long-term contracts for LNG supply.
Regarding upstream activities, Pouyanné ruled out the idea of a second floating facility for Mozambique. He shared the plans for exploration and appraisal activities in Namibia and Suriname in 2023, stating that these would be crucial in determining the next steps toward development.
As for the renewable power industry, Pouyanné mentioned that it might be too early to determine if there is a shift toward better profitability. He did, however, notice a shift in the focus from volume to value and emphasized the importance of achieving profitability in the capital-intensive industry.
Total’s Integrated Power business is volatile but expected to stabilize in 2023, with renewable energy growing and gas-fired power plants providing some volatility.
Altogether TTE presents a compelling opportunity for investors to access the international oil and gas space, particularly in emerging markets.
Phillips 66 Forges Ahead
Phillips 66 Company (NYSE: PSX) recently reported strong Q1 financial and operational results, with adjusted earnings of $2bn or $4.21 per share, in a record first quarter. The company's refining business successfully executed major planned maintenance and ran above industry average rates, while its Midstream, Refining and Chemicals businesses received awards for exemplary safety performance.
Phillips 66 returned $1.3bn to shareholders through dividends and share repurchases and is on track to return $10bn to $12bn over the 10-quarter period between July 2022 through year-end 2024.
Its Midstream segment had an adjusted pre-tax income of $678m, while the Chemicals segment had an adjusted pre-tax income of $198m. Refining had an adjusted pre-tax income of $1.6bn and its refining utilization rate improved due to optimizing turnaround durations and increased crude flexibility in Gulf Coast assets. The Refining capture rate also increased to 93%, with the implementation of 12 projects focused on market capture last year.
In relation to its Chemicals segment, Phillips 66 expects global O&P utilization in the mid-90s in Q2 and anticipates Corporate and Other costs to be between $260m and $290m.
Plus, the Marketing and Commercial segment reported strong earnings, thanks to focusing on sales in higher margin areas, retail, and lubes businesses.
Executives said the company was seeing continued maturity in its reliability programs, which is saving the company money. On the cost-cutting progress, the company beat its goal of $500m by year-end 2022 and has made major changes to the structure of the organization to eliminate inefficiencies. Finally, executives mentioned gasoline demand was better than last year, and global demand was about 3% better than last year, while the diesel market is also seeing some growth.
However, the decline in crude prices may hurt Phillips 66's working capital due to the net payables position, which means they owe more money to suppliers than they are owed by their customers. This is estimated at $40-$50 million of working capital hurt per $1 reduction in the crude price.
The team discussed ongoing business transformation initiatives and a commitment to financial strength and disciplined capital allocation.
Phillips 66's stock is trading at $93.44, as of 08 May 2023 and is down by 8% year-to-date (YTD). Over the past year, the stock is up by 4%, whilst the S&P 500 is up by 4%, meaning the stock has performed in line with the market average over this period.
Phillips 66's EPS is 23.3 based on its most recent financials, which is encouraging.
PSX has a P/E ratio of 3.6, based on its most recent financial statements. This matches the industry average, as does its P/S ratio of 0.3.
Phillips 66's P/BV is 1.4, which is 10% lower than the industry benchmark of 1.6.
The company has a 61% Debt-to-Equity ratio, which suggests a moderate level of debt. The stock also comes with a 4.5% dividend yield.
According to FactSet, on May 4, 2023, the transcript sentiment on products for Phillips 66 turned positive for the first time in five calls within the last six months. Consensus analyst projections on PSX stock state an ‘Overweight’ rating with a target share price of $123.06, although some recent projections have downgraded to ‘Hold’.
Phillips 66 is a well-established oil company with growth prospects in its Chemicals division and an attractive dividend for long-term investors.
Tellurian Stock Remains Speculative
Tellurian Inc (NYSEAMERICAN: TELL) is a Houston-based company that develops and operates natural gas, LNG marketing, and infrastructure assets, including the Driftwood terminal and pipeline, other related pipelines, and upstream natural gas assets. As of March 31, 2023, Tellurian's upstream natural gas assets included 30,915 net acres and interests in 152 producing wells in the Haynesville Shale trend of northern Louisiana.
Driftwood LNG is a proposed export terminal on the US Gulf Coast that aims to export low-cost, low-emission American natural gas to global markets. The success of Tellurian depends largely on whether the project comes to fruition.
In Q1 2023, Tellurian showcased its growth through advancements in the construction of Driftwood LNG phase one, increased natural gas acreage, production, and sales, and repayment of $166.7m in borrowing obligations. Moreover, Tellurian secured a $1bn sale and leaseback letter of intent after the quarter ended, furthering Driftwood project funding. CEO Octávio Simões emphasized the company's value growth through these accomplishments and ongoing efforts to secure nearly $2bn for project costs while engaging in partnership discussions to deliver LNG globally.
Tellurian experienced a substantial increase in natural gas production, jumping from 6.1 billion cubic feet in Q1 2022 to 19.3 billion cubic feet in Q1 2023. This increase in production contributed to Q1 2023 revenues of $50.9m, up from $26m in Q1 2022. Despite these improvements, Tellurian reported a net loss of around $27.5m, or $0.05 per share, compared to a net loss of $66.6m, or $0.14 per share, in Q1 2022.
As of March 31, 2023, Tellurian's total assets were valued at approximately $1.3bn, which included $150m in cash and cash equivalents. To address its liquidity needs, the company plans to use cash on hand, combined proceeds from Upstream operations, and the sale of common stock through its at-the-market equity offering program.
Additionally, Tellurian is exploring financing options, including issuances of equity, equity-linked, and debt securities, to fund obligations and working capital needs. The company remains committed to financing and constructing the Driftwood Project and related pipelines while managing its upstream assets effectively.
Investors should consider the potential high returns from Tellurian's stock if the Driftwood LNG project is successful. However, it is crucial to assess risk factors such as financing, regulatory approvals, market conditions, and the leadership team's commitment to the project's successful execution before making investment decisions.
FactSet analysts have a consensus ‘Hold’ rating on TELL stock with a target share price of $2.40.
The global LNG market is projected to grow, fueled by increasing demand for cleaner energy sources and the need to reduce carbon emissions. Tellurian's Driftwood LNG project could benefit from these trends, particularly as countries seek to transition away from coal and other fossil fuels.
The Driftwood LNG project is designed to utilize cutting-edge technology to minimize its environmental impact. Tellurian plans to employ electric motor-driven compression, significantly reducing greenhouse gas emissions compared to traditional gas turbines. This environmentally friendly approach may appeal to investors conscious of the growing emphasis on sustainability and environmental, social, and governance (ESG) factors.
Key players in the LNG market include industry giants like Chevron, ExxonMobil, and Royal Dutch Shell, as well as specialized firms like Cheniere Energy. Assessing these competitors' strategies and market share will help investors understand the competitive landscape and evaluate Tellurian's potential for success in the Driftwood LNG project.