Investors betting on Big Oil got more news to cheer about on Wednesday with the Kremlin’s announcement of a pause in Ukraine, which was fast moving toward a full-scale war. Although the move is viewed by many as a tactical halt, it added fuel to the bourses in general, with integrated major energy firms' stocks catching fire.
The standoff, if ended, would quell worry of integrated global majors that have substantial funds invested in and around Russia. The problem for the large-cap integrated players is that new projects usually have a long gestation period (more than five years) to perform optimally.
If Russia and Ukraine iron out their differences, the largest beneficiary would be British energy giant BP plc (BP), which owns almost one-fifth stake in Rosneft and accounts for a tenth of its total market cap. The markets echoed the positive sentiment and the company’s shares hit a 52-week high of $51.25 during the trading session on Wednesday, before closing a notch lower at $51.02. This translates into a healthy year-over-year return of 16.1%.
With the British major on a high, the sentiment was echoed across the channel also with French integrated major Total SA (TOT), which returned more than 40% over the past year and also touched a 52-week high on Wednesday.
Not to be left behind, Anglo-Dutch energy major Royal Dutch Shell plc (RDS.A) echoed the bullish sentiment and hit a 52-week high with a one-year return in excess of 16%. The company has substantial stakes in two Russian projects of Sakhalin II and Salym. Also, Russian production amounts to 5% of Shell’s total production.
Back home, both Exxon Mobil Corp. (XOM) and ConocoPhillips (COP) broke their 52-week highs and look to fetch more returns for shareholders. The Russian recess comes at a time when integrated majors, with their focus on shareholder returns, are reminding investors of their resilience in volatile market dynamics.
Exxon is currently developing and operating the Sakhalin-1 project with close to one-third stake in it – one of the largest foreign investments in Russia. The largest U.S. oil and gas company generates almost 6% of its production from Russia.
ConocoPhilips also has an equally owned JV christened Polar Lights with Rosneft. The remaining member of the Big Oil club in the U.S., Chevron Corp. (CVX), also stands to gain from the pause in the Ukraine impasse, as its has a 15% stake in the Caspian Pipeline Consortium which transports Caspian oil from Tengiz field to Novorossiysk-2 Marine Terminal on Russia's Black Sea coast.
As such, we expect the integrated big oil players – all carrying a Zacks Rank #3 (Hold) – to provide energy investors a safer avenue to growth. All six supermajors provide an additional cushion of dividend yield that averages 3.2% and far outweighs the average Dow Jones Industrial Average (.DJI) yield of 2.2%.
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