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From oil price spikes to corporate scandals, the oil & gas sector has been hitting the headlines lately. Here’s a closer look at 3 of the major players.
This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.
These days the oil & gas industry is never far from the front page of the business pages. Corporate scandals, the energy transition and of course volatile oil prices are all making the news.
Despite the push for net zero, demand for fossil fuels is unlikely to have peaked just yet, meaning there should still be a market for these products.
Prices are being pushed down by investor concerns about growth in the global economy – and pushed upwards by tightness of supply and worries there could be further repercussions in the Middle East. So, they’re incredibly reactive to each piece of news.
But what does that mean for some of the bigger names in the oil & gas sector and how are they faring?
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Investing in an individual company isn’t right for everyone because if that company fails, you could lose your whole investment. If you cannot afford this, investing in a single company might not be right for you. You should make sure you understand the companies you’re investing in and their specific risks. You should also make sure any shares you own are part of a diversified portfolio.
BP’s been in the headlines for the wrong reasons recently. It emerged that CEO Bernard Looney would be stepping down with immediate effect after he admitted to misleading the board over disclosures relating to personal relationships with colleagues.
The group’s Chief Financial Officer is going to be taking the helm on an interim basis while the search for a permanent replacement is underway.
An unexpected change of leadership is never ideal. It essentially increases uncertainty and leaves questions unanswered, especially around strategy. Looney had also made big strides in driving the group's green energy plans forward.
So, until a successor emerges, it will be difficult to call what direction BP will take at this pivotal time. Any prolonged uncertainty is likely to weigh on investor sentiment.
However, so far, the market’s reaction to this change has been fairly muted. It seems investors are more concerned about important broader issues, including the oil price and long-term green strategies.
This followed a more challenging start to the year where lower prices dented financial performance. At the same time, in windows when we’ve seen a return of more normal prices, there was a downturn in its gas and energy trading activities.
Shell is a leading supplier of Liquified Natural Gas (LNG) and we think the outlook for this part of Shell's business remains positive. The group’s planning to grow sales volumes in this category by between 20-30% by 2030.
Another thing to keep in mind where Shell is concerned is that strong financials enable it to self-fund significant organic investment. But with a big chunk of cash flows ringfenced for shareholder returns, there are some concerns as to how long this can continue.
We've already seen this year's spending guidance trimmed in the face of challenging trading conditions. To reduce its reliance on oil and gas based revenues, investment levels will need to stay high for the foreseeable future.
ExxonMobil is another very recognisable oil and gas major. In fact it’s the largest independent oil and gas group in the world.
It’s in the news at the moment because it’s in advanced talks to buy one of America’s leading fracking companies called Pioneer Natural Resources, with the deal worth around $60bn.
Exxon made profit of just under $56bn last year, so it has some firepower to throw at big acquisitions like this.
But it’s also been caught up in some controversy.
Central to this deal is the group’s shale oil and gas business, and the boss of this unit has been arrested because of sexual assault allegations.
This news has more than wiped out recent gains on the group’s valuation and raises some important governance questions – something investors will need to keep a close eye on.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.
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