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
), 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
), 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
) 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.
) 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
), 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
) yield of 2.2%.
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