Woodside Petroleum Limited, Santos Ltd, Origin Energy Ltd: Are these 3 cheap oil shares a buy?

With three of Australia’s largest listed oil and gas producers all reporting lacklustre profit results this week it is arguably a brave analyst who would slap a “buy” recommendation on any of these energy stocks.

According to Reuters’ tally of consensus estimates however, there are 5 buy/outperform recommendations on Woodside Petroleum Limited (ASX: WPL); 7 buy/outperform recommendations on Santos Ltd (ASX: STO); and 9 buy/outperform recommendations on Origin Energy Ltd (ASX: ORG).

With the share prices of all three stocks still in the doldrums, for contrarian investors willing to take a long term view on the oil price cycle, now could be a compelling buying opportunity.

Here’s a quick recap of what was reported this week:

Woodside: For the six months ending June 30, profit fell 50% to US$340 million due to an average 26% decline in the realised oil price. The interim dividend was chopped down by 48% to US 32 cents. The company’s balance sheet remains in good shape, leading many investors to assume Woodside will play a leading role in merger and acquisition activity. The company has achieved significant cost reductions, lowering its average cost of production by 38%.

Santos: The interim results for Santos saw the interim dividend scrapped and a net loss of US$1.1 billion recorded largely on account of write-downs on the group’s LNG investment. The underlying result was less bad, a loss of US$5 million.

Origin Energy Ltd: The full year statutory loss was $589 million after tax impairments of $515 million were taken due to a downward revision of reserves. The underlying profit fell from $682 million to $365 million. The final dividend was sliced to zero from 25 cps. The balance sheet debt remains elevated but Origin did achieve a $4 billion reduction in debt. Meanwhile, the company reported pleasing progress on cost reductions.

Oil Price Rebounds

The oil price has rallied from a 13-year low of US$27 a barrel in January to trade today at levels above US$50. The recent oil price rise is certainly a positive for producers, however, the major cost saving and balance sheet strengthening initiatives are also key factors in a brighter long-term outlook for Woodside, Santos and Origin.

While there are plenty of complexities involved in analysing the energy sector, rather than being put off by the large, reported headline losses, contrarian investors will see the current turmoil as a breeding ground for opportunity.

Forget companies cutting dividends like Santos and Origin when you can get GROWING dividends.

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Motley Fool contributor Tim McArthur owns shares in Origin Energy Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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