If we are on the cusp of another global surge in oil prices, which ASX producers will make the most of such an opportunity?
News of possible shortfalls in oil supply from Iran and Venezuela could provide opportunities for our home soil producers to fill the gap, with global oil prices expected to zoom upwards in the short term despite oil benchmarks falling yesterday due to news of US stock build ups.
Oil prices have already surged about 20% this year so far, helped along by supply cuts out of Organisation of the Petroleum Exporting Countries (OPEC), but the sector remains, as always, easily affected by geopolitical unrest.
The 3 ASX oil stocks to watch as the situation plays out include:
Woodside Petroleum Limited (ASX: WPL)
There’s lots going on for Woodside Petroleum Limited at present.
Aside from needing to be poised and ready for the potential of another oil price boom, Woodside is firmly focused on its LNG assets.
According to a report in The Australian today Woodside has brought forward its forecast of a global LNG supply gap from 2023 to 2021 as non-Chinese demand gathers pace.
The Australian reported Woodside petroleum chief Peter Coleman said “stress” would likely come into the LNG market as early as 2020 which is bad news for households and businesses, but good news for the LNG export industry.
Woodside shares have been on the rise of late after a volatile 12 months, but were sitting down 1.1% to $33.80 at the time of writing.
Regardless, things are looking good for Woodside shareholders going forward, with its grossed-up dividend yield at 5.2% and further dividend increases forecast through to 2020.
But there are also stressors in its peripheral.
Another report out of The Australian today revealed emerging oil and gas producer FAR Ltd (ASX: FAR) is unlikely to back down from its dispute with Woodside over the ownership structure of SNE deepwater oilfield.
The $535.2 million market cap FAR is flexing its muscles in vying for Woodside’s 35% stake in the project – a gutsy move by the small cap considering Woodside’s own market cap is currently at $31.6 billion.
Interestingly, Morgan Stanley recently named both Woodside and FAR as among oil services companies most likely to benefit from a rallying oil price and it’s always interesting to watch when a smaller player gets into a joust with the big guns.
Two players to keep an eye on.
Beach Energy Ltd (ASX: BPT)
Morgan Stanley’s backing of companies most likely to leverage well off rising oil prices extended to Adelaide-based oil and gas exploration and production company Beach Energy Ltd – which has seen a solid share price rise from 64c at this time last year to sit up slightly to $1.74 at the time of writing.
Beach hit a 52-week share price high on May 22 with a price of $1.81 as the $3.9 billion market cap company continues to be a quiet achiever in the sector, reporting to investors this month an impressive $133 million free cash generated in its third quarter of FY18 with net gearing reduced to 29%, from an initial estimate of 35%.
Beach’s flagship Cooper Basin project continues to deliver with production targets maintained through to 2020 and a drilling success rate of 85%.
Beach is well-positioned to make the most of an overall oil price surge for its long-term betterment, with cost discipline still at the core of its strategic focus and plans to reduce net gearing to less than 20% by FY19.
One to watch in the space for certain.
Oil Search Limited (ASX: OSH)
The 12 month share price chart for oil and gas exploration and development company Oil Search Limited shows a modest upswing, with its May 23 close of $8.41 up from $7.42 share price at the same time last year.
Despite its name, Oil Search has been heavily focused on ramping up its operations to meet global LNG demand of late, with strategies in place to optimise its gas developments in Papua New Guinea under way.
But Oil Search did complete a US$400 million acquisition of the working interests of Alaska North Scope in February, which includes control of an established oil province with “mega discoveries” – impressively funded by the company’s existing cash balances.
Oil Search managing director Peter Botten said the acquisition was a “world class oil opportunity” expected to create shareholder value.
Although Oil Search is still an emerging player in the sector it appears to have a knack for identifying good opportunities, underpinned by a solid balance sheet.
It looks well-placed for solid growth.
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Motley Fool contributor Carin Pickworth has no position in any of the stocks mentioned. 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 Scott Phillips.