Investing in ASX oil shares

Investing in ASX oil shares

The price of oil has continued to increase in 2022 as geopolitical tensions impact on supply. We all get to witness the effects at the petrol pump. So how can you benefit from rising oil prices as an investor? One way is to invest in ASX oil stocks.

worker in hard hat at an oil refinery
Image source: Getty Images

What are ASX oil shares? 

Oil stocks are shares of companies involved in the extraction and production of petroleum. Petroleum is used in everything from plastics and asphalt to transport fuels, as well as for heating and electricity generation.

Petroleum, or crude oil, is a fossil fuel that exists in underground pools or reservoirs or near the surface of oil sands. Once crude oil is removed from the ground, it is sent to a refinery to be separated into usable petroleum products. Oil is currently the primary source of global energy production. A commodity that is traded globally, investors have long speculated on the price of oil via a variety of financial instruments.  

Like all commodities, oil prices can be volatile. Prices are fundamentally driven by the balance of supply and demand. Demand is driven by the need for oil for everything from electricity generation to petrol. Supply is somewhat controlled by the Organisation of Petroleum Exporting Countries (OPEC), an intergovernmental organisation that coordinates petroleum policies among member countries. 

The price of oil soared in early 2022 due to the conflict in Ukraine. Russia (which faced sanctions from other countries) produces 12% of the world’s oil. 

Why invest in ASX oil stocks? 

There are a number of companies listed on the ASX that can give investors exposure to oil prices. These companies find, extract, and produce crude oil or petroleum. Oil is a commodity that is crucial to economic activity. It provides a vital source of energy to power the global economy. 

Although we are increasingly turning to renewable sources of energy generation, oil will remain an essential source of energy for some time to come. 

5 top ASX oil share performers in 2022

(based on market capitalisation from high to low)

Company Market capitalisation Description
Woodside Energy
Group Ltd
(ASX: WDS)
$29.65 billion Oil and gas exploration and production company
with two oil production facilities in Australia
Santos Ltd (ASX: STO) $27.9 billion Oil and gas producer supplying Australia and Asia
Ampol Ltd (ASX: ALD) $8.1 billion Transport fuels supplier that refines, imports, and
markets fuels and lubricants
Beach Energy Ltd
(ASX: BPT)
$3.74 billion Oil and gas exploration and production company with
sites across Australia and New Zealand
Karoon Energy Ltd
(ASX: KAR)
$1.15 billion Oil and gas exploration and production company with
offices in Australia, Brazil, and Peru

Empty heading

Woodside 

Woodside Energy Group is an Australian oil and gas producer with worldwide operations. The company has two production facilities in Australia. One is located over the Vincent oil field in Western Australia, and a floating facility is moored between the Wanaea and Cossack oil fields off the coast of WA. Woodside reported strong revenue performance in the first quarter of 2022 with $2.36 billion in sales revenue. 

The company merged with the petroleum business of BHP Group Ltd (ASX: BHP) in June. The merger will deliver increased scale and diversity, providing resilience as Woodside navigates the energy transition. 

Key metrics

  • Market cap: $60.28 billion (as of 3 June 2022)
  • Average daily volume: 12.9 million 
  • Headquarters: Perth, WA 

Santos 

Santos produces oil and gas across five core assets. The Cooper Basin on the border of South Australia and Queensland is Australia’s most extensive onshore oil and gas field development. Santos also operates in WA, the Northern Territory, Timor-Leste, and Papua New Guinea. 

The company reported record quarterly production, sales revenue, and free cash flow in the first quarter of 2022. Stronger commodity prices combined with higher sales volumes delivered quarterly sales revenue of US$1.9 billion. A low-cost operating model has allowed Santos to take full advantage of the increase in commodity prices. 

Key metrics

  • Market cap: $27.9 billion (as of 30 May 2022) 
  • Average daily volume: 14 million
  • Headquarters: Adelaide, SA

Ampol 

Ampol is a leader in transport fuels, supplying Australia’s largest branded petrol and convenience network. It also refines, imports, and markets fuels and lubricants. Ampol had a successful and transformational year in 2021. It delivered a strong financial and operational performance while executing on established growth strategies and putting foundations in place to transform the business as energy markets evolve. 

In May 2022, Ampol acquired Z Energy, a New Zealand company that sells about 40% of all fuel volumes across New Zealand. Z Energy has approximately 200 service stations, 160 truck stops, and a network of pipelines, terminals, and infrastructure across the country. This was significant progress in Ampol’s strategic objective of regional market leadership.  

Key metrics

  • Market cap: $8.1 billion (as of 30 May 2022)
  • Average daily volume: 794,000
  • Headquarters: Sydney, New South Wales 

Beach Energy 

Beach Energy is an oil and gas exploration and production company with production in five basins across Australia and New Zealand. Australia’s largest onshore oil producer, Beach Energy has a suite of exploration permits in addition to its producing assets. Revenue for the March 2022 quarter was up 15%, largely due to higher realised oil prices, and the company is fully funded to deliver its major capital programs with total liquidity of $607 million. 

FY22 and FY23 are expected to be capital intensive as Beach Energy targets growth beyond FY24. Exploration and development is being undertaken in the Perth, Victorian Otway, Offshore Ottway, Bass, and Cooper basins. Strong cash flows in the first half delivered a 66% increase in net profit after tax (NPAT). The company advises it is on track to deliver FY22 guidance. 

Key metrics

  • Market cap: $3.74 billion (as of 30 May 2022) 
  • Average daily volume: 11 million 
  • Headquarters: Adelaide, SA

Karoon Energy 

Karoon Energy is an oil and gas exploration and production company that listed on the ASX in 2004. Since then, it has acquired a global portfolio of oil and gas exploration assets. The company strives to create shareholder value by identifying valuable early-stage acreage, then leveraging equity interests to explore, appraise, and commercialise opportunities. 

Karoon has interests in the Santos basin in Brazil, including the Bauna oil field and three exploration blocks. Oil production from the Bauna field was lower in the March 2022 quarter due to scheduled maintenance, however the average realised oil price increased by nearly US$20 per barrel. Karoon recently submitted an offer for the potential acquisition of a 50% interest in the Atlanta oil field offshore of Brazil. 

Key metrics

  • Market cap: $1.15 billion (as of 30 May 2022) 
  • Average daily volume: 3.3 million
  • Headquarters: Melbourne, Victoria 

How is the Australian oil industry performing? 

Australia produces oil from fields in the country’s south-eastern region and offshore of north-western Australia. The domestic industry has brought benefits in the form of economic activity, export earnings, employment, and investment. 

Australian companies have developed expertise and innovations, including floating production systems, subsea production, and the use of geophysics software. In the post-pandemic world, oil companies will continue to provide a vital source of energy. The COVID-19 outbreak negatively impacted operations due to lower crude oil prices. However, the global economic recovery and current supply pressures have resulted in a spike in prices. 

Oil companies’ revenue figures have been buoyed by high realised prices, which are expected to continue in the near term. Over the longer term, the ability to quickly adapt to changing market fundamentals will be key to the Australian oil industry’s success. 

The industry as a whole is going through a period of transition as the world moves towards a low-carbon future. Oil companies are increasingly emphasising their environmental, social, and governance (ESG) credentials, which will be critical to long-term survival. 

Are ASX oil shares right for you? 

Oil companies can be very profitable and have been benefitting from recent high prices. But investors in the sector must be aware of the risks, which are not insignificant. Oil shares can be more volatile than the broader market as they are sensitive to changes in the price of the underlying commodity. 

Oil price crashes in 2014 and 2020 rocked the industry, with companies slashing  dividends. Oil companies can also be exposed to legal and regulatory risks in the event of accidents such as oil spills. 

A growing world population means increasing demand for energy and fuel. Although renewable energy is becoming cheaper and more prevalent, an investment in oil shares can still provide good returns.  

Many Australian oil stocks are well-established with a history of paying dividends. Including oil shares in your portfolio may provide diversification benefits and can also act as an inflation hedge. For investors that prefer not to invest in individual companies, oil-focused exchange-traded funds (ETFs) can provide exposure to oil price movements. While the world is moving away from fossil fuels, the oil industry remains attractive to investors. 

Last updated June 2022. Motley Fool contributor Katherine O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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