It’s been a tough three years for the oil and gas industry, which has been wracked by lower oil prices, a raft of bankruptcies and a lack of investor confidence. Stocks of oil and gas explorers and producers, oil and gas equipment and services providers, like the heavy lift & project freight industry and oil and gas drillers were three of the eight worst performing sectors this year.
But analysts from RBC – which are known in the oil and gas industry – think the energy cycle is on its way the a second full year of recovery. They say the “oil macro” continues to firm, global inventories are dropping and oil prices have begun to respond to tightening supply-demand. “Excess capacity throughout the energy chain continues to be absorbed,” they say.
The firm thinks exploration and production money flow globally will continue to skew to North America, especially West Texas’ and New Mexico’s Permian Basin, although they say they are starting to see oil companies “dust off” their international and offshore projects as well. This is about time.
In the meantime, RBC gives some perspectives on some of the sub-sectors of the industry.
For integrated oil companies, they see the real test as maintaining discipline on costs while boosting distributions to shareholders, noting that Royal Dutch Shell of the Netherlands and Suncor Energy of Canada have the highest probability of doing so.
The firm also sees improving investor sentiment for U.S. exploration and production companies as oil prices firm. It’s forecasting that cash flow per share in the sub-sector will increase by 30%, debt-adjusted production will jump by 20% and spending will move up by 11%. Its favorite stocks in this segment are Parsley Energy and RSP Permian.
For global oilfield services companies, it expect their stocks to reverse course and generate positive returns in 2018 with another year of capacity absorption, equipment attrition and lower global oil inventories. Its U.S.
All good news for our own industry and we already see an increase in optimism and return of projects, even-though its slow.