Drilling for deep value oil and gas Seven Sisters shares on Wall Street

FPSO tanker vessel near Oil platform Rig at night. Offshore oil and gas industry

Prince Abdulaziz bin Salman is the first member of the House of Saud to hold the position of Oil Minister in the history of the kingdom. His appointment is a signal that Saudi Arabian wants to nudge crude oil prices higher from their current $60 – $62 Brent range to at least $70 – 80 a barrel. This means an extension of the Saudi-Russian output cut pact is certain and the sharp rise in 10 year US Treasury bond yields to 1.72% as well as the PBOC’s de facto $90 billion monetary stimulus with its banking reserve ratio cut means the financial markets have discounted lower odds of global recession risk. With tighter sanctions on Iran and Venezuela, civil war in Libya and Yemen, a secessionist revolt in the Niger Delta and political unrest in Sudan and Algeria, geopolitics (and seasonality) could mean Saudi Arabia may succeed in taking Brent above $65 – $68, still well below the kingdom’s budget break-even price that the IMF calculates at $85.I have never relied on an inverted yield curve as an infalliable indicator of recession risk but it invariably presages a rally in oil and gas shares, especially as the this is the Cinderella sector of the stock market, at a mere 4.8% of the S&P 500 index’s market cap, down from 13% just a decade ago. This is a 40 year low in relative valuation between oil & gas and the S&P 500 index, which spells capitulation to me. True, black gold (and natural gas) has underperformed the index by a colossal 90% since the 2014 oil price crash and is the worst performing sector of the post 2008 decade. As usual, Mr. Market has thrown out some deep value babies with the bathwater. So I drill (forgive the awful pun) for oil in the cheapest, most unloved netherworld of Wall Street. I hunt for potential money making ideas among the Seven Sisters.

The Seven Sisters – or the Sette Surrelle as the Italian wildcatter Enrico Mattei of ENI called them before he died mysteriously in a plane crash as oilmen sometimes do – are the world’s mightiest integrated oil and gas supermajors, companies that have written the secret history of the Middle East, as the ghosts of Nuber Gulbenkian, Mohammed Mousadegh, the last Pahlavi Shah of Iran, Colonel Gaddafi and Saddam Hussein can attest. Despite four Ivy League degrees, I consider myself illiterate about the world until the moment I finally read Daniel Yergin’s magnus opus “The Prize”, the epic quest for money and power in the global oil business. The education Mr. Yergin provided me enabled me to earn hundreds of thousands of dollars drilling (or shorting) oil and gas stocks on Wall Street.

Exxon Mobil is the lineal descendant of Standard Oil, the corporate colossus created by John D. Rockefeller in the 1880’s. I concede that this is one of America’s most hated names in Big Oil and the shares have been a bow wow in 2019’s fabulous stock market rally. Yet at $70 a share, I see minimal risk in Exxon as long as there is no recession in 2020, a scenario I do not expect. Though Exxon has an estimated $16 billion negative free cash flow deficit next year, its investments will generate an elephant gusher of cash that will force the Street to rerate the shares. Exxon also intends to sell $15 billion dollars in assets in high political risk countries around the world. This is a potential low risk 15 – 18% total return payoff for me best generated via option spread strategies on XOM calls/puts listed on the Chicago Board of Option Exchange (CBOE).

Chevron is the same Standard Oil of California (Socal) whose geologist struck a gusher in a Damam salt dome in the reign of King Abdulaziz Al Saud and changed the history of the Middle East forever. At $117, I consider Chevron shares a no brainer for its 4% dividend yield and one of the best positioned portfolio of assets among US energy companies now that its Australian LNG projects have come on stream. Chevron has the best shale oil and gas assets in West Texas’s Permian Basin and can well increase output by 4% per annum even as capex at $20 billion has halved since 2014. I loved Chevron’s capital discipline in not engaging in a bidding war with Oxy for Anadarko. No wonder Oxy shares were shredded in 2019.

Brent is well below its $75 April high at $61 a barrel. So the market correction provides a great opportunity to re-enter BP shares at 512 pence in London or 6.5% dividend yield that is amply covered by its Tsunami of free cash flows at a time when it will sell $10 billion in core assets to cut its balance sheet leverage. BP’s upstream production growth will be 5% till 2023, way higher than any of its supermajor peers. BP produces 2.8 million barrels of oil equivalent (ex-Rosneft) even now and has started developing three high margin projects in the Gulf of Mexico, Egypt and Trinidad in 2019. This means a major potential valuation rerating that could take the shares well north of my 650 pence internal target.

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Meghna Agrawal

Meghna Agrawal, has 7 years of experience in corporate finance industry.  Currently she is a part of our investment banking and private equity team focused on creating long term value for our clients as a Senior Analyst.

Prior to ASAS Capital Ltd, she worked as a Finance controller in UAE’s largest airline “Emirates Airlines” and E&Y. 

She is a CFA charter holder and a qualified ACCA

Rajesh Gupta

Rajesh is a Chartered Accountant and an Executive MBA from NMIMS, Mumbai, India and have over 22 years of experience, including more than 16 years relevant experience in Investment Advisory and Portfolio Management.

Key competency areas are equity research, portfolio management, data analysis with deep understanding of business requirements in various international environments; well versed with regulatory requirements for financial services in different geographies such as India, UAE, Cayman Islands, and Mauritius.

Goneta Jakurti

Goneta, prior to her place in the Asas Team, spent over a decade at UBS in roles such as Trade Date Services, Fixed Income & Structured Products, JUNA Financial Products, Fixed Income Execution Trading and Securities, Specialist B4B Settlements & Implementation. She was furthermore the client Service Officer at Artorius Wealth, Zurich.

She holds a degree of Bachelor of Science in Business Administration from Fachhochschule Nordwestschweiz FHNW, Switzerland and speaks French, Italian, Spanish, Dutch, and Albanian.

Sana Javed

Sana Javed, has an experience of 13 years in the finance, corporate and private banking in the GCC region. Currently she is a part of our investment banking and private equity team focused on creating long term value for our clients as an Associate Director.

Prior to Asas Capital LTD, she was Finance Manager at Alghanim Industries a Kuwait based conglomerate, in Corporate banking with Citibank, MCB Bank, Mashreq Bank and Emirates NBD bank at various relationship management roles.

She holds a degree is Accounting and finance from Lahore University of Management Science in Lahore, Pakistan

Mangesh Shringarpure

Mangesh has over 25 years experience in financial services in UAE and India. He has worked for prestigious banks such as Standard Chartered Bank, BNP Paribas and Emirates NBD in Dubai. He was the Head of Priority Banking at SCB and BNP Paribas. At Emirates NBD Private Banking, he led a team of private bankers catering to the NRI segment and subsequently became Head of the Institutional Investor Group.

Mangesh has wide experience in investment products, financial advisory and wealth management. He holds a Masters in Management Studies from Mumbai University. 

 

Sanjeev Saxena

Sanjeev leads the Private Wealth Management business at Asas Capital. He has over 28 years of experience in Wealth Management, Banking, and Operations with Standard Chartered Bank and RAKBank. His most recent role was part of the Leadership Team at RAKBank. 

Sanjeev has been instrumental in launching new businesses as well as restructuring and turning around businesses. He holds a Bachelor of Engineering and a Masters in Business Administration from the University of Delhi.

Matein Khalid

Matein has 25 years of experience in international capital markets as an advisor to family offices and fund managers. He has worked for investment banks/hedge funds in New York, Chicago, London, and Geneva. In addition, he has been the CIO of a technology fund in San Francisco, a royal investment office in Dubai and a public insurance company listed on the DFM. 

Matein has four degrees in finance, economics and international relations from the Wharton School, University of Pennsylvania. He writes capital markets advisory columns for Khaleej Times, Gulf Business and Oman Economic Review and was awarded ICAEW prize for excellence in financial journalism, December 2011. He was also selected by MENA Fund magazine in MENA Power List, 50 most influential fund managers in the Middle East.

Himanshu Khandelwal

Himanshu has 15 years of experience in investment management across asset classes. He has been with Asas since its inception managing the proprietary equity investments and has executed numerous private equity transactions. Currently he heads our investment and advisory teams focused on creating long term value for our clients. 

Prior to Asas Capital, Himanshu worked as a portfolio manager in India’s largest financial services company, Kotak Securities with over USS$ 400 million assets under management. He also held analyst roles in reputable firms like CNBC and Bank of Baroda. He is a CFA charter holder and holds a Master’s degree in Business Administration from IBS Hyderabad.

Riyad Alhoraibi

Riyad has over 15 years of successful experience in Capital markets and Private Equity Investments. Prior to this, he was the CEO and Co-Founder of Sahara Global Investment, a propriety investment company based in Dubai. Riyad started his career working in the family business running for 50 years based in Jeddah, Saudi Arabia. 

The business has interests in retail, trading, real estate, and hospitality. Moving to Dubai, he made a move into investment banking starting at HSBC and then setting up Sahara Global Investment. He holds a degree in Bachelor of Economics and completed his MBA from The American University of Sharjah and is a member of Boards in a number of companies in Saudi, UAE, and the Middle East.