Bank of America Selects Ideal Energy Companies to Invest

by time news

Bank of America has included Rosneft, Gazprom and Novatek in the list of “ideal” companies for investing in the energy sector in the EEMEA region (Eastern Europe, Middle East, Africa) in 2022. According to bank analysts, “ideal” the companies are distinguished by a large and low-cost resource base, the ability to generate significant profits when oil prices decline, the potential for revenue growth and high returns for investors.

Rosneft shares have the potential to rise in value by about 40%, analysts at Bank of America calculated. This is supported by one of the world’s lowest unit costs of production ($ 2.8 / bbl), one of the largest reserves, the prospects for growth in revenue and return on invested capital due to the implementation of the Vostok Oil project. The high dividend yield (9% and 12% to the projected dividends for 2021 and 2022) is also a driver of growth in quotations, the bank noted.

The report indicates that the forecast for capitalization is given without taking into account the impact of the implementation of the Vostok Oil project, which has not yet been reflected in the price of Rosneft shares. According to the bank’s analysts, the project’s net present value (NPV) is $ 87 billion with an average oil price of $ 65 per barrel in the long term and a weighted average cost of capital (WACC) at 10%. At a price of $ 60 and the same discount rate, NPV is $ 79 billion. At the end of 2020, 10% in the Vostok Oil project was acquired by a large international trader Trafigura for 7 billion euros, and in October another 5% was bought by a consortium of companies led by trader Vitol for 3.5 billion euros.

Novatek’s share prices dropped significantly during the fall sale of assets on the Russian stock market and now they do not fully take into account the cost of the Arctic LNG-2 project. Bank of America expects the price of Novatek’s global depositary receipts to rise by about 22% during the year, to $ 275. The review states that the total cost of the Yamal LNG and Arctic LNG-2 projects is about $ 40 billion. In addition, Novatek plans to double LNG production by 2030, and also has at least three promising projects excluding “ Arctic LNG-2 “. The announcement of these projects could increase the value of Novatek’s receipts by $ 40, given a conservative valuation approach.

The price of Gazprom shares may rise in the next 12 months in dollar terms by about 50% per share amid favorable conditions on the gas market and, as a result, high dividend yield. According to the bank’s analysts, the average price of gas supplies to Europe reached $ 620 per thousand cubic meters in November. Such price dynamics will be converted into large dividends of Gazprom not only in 2021, but also in 2022. In these years, the dividend yield is expected to be at the level of 14-15%, Bank of America expects.

Bank analysts predict a recovery in oil demand to 100.5 million barrels per day by the 4th quarter of 2022, while the average price of Brent and WTI crude oil during the year will be at $ 85 and $ 82 per barrel, respectively.

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