High oil and gas prices will generate levels of cash flows for the biggest oil and gas companies in Europe, which will also be able to reduce debts and increase shareholder returns, Morgan Stanley says.
The five biggest European oil majors could generate a combined $66 billion in free cash flows in 2022, according to a note from the analysts, cited by Sharecast News.
“With compelling valuations, and rising bond yields driving value rotation, we reiterate our 'Attractive' stance,” Morgan Stanley’s analysts wrote in the note.
The bank’s top picks are Royal Dutch Shell and Italy’s Eni among the biggest firms, as well as Spain’s Repsol among the mid-cap companies.
Morgan Stanley also raised its share price targets of all European majors on their respective domestic stock exchanges.
All European oil and gas firms – BP, Eni, Repsol, Shell, TotalEnergies, and Equinor – have pledged over the past 18 months to become net-zero energy businesses. Shell, BP, and Eni have put timelines on their respective peak oil production. Shell said earlier this year that its oil production peaked in 2019, while BP looks to cut its oil and gas production by 40 percent by 2030 through active portfolio management and no exploration in new countries.
Despite these pledges, it will be oil and gas that will be the “cash engine” for supermajors for years to come.
“As a matter of fact, we see our upstream portfolio as an essential cash engine, not just for this decade but well into the next decade,” Shell’s CEO Ben Van Beurden said on an earnings call in February 2021.
Ahead of the second-quarter results, Shell, for example, said in early July that “strong cash generation supports additional shareholder distributions in the second half of 2021.”
Shell raised its dividend and started share buybacks after a strong Q2 performance.
By Tsvetana Paraskova for Oilprice.com
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