PA ANALYSIS: Is now the time to go overweight oil majors?

Added 2nd May 2017

The first quarter has proved lucrative for the gargantuan oil companies of Exxon, Chevron and BP. But are their fortunes purely macro-driven or are there other reasons for investors to reconsider the sector?

“And this $40 to $60 window relies on the idea that OPEC maintains some degree of volume control,” he qualified.

One sore spot that is gaining less attention but should give investors pause is the high level of debt in the oil & gas sector.

In BP’s own Q1 2017 update, the firm reported net debt had grown to $38.6bn from $30bn a year ago.

“Every player in the sector from Tullow through to Chevron are still leveraged for a world when oil was $80 per barrel.

“And with a relatively high and growing level of debt, in a lot of instances, these companies are effectively eating themselves to keep their dividends growing,” he explained.

EdenTree Investment Management’s Ketan Patel is also concerned about the high levels of leverage reported by the oil giants.

He said: “Both [UK] oil behemoths are under siege, with BP reporting its highest level of leverage in at least a decade. It is also still working through payments for the 2010 spill in the Gulf of Mexico. Shell is due to report later this week and investors will be keen to understand how the company is managing its debt pile post the acquisition of BG Group.

“The oil price will be a headline that may divert from the real underlying issue of leverage, which will no doubt hamper the ability of both companies to continue delivering dividends for UK income investors.”

Sponsors

Portfolio Adviser: Guide to Europe

Portfolio Adviser: Guide to Europe

After a politically turbulent time in 2016, Europe has been under scrutiny with several nations going to the polls.The question asked, would investors be right to...

Kames Income Hub

home_research_centre

Vincent McEntegart, manager of the Kames Diversified Monthly Income Fund, explains how he aims to deliver a stable and sustainable income of 5% p.a.*, paid monthly, by investing in a range of asset classes

Square Mile Research

AXA Distribution Fund
AXA Distribution Fund

Talking Factsheets is a video service for users...

Visitor's Comments Add your comment

Add Your Comment

We won't publish your address

Profiles

Viewpoint

Investment Strategy

Feature

Tweets

Events

PA Income 2017
PA Income 2017

Tuesday 4 July
Radisson Blu Edwardian Bloomsbury Street Hotel 

PA Edinburgh 2017
PA Edinburgh 2017

Thursday 7 September
Balmoral Hotel

PA Alternatives 2017
PA Alternatives 2017

Tuesday 12 September
Radisson Blu Edwardian Bloomsbury Street Hotel

PA Dublin October 2017
PA Dublin October 2017

Tuesday 10 October
Westbury Hotel, Dublin

Sponsored Content

OTHER STORIES FROM LAST WORD...