Goldman says oil and gas investment is about to boom, and names the stocks to cash in

Published Sun, Apr 24 20228:54 PM EDT

Goldman Sachs says oil and gas investment is at a turning point, and names several buy-rated energy stocks it expects to be "winners." After analyzing hundreds of oil and gas projects, Goldman identified a number of top stocks, all of which it said have above-average cash flow increases and production uplift. "The 'winners' own material new projects that are highly profitable and will materially lift their future cash flows and production," the analysts, led by Michele Della Vigna, said in a research note on April 19. The bank said it expects "Big Oil" to continue to consolidate its leadership, with its favorites including BP , ENI , Hess , ConocoPhillips and Petrobras . Goldman is buy-rated on all of these. 'Turning point' The industry is at a "turning point," according to the bank. "Seven years of declining activity have depleted spare capacity in most parts of the industry, and the Russia-Ukraine conflict provides a renewed sense of urgency around security of supply," it stated. "Oil & gas activity has declined at a compounded 7% since 2014, and we now expect it to return to double-digit growth." Last week, energy stocks on the S & P 500 hit their highest level since 2014 , with oil prices rising sharply on the back of the war in Ukraine and some countries banning Russian oil imports. International benchmark Brent crude futures were up around 40%, year-to-date, on Friday, trading around $107 a barrel. In Europe, "BP clearly stands out this year among the super-majors and sees the largest operating cash flow uplift from Top Projects through 2023, on our estimates. We expect a record number of project start-ups/ramp-ups," Goldman's analysts wrote. The company reported a massive upswing in full-year profit when it announced results in February, due to rising commodity prices. Read more RBC bets on Exxon, says Chevron looks 'increasingly expensive' in tightening oil market It’s time to buy these e-commerce stocks after the sell-off, Morgan Stanley says These stocks look attractive in a beaten-down tech sector, analysts say ENI is among the "winners" in Europe, Goldman said. The analysts like its "giant discoveries" in Egypt, Mexico and Mozambique, as well as noting that it has the "strongest delivery improvement" in the industry. In the U.S., the bank likes Hess and ConocoPhillips. "Hess consistently leads on the growth metrics as it benefits from the giant Liza field, which has materially grown in size over the past year on the back of additional oil discoveries," the analysts wrote. The Liza field is offshore Guyana, and Hess started production there in 2019. "For ConocoPhillips, the cash flow generation from its high production growth profile is also very strong over the coming years compared to the rest of US Big Oils," the analysts stated. In terms of emerging markets, Goldman likes Brazilian company Petrobras for its exposure to the Santos basin, around 300 kilometers off the coast of Brazil, which is in growth phase. Capex boom It comes as capital expenditure in oil and gas projects is set to boom, the bank said. "The focus has shifted in recent years to energy sustainability, but the overall growth of the investments in renewables has not been sufficient to compensate for the abrupt drop in investments in the traditional energy space," Goldman's analysts wrote. "The average capex intensity of low carbon energy developments is c.2x that of hydrocarbons, further enhancing the need for energy capex." After falling 40% over the last decade, Goldman now forecasts energy capex to grow from $0.8 trillion in 2021 to $1.4 trillion in 2025 — growth of around 75%.

A trader works at the Goldman Sachs stall on the floor of the New York Stock Exchange.

Brendan McDermid | Reuters

Goldman Sachs says oil and gas investment is at a turning point, and names several buy-rated energy stocks it expects to be "winners."