Sign up UNITED KINGDOM
Proactive Investors - Run By Investors For Investors

Big Oil sector is rapidly improving, but Shell is preferred over BP - analyst

As European rivals increase dividend pay-outs, Morgan Stanley is upbeat about Shell but is less so about BP which he has downgraded
BP petrol station
BP is now rated as ‘equal weight’

Never mind the share price performances, the ‘Big Oil’ sector is rapidly seeing better cash generation and reducing debt burdens, says Morgan Stanley analyst, Martijn Rats.

In a note, he highlights that dividend increases in the sector - from Total and Statoil – represents an unexpected but important ‘inflection point’, reflecting the kind of progress seen by industry insiders.

READ: BP has shown best improvement among oil majors - analyst

“Every previous cycle has shown that, in the end, commodity prices and the industry's cost structure find a new equilibrium such that new projects can go ahead again and the majors can maintain their dividends,” the analyst said.

Nonetheless, Rats fancies rivals like Royal Dutch Shell PLC (LON:RDSB) and Total ahead of BP PLC (LON:BP) as the analyst has downgraded the London-listed oil major to ‘equal weight’ from ‘overweight’.

“We do not expect that BP will keep up with Total and, ultimately, Shell on dividend growth. It drops in our relative preference mostly because Total rises,” he added.

READ: Shell boss Van Beurden boasts of “strong financial performance”

Shell is already rated as ‘overweight’ by Morgan Stanley and it could be the next oil major to increase its dividend, according to Rats, who thinks the bigger pay-out could come “this time next year”.

“Shell benefits from similar industrial fundamentals as Total: a cost base that is reset sharply lower, a healthy pipeline of projects that add cash flow, a strong Downstream segment and a growing Chemicals business,” the analyst said.

“On top, we would argue that Shell stands out with a particularly thoughtful approach to the Energy Transition.”

Statoil is upgraded to ‘equal weight’ following its dividend hike, as Morgan Stanley sees “impressive growth” and as a result the no longer warrants the previous ‘underweight’ rating.

View full BP. profile View Profile

BP plc Timeline

Newswire
January 31 2018

Related Articles

Green energy
April 10 2018
PowerHouse Energy has been busy over the past year, establishing its demonstration plant in the UK, signing deals to develop a hydrogen bus, and even trialling its technology in Qatar ahead of the 2022 FIFA World Cup
oil and gas operations
May 21 2018
The Alaska-focussed explorer is preparing to restart the Icewine-2 well testing programme which aims to be a commercial test of the HRZ shale discovery
Oil and gas workers
April 18 2018
Tapi Aike, located in the Austral basin, was one of most hotly contested blocks when it was put out to tender

No investment advice

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable or advisable for any specific person. You further understand that none of the information providers or their affiliates will advise you personally concerning the nature, potential, advisability, value or suitability of any particular security, portfolio of securities, transaction, investment strategy, or other matter.

You understand that the Site may contain opinions from time to time with regard to securities mentioned in other products, including company related products, and that those opinions may be different from those obtained by using another product related to the Company. You understand and agree that contributors may write about securities in which they or their firms have a position, and that they may trade such securities for their own account. In cases where the position is held at the time of publication and such position is known to the Company, appropriate disclosure is made. However, you understand and agree that at the time of any transaction that you make, one or more contributors may have a position in the securities written about. You understand that price and other data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that neither such data nor such calculations are guaranteed by these sources, the Company, the information providers or any other person or entity, and may not be complete or accurate.

From time to time, reference may be made in our marketing materials to prior articles and opinions we have published. These references may be selective, may reference only a portion of an article or recommendation, and are likely not to be current. As markets change continuously, previously published information and data may not be current and should not be relied upon.

© Proactive Investors 2018

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use