ABGSC on the Oil & Oil Services sector: “The oil companies have become large cash cows”

John Olaisen is Co-head of Global Research at ABG Sundal Collier (“ABGSC”) and an expert on the oil sector. He and his colleagues recently published an in-depth report on the state of the Oil & Oil Services sector, which ABGSC clients can access here.
 
You’ve lifted your oil price forecast for 2022 and 2023 and foresee increased offshore exploration and production spending – can you tell us about your reasoning?
“Global oil and gas demand was higher than supply even before the war in Ukraine started. The potential shortfall of Russian oil and gas makes the situation even worse”, Olaisen explains. “In short, there is likely to be tight oil and gas markets for years to come. This means high oil and gas prices. Oil companies will increase their spending in order to fight depletion and to look for growth opportunities. Governments will open up new areas for exploration and development. The net result will be a great environment for the oil service companies”.
 
What will the impact on Nordic equities be?
“The oil companies have become large cash cows – that will continue. We think Vår Energi is the best way to play it. The Nordic oil service companies have been struggling for years, but will now eventually see a multi-year upturn. TGS, Subsea 7 and Magseis are our top-picks for this upturn”.
 
Are there any variables that you will be monitoring over the coming months?
“The war in Ukraine is an obvious key factor to watch. However, global GDP is also important, as it drives oil demand. Additionally, it is important to monitor the oil supply response from the Middle East”.
 
As we go into Q1 reporting season, what will you be keeping an eye out for?
“The market will focus on oil companies’ ability to grow production profitably, but also on any signs of cost inflation. For the oil service companies, it is important to look for signs of companies having bargain power, i.e. seeing higher prices, volume growth and margin expansion”.
 
ABGSC clients can access all of our latest research at https://extranet.abgsc.se/.