The world may be trying to wean itself off fossil fuels, but that doesn’t mean that the shares of big oil and gas companies are necessarily bad investments.
While global oil production is only expected to grow slowly in the coming years, the continued rise in the world’s population – and its need for energy – underpins demand.
Shares in the world’s biggest oil producers, particularly those listed in Europe, meanwhile trade at exceptionally low valuations. That’s not been lost on top-performing “value” fund managers, who seek to buy shares when they are cheap and out of favour.
Europe’s big three oil and gas giants – BP, Shell and TotalEnergies – each boast strong backing from some of the top-performing 3pc of equity fund managers tracked by the financial publisher Citywire.
That results in their AAA ratings from Citywire Elite Companies, which rates companies on the basis of their backing by the world’s best fund managers.
These value-focused investors believe the oil giants’ strong cash flows, and the big dividend payouts and share buybacks that they fund, have been undervalued by the stock market.
But the investment case for these companies is about more than just squeezing out more and more cash from a slow-growing industry. Each of them is having to change the way they do business. While still drilling for oil, they are increasing their focus on liquefied natural gas (LNG) and renewable energy, alongside technologies such as battery storage.
One of the best companies to exploit this theme is France’s Total Energies, which has set out its strategy to grow its LNG business and become a major player in developed and unregulated electricity markets.
LNG has come to the fore as a crucial source of reliable energy following Russia’s invasion of Ukraine. By freezing gas and turning it into a liquid it can be carried in large tankers to anywhere in the world, where it is warmed up again and turned back into gas.
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