The rising Quadrise Fuels (QFI) share price

Quadrise operates within the oil industry but offers a relatively unique product. Using its proprietary Multiphase Superfine Atomised Residue (MSAR) technology, the company produces a synthetic heavy fuel oil (HFO).

Why’s this so exciting? HFO first became popular in the 1960s and is used predominantly to power large cargo ships. Today, approximately 60% of all ocean-bound vessels use it as a fuel source due to its low cost-to-energy ratio. The problem is HFO produces significant greenhouse gas emissions. And it’s also highly toxic when mixed with water or exposed to sunlight.

With the world shifting towards carbon neutrality, maritime regulators are trying to reduce the reliance on the material. And that’s where Quadrise steps in.

It combines HFO residue with water using its MSAR technology to create a non-toxic alternative fuel for cargo ships that is just as effective. What’s more, the substance is significantly cheaper, and it weighs less, thus reducing storage and handling costs. But, most importantly, carbon dioxide and the more harmful nitrogen oxide emissions are reduced by up to 30%.

Quadrise’s alternative fuel came onto the market in December last year. And in February, after some initial testing, the material was proven as a viable and more efficient fuel source for diesel cargo-ship engines. So I’m not surprised the QFI share price has been surging.

The risks ahead

Despite making tremendous progress, the company still has a long trip ahead. Quadrise does have some minor sources of income from its various projects worldwide. However, these aren’t currently sufficient to sustain the business, especially since Covid-19 has proven to be such a disruptive force.

As a result, the firm is currently unprofitable and is thus dependent on external financing to keep the lights on. In fact, it recently completed a share placement and open offer that successfully raised around £7m. This should be sufficient to see it through until July 2022. But I think it’s likely it’ll need to raise additional capital again in the future.

Naturally, an unprofitable, semi-pre-revenue business adds a considerable level of risk for investors. But supposing it can successfully penetrate the market and achieve its goals, I believe the QFI share price could continue to surge even higher.

The bottom line

Quadrise’s technology sounds incredibly promising to me. And given the rapidly climbing QFI share price, investors seem to agree. Having said that, there are still quite a few unknowns which makes me believe it might be too early to invest in at this stage. For now, I’m waiting to see how it progresses with its projects throughout 2021.

The post Is the Quadrise Fuels (QFI) share price about to explode? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Zaven Boyrazian does not own shares in Quadrise Fuels International. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Elsewhere, the company has reached an agreement to export gas from its Tuna field in Indonesia to Vietnam and continues to engage with Mexico’s Pemex with regard to its discovery at the Zama prospect, with a “likely 4 well appraisal programme” due to start late next year. A Head of Terms agreement has also been signed for an FPSO lease extension on the firm’s Huntington oil field in the North Sea, extending the life of the latter.

Having said this, the most important details of today’s statement arguably related to the progress Premier is making at getting its finances in order. 

Positively, operating costs of c$16/bbl remained in line with previous guidance and below budget. Premier is also continuing to slash its development, exploration and abandonment expenditure. At between $300m-£310m, this is now expected to be as much as $25m lower than that previously estimated in July, making today the third time in 2017 that the company has revised this figure. Aside from this, the $200m disposal of the Wytch Farm field is “ongoing” with more news expected to be issued to shareholders “imminently“.

While remaining a high-risk investment, things appear to be slowly turning around at Premier. Whether prospective investors will regard today’s price as a suitable entry point really depends on how much faith they have in Chief Executive Tony Durrant and his belief that recent progress and a more favourable oil price will help to “accelerate debt reduction” over the next year. With $2.8bn of debt still on its balance sheet, that can’t come soon enough.

Volatility ahead?

A few weeks ago, holders of £78m cap exploration firm Empyrean Energy (LSE: EME) could be forgiven for feeling rather smug. The shares soared to almost 28p in September on the back of encouraging updates relating to the company’s Dempsey 1-15 gas well in the Sacramento Basin in California. Given that the very same shares changed hands for just 1p each 12 months earlier, that is a quite incredible return for those who got in early.

Since then, they have come off the boil somewhat. In addition to a likely spate of profit-taking, the price fell heavily on Tuesday following a disappointing statement from the company.

Despite announcing that flow-testing and completion of the well was “continuing as planned“, it was revealed that the natural gas found at the lowest zone was flowing at “sub-commercial” rates based on current market prices. Seeking to reassure its owners, Empyrean stated that the analysis of the zone and its potential remained “at an early stage” with CEO Tom Kelly adding that the company remained “optimistic” on the well’s potential based on the “significant gas shows” found while drilling. 

With the company now preparing to target the next shallower zone, I can see further volatility ahead. As such, I remain wary of the shares at the current time.

The post Time to get greedy with Premier Oil plc and Empyrean Energy plc? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

A return to modest profit

Lower oil prices and challenges relating to a big loss-making contract have affected the company’s business over the last of couple years. But February’s full-year results for 2016  revealed that revenue was up 15% and there was a return to a positive net profit of $1m, compared with a loss of $617m during 2015.

In an indication of how cash continues to flow into Petrofac’s coffers, net debt plunged 10%, which can only be a good sign, in my opinion. The directors showed their cautious optimism by maintaining the dividend at 2015’s level and said that the payout is “well covered” by free cash flow.

The statement outlined Petrofac’s plan for recovery, which is to focus on core strengths and reduce capital intensity. By focusing on costs and generating cash from operations, the directors believe Petrofac can maintain a strong balance sheet, and the news that debt is reducing lends weight to assertions that the recovery plan is working.

Chief executive Ayman Asfari reckons that the firm’s markets are competitive, but bidding activity has increased in recent months. He says Petrofac has a decent pipeline of opportunities across its core markets and has enjoyed recent success tendering for contracts. The firm’s backlog of work commitments, he says, provides “excellent” revenue visibility for 2017.

The elephant in the room

Petrofac’s business seems to have stabilised and, in my view, looks poised to recover and gain more ground operationally from here on, even if the price of oil stays where it is. Today’s slimmed down Petrofac looks fit for the current operational environment. The oil industry can’t put off maintenance and development work forever and that’s why Petrofac is seeing a stream of new contracts coming through now.

The elephant in the room is the possibility that the price of oil could plunge to half its value again and stay there, pulling the rug from under the entire industry and rendering many operations economically unviable. If that happens, Petrofac will see its workload plummet, along with its profits and its share price. However, reading the tea leaves, I think that outcome seems unlikely and it’s just a risk we must take to hold shares in Petrofac today.

A valuation anomaly?

Perhaps the fear of a future plunge in the price of oil keeps Petrofac’s valuation modest. Today’s 915p share price puts the firm on a forward price-to-earnings ratio around 10 for 2018 and the forward dividend yield runs near 5.9%. City analysts following the firm expect earnings to cover the payout just over 1.7 times.

This valuation compares well to the median forecast of all stocks on the London stock market that have estimates, which shows an average P/E ratio of 14.1 or so, and an average dividend yield of around 3.2%.

Assuming investor confidence grows that the oil price will not plunge, and that Petrofac can continue its operational progress, I reckon the firm’s valuation could re-rate closer to this median forecast level, perhaps before the end of 2017, suggesting around 40% upside potential for the share price on top of gains due to potentially higher profits.

The post Why Petrofac Limited could trade 40% higher by 2018 appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Kevin Godbold owns shares in Petrofac. The Motley Fool UK owns shares of and has recommended Petrofac. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Shares of Ophir Energy (LSE: OPHR) have jumped 15% in early trading after the company announced it has partnered with global energy giants Golar Energy and Schlumberger to develop the large Fortuna liquefied natural gas (LNG) field off the coast of Equatorial Guinea.

It’s good to have friends in high places

Shares have rocketed on this news for several reasons. For one, partnering with the likes of Golar and Schlumberger brings considerable advantages. Schlumberger, one of the world’s largest oil field services providers, brings decades of experience in developing oil and gas assets. Golar brings to the table the knowledge and ability necessary to liquefy, store and transport the LNG.

Furthermore, partnering with these two substantially lessens the financial risks to Ophir and its shareholders. The company estimates that from the final investment decision in H1 2017 to first gas in 2020 the project will require $2bn, of which $1.2bn will be debt financed. The agreement also stipulates that Ophir’s committed expenditure to first gas won’t exceed $150m. This means Ophir, which had over $200m of net cash on its balance sheet at the end of June, will most likely avoid tapping shareholders for additional funding.

In exchange for diversifying its downside Ophir did have to sacrifice some of the upside potential of Fortuna in the form of taking only a 33% stake in the joint venture. However, if this is necessary to reach first gas without dangerously over-leveraging the balance sheet then I would view it as a positive for current shareholders.

Show me the money

Of course, it’s also necessary to touch on the economics of the Fortuna project and LNG in general. In the short term the same factors that have dragged down oil prices have also led to LNG prices falling dramatically. European Union spot LNG prices are down from around $11/mmbtu pre-2014 to $4.29/mmbtu currently.

The good news is that falling oil and gas prices have also significantly decreased the cost of construction and servicing of new developments. Ophir now believes that offtake agreements at $6/mmbtu will net the joint venture some $560m in cash flow per annum. This would mean a little under $200m per year would find its way to Ophir before debt servicing.

Ophir’s conservative approach to funding leads me to believe that the company will attempt to sign enough offtake agreements to break even and cover debt financing. Whatever production is left over can be sold at spot prices, allowing Ophir to benefit from any upwards movement in LNG prices.

Indeed, in my opinion LNG prices are likely to move upward in the coming decades. This is primarily due to increasing global consumption of cleaner burning fossil fuels such as natural gas.

Today’s update represents a major step forward for Ophir. Bringing on board top notch partners, limiting the downside risks of Fortuna and clarifying the financial outlook of the project should all be cheered by investors. It’s still a long way to go before first gas but investors looking for a conservative approach to benefitting from the long-term potential of LNG would do well to take a closer look at Ophir.

The post Ophir Energy plc shares jump 15% on positive funding update appeared first on The Twelfth Magpie.

More reading

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• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Ian Pierce has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

But it has been hit hard by falling commodity prices, as both the value of oil and gas have tumbled over the past year.

Shell was hugely profitable

Currently Shell pays out a 6.1% dividend yield. That’s a high income, and it gives the company strong appeal to dividend investors. The question is, how sustainable is that yield?

Well, let’s dig a little deeper. The reason Shell has such a high dividend is that it has been an immensely profitable company. In 2013 it made £10.6bn in net profit. And it pays out much of these earnings as dividends.

What’s more, because the share price has been falling, the level of the income payment relative to the share price has been amplified, meaning that the firm has one of the higher yields in the FTSE 100. But before you rush to buy into Royal Dutch Shell, let’s take a step back.

While the current dividend is dependent on past profits, future payments are dependent on how much money the company will make in years to come. And the game has been changed completely by the collapse in the oil price.

In 2013 turnover was an astonishing £289bn. In 2015 that had nearly halved to £172bn. And the impact on profitability is even more stark. 2013’s net profit of £10.6bn has turned to a profit of just £1.4bn in 2015.

Tumbling oil prices mean falling profits, and dividends

What really determines the share price is the earnings per share, and they’ve gone from 167p in 2013 to just 19p in 2015. So profitability has been sliding rapidly, and that’s why the share price has been trending downwards.

That in turn means the 6.1% yield is a red herring. It’s high at the moment, but isn’t at all sustainable, and it’s pretty much inevitable that it will be cut. That’s why we need to warn investors that a surprisingly high yield is often not a good thing.

Other instances of this happening include Aviva at the time of the Eurozone crisis, when profits turned to losses, and there was the appeal of a high income, but this was soon cut; and AstraZeneca at the time of a series of key patent expiries.

What’s more, I think the low oil price isn’t something temporary, but a long-term trend that could last over a decade. So I believe profitability will remain low and won’t rebound, the dividend is likely to be reduced, and then stay low.

That means I would advise readers not to buy into Shell as an income investment, despite the current yield. You’re likely to see not only the dividend fall, but also the share price.

The post How sustainable is Royal Dutch Shell plc’s 6% yield? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Prabhat Sakya has no position in any shares mentioned. The Motley Fool UK has recommended Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

That’s partly due to the Brexit effect and the resulting fall in the pound — oil is sold in dollars, and that’s going to make a pound-denominated share price look cheaper. And the post-referendum flight to safety has sent a fair bit of investors’ cash in the direction of these shares too.

Disappointing results

But if falling oil isn’t enough bad news, today Royal Dutch Shell revealed a worse-than-expected Q2 with a 72% fall in adjusted earnings on a current cost of supplies (CCS) basis, to $1.045bn. Analysts were predicting around twice that figure. For the half, CCS earnings are down 65%.

Some of the fall was blamed on depreciation charges stemming from Shell’s £35bn takeover of BG Group in February, but falling oil prices and weakening downstream conditions played big parts — although BG’s production did add to earnings too.

Oil and gas production in Q2, following the BG acquisition, reached 3.5m barrels of oil equivalent per day for an increase of 28% on the same period last year. BG contributed 768,000 barrels per day.

Cash flow came in disappointingly low, at just $2.29bn (down from $6.05bn in 2015’s Q2) . That’s not even enough to cover the $3.7bn paid out in dividends, although $1.2bn of that was in scrip. First-half cash flow dropped from $13.16bn to $2.95bn.

Dividends maintained

Shell announced a Q2 dividend of 47 cents per share, at the same level as the first quarter, which supports hopes that the full-year dividend will be maintained — though at a predicted yield of 6.5%, it will be worth less in sterling now that the pound has taken a Brexit hit.

With BP having reported an unexpectedly weak second quarter earlier in the week, what does all this say for investors?

Chief executive Ben van Beurden said that Shell is managing the down-cycle “by reducing costs, by delivering on lower and more predictable investment levels, executing our asset sales plans and starting up profitable new projects.” And the company reiterated its cost-cutting targets, reducing planned capital investment to $29bn for the full year.

The long-term future is entirely tied to the price of oil, and though the price of a barrel has now slipped significantly from that magic $50 level, that has to be a short-to-medium term problem only. The question is surely when, not if, oil will recover to those long-awaited $60-$75 levels. Longer than expected, perhaps?

Share price falling

Shell shares fell 86p (4%) in the first hour of trading, to 2,020p, reducing the gain since the end of May to 18%, but that’s still nothing to be sniffed at. And a 6.5% dividend yield should keep investors ticking over nicely as they wait for oil prices to creep up again — providing the payout is maintained.

Meanwhile, Mr van Beurden told us: “Our investment plans and portfolio actions are focused firmly on reshaping Shell into a world-class investment case through stronger, sustained and growing free cash flow per share.“

The post Is Royal Dutch Shell plc still a buy after today’s results? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended BP and Royal Dutch Shell. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Investing now could be a good idea. A lower oil price reduces some of the downside risk from fluctuating commodity prices. As long as the firms we select are strong financially and capable of weathering any ongoing weakness in the oil price that could develop.

I’m looking at oil major BP (LSE: BP), mid-cap producer and explorer Soco International (LSE: SIA) and small-cap gas producer and exploration company Aminex (LSE: AEX).

Bearing down on costs

With last Wednesday’s first-quarter results, BP revealed an underlying  replacement cost profit of $532m, which is up from the previous quarter’s $196m, but well down on the $2.6bn the firm earned in the first quarter of 2015. Given that the average price of a barrel of oil came in at $34 during the period, that’s not a bad result, showing that BP is holding its own.

The firm is bearing down on costs to get itself through the current soft patch in the oil price, saying that lower costs more than offset the impact of significantly weaker oil and gas prices and refining margins. Despite such challenges, the firm reckons its next wave of upstream projects is “well on track,” which offers potential for future upside from operations.

BP thinks that market fundamentals, such as robust demand and weak supply growth, will move global oil markets further up by the end of 2016, suggesting potential for investor returns due to a rising oil price. The company underlines its confidence by standing fast behind its dividend. At today’s share price around 382p, the forward dividend yield sits at about 7% for 2017.

BP’s financial gearing runs at around 24% and the firm reckons it has further flexibility to move costs down if need be. BP looks financially sound to me and as such makes a reasonable candidate to play the upside potential of the price of oil.

Potential on several fronts

In many ways, mid-cap Soco International is even better placed than BP to weather the current storm in the oil market. Soco has a cash pile of around $100m, zero debt and well-established oil production from its assets in Vietnam.

The firm has a decent track record of returning cash to shareholders, which it did shrewdly when oil prices were high rather than squandering the cash on over-priced acquisitions. City analysts believe the firm could yield a dividend as high as 4% during 2016, combining ordinary and special payouts. And the firm is in a good position to invest in any decent but distressed assets that might come along now that the oil price is low.

On top of that, Soco continues its organic development-drilling program, so upside for investors could arrive on several fronts.

Not directly exposed to the oil price

Small-cap Aminex is the odd one out here because it’s about to start production of gas rather than oil. The price of the gas Aminex will sell is subject to a pre-negotiated local price in Tanzania, home of the firm’s soon-to-be producing asset. As such, the fluctuating price of oil doesn’t directly affect the firm, but I think sentiment in the oil and gas sector is so low that it dragged down the firm’s shares with the oilers.  

Aminex looks set to benefit from much-needed cash flow as imminent production ramps up. However, the company may need to raise further funds to progress its ongoing drilling operations. Nevertheless, at current levels the firm has plenty of upside potential.

The post Can BP plc, Soco International plc and Aminex plc make you rich? appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Just how bad could it get for the BP share price?
• BP shares are falling. But is the oil market actually tighter than investors think?
• How much is needed in a Stocks and Shares ISA for £357 of weekly passive income?
• Oil prices are falling. So why am I still bullish on BP shares?

Kevin Godbold owns shares in Soco International and Aminex. The Motley Fool UK has recommended BP. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Since striking five-and-a-half-year troughs of 310.25p per share back in February, BP has seen its stock value appreciate 15% as Brent crude has reclaimed the $40 per barrel marker.

Not only do I believe that this bullish buying behaviour is unwarranted, but I reckon BP should actually be dealing at just one-third of its current share price.

Risky AND costly

This statement may appear a step too far at first glance. But hear me out.

Conventional thinking suggests that stocks with high-risk profiles like BP should be dealing on a P/E rating of just 10 times or below.

And even though City consensus suggests the oil colossus will swing from losses of 35.39 US cents per share last year to earnings of 17 cents in 2016, this still results in an elevated earnings multiple of 28.7 times.

A share price rerating to bring it in line with the benchmark of 10 times would leave the business dealing at just 120p per share, representing a 66% reduction from current levels around 355p.

Pumpers keep on pumping

So great are the hurdles facing BP and its earnings outlook that a reading around this figure is only fair value, in my opinion.

Brent values began their ascent in February on hopes that a touted supply ‘freeze’ between OPEC members Saudi Arabia, Qatar, Venezuela and non-group member Russia would lead to a much-needed production cut.

The reception by other OPEC producers has been less than encouraging, however. Iran and Libya have already poured scorn on the idea, with the former pledging to return pumping to pre-sanction levels in the months ahead.

And as US production also heads steadily higher, a rapid improvement in oil consumption is needed to gobble up ample global inventories.

But a deteriorating Chinese economy means that global demand looks set to worsen, not improve — indeed, China’s imports of the black stuff sank to three-month lows of 26.69m tonnes in January.

Long-term concerns

Of course investment decisions should be based on a long-term time horizon, and many stock pickers will be looking past BP’s earnings outlook for this year and possibly 2017.

Still, the oil giant’s earnings outlook for the coming years can’t be considered anything worth writing home about either.

Even once commodity prices recover, a stream of huge asset sales and capex reductions is likely to significantly hamper BP’s ability to reap the rewards. Furthermore, schemes to reduce carbon emissions across the globe create a further problem for BP’s long-term revenues picture.

Look to Lonmin

Anyone scoffing at my bearish call on BP’s share price should take heed from platinum giant Lonmin’s (LSE: LMI) collapse of recent years.

The company was dealing around £17.80 per share just five years ago, but a combination of sinking metal prices and vast operational costs has left the business clinging to life. Lonmin was recently dealing at just 127p per share, a couple of rights issues in recent times helping to keep the wolves from the door, at least for the time being.

Given the precarious state of BP’s earnings outlook, I believe that shares in the oil colossus are also in danger of entering freefall, and that risk-intolerant investors should steer well clear of the stock.

The post Could BP plc REALLY Topple Back To 120p? appeared first on The Twelfth Magpie.

More reading

• Back below 500p, is it time to consider BP shares again?
• Just how bad could it get for the BP share price?
• BP shares are falling. But is the oil market actually tighter than investors think?
• How much is needed in a Stocks and Shares ISA for £357 of weekly passive income?
• Oil prices are falling. So why am I still bullish on BP shares?

Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

The fossil fuel giant has seen its share price explode 30% in the past two months, moving in lockstep with the Brent benchmark’s surge back above the $40 per barrel milestone.

But with data surrounding the oil sector still worsening, I see little reason for crude’s recent march higher, leaving Shell’s share price in danger of a massive reversal.

Supplies surging

Stockpile data from the US disappointed yet again this week, a 9.4m barrel build in the latest period exceeding forecasts and taking total levels to a fresh record of 532.5m barrels.

The world is still desperately awaiting a co-ordinated production cut from OPEC, Russia and the US. But the pumpers can’t even agree to an output freeze, let alone a much-needed reduction to ease the pressure on bloated inventories.

And with China’s economy locked in a hair-raising tailspin, there’s clearly little prospect of this excess material evaporating any time soon.

Fragile forecasts

The City expects this backcloth to keep earnings under pressure at Shell, not surprisingly. A 34% decline is currently pencilled-in for 2016, leaving the company trading on an extremely-high P/E rating of 22.8 times.

Still, the number crunchers expect the oil leviathan to rebound with a 79% bottom-line bounce next year, driving the earnings multiple to just 12.8 times.

While this is a very decent value on paper, I believe stock pickers should resist the temptation of piling into the business. Until supply/demand indicators start to pick up, I believe predictions of a near-term bounceback at Shell are built on sand foundations.

Long-term worries

Indeed, I reckon there’s a real danger that Shell will end up becoming a mere shadow of its former self, and fail to deliver the stonking returns of previous times.

Firstly the company continues to hive off assets at a hair-raising rate. Shell announced in March it was raising its 2016 divestment target to $30bn in a desperate bid to mend its battered balance sheet, up $10bn from its previous goal made a few months earlier.

On top of this, Shell is still rapidly scaling back its capex budgets, a strategy that has seen major projects from drilling in Alaska to development of the Carmon Creek oil sands asset in Canada fall by the wayside.

Many will point to Shell’s acquisition of BG Group as a potential growth driver moving forwards. But the chronic oversupply washing over the liquified natural gas (or LNG) market is expected to remain well into the next decade at least, casting doubts over the economic viability of the tie-up. Indeed, Woodside Petroleum put plans to develop its Browse LNG project in Australia on ice just this week.

And with global lawmakers increasingly shunning fossil fuels in favour of clean energy like solar and wind, Shell is in severe peril of being left out in the cold.

The post Is It Finally Time To Give Up On Royal Dutch Shell Plc? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Game over?

Another financial update, another opportunity for video game emporium Game Digital (LSE: GMD) to disappoint the market.

The retailer was recently dealing 11% lower on Wednesday after advising that revenues slipped 6.3% during August-September, a result that prompted pre-tax profits to collapse 32.2% to £22.5m. As a consequence Game Digital slashed the interim dividend by more than three-quarters, to 1.67p per share.

Game Digital has seen its share value slump 45% since the time of December’s profit warning, and it’s difficult to see the company recovering any time soon as it battles fierce competition and the structural decline in console demand.

The City expects Game Digital to record a 52% earnings decline in the year to July 2017, resulting in a P/E rating of 14.7 times. I reckon this is far too high given the firm’s high risk profile, while I expect fresh earnings downgrades to materialise in the near future.

Sales slumping

Like Game Digital, I believe oil services provider Lamprell (LSE: LAM) is also a poor choice for shrewd investors, because of to its equally perilous revenues outlook.

The rig-builder advised on Wednesday that “challenging market environment [are] expected to affect the industry throughout 2016,” adding that revenues are expected to slip 5% from current levels. The market responded by sending shares in the business 4% lower from Tuesday’s close.

Lamprell saw the top-line erode by a fifth in 2015, it noted, a result that sent post-tax profit hurtling 29% lower to £67m.

Much has been made of Brent crude’s 50% rise from January’s multi-year troughs below $28 per barrel. But with Chinese economic cooling intensifying, and the market still desperately awaiting co-ordinated output cuts, I believe a swift reversal is more than possible.

The City expects Lamprell to chalk up a 14% bottom-line slide in 2016, resulting in a P/E rating of 9 times. Sure, this figure is attractive on paper, but I believe the strong possibility of further colossal capex cuts across the oil industry still makes Lamprell a risk too far.

Commodities concern

A poor outlook for commodities markets also makes Anglo American (LSE: AAL) an unattractive share bet, in my opinion.

A bouncing iron ore price — by some distance Anglo American’s most important market — has helped the diversified miner surge back above the 550p marker this month from January’s troughs around 220p per share.

But a 3% stock price decline in Wednesday trading underlines the fear creeping back into the commodities sector, and I reckon shares in Anglo American have much further to fall as supply/demand balances worsen across key markets.

The number crunchers expect Anglo American to suffer a fifth straight earnings decline in 2016, a projected 51% fall leaving the business dealing on a massive P/E rating of 31 times. This is far too high given the company’s massive risk profile, and I expect a heavy retracement to set in sooner rather than later.

The post Should You Dive Into Anglo American plc, Game Digital PLC & Lamprell Plc Today? appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.