Energean Oil and Gas (LSE:ENOG) is an oil company doing its best to succeed in a volatile space. But I think it’s one to watch as CEO Mathios Rigas has pledged it will become a net-zero emissions exploration and production (E&P) company by 2050.
So let’s look at the details of the share price. It has a market capitalisation of £1.6bn, a price-to-earnings ratio of less than 15 and earnings per share of 61.5p. Its share price rose steadily from £6.35 in December 2018, peaking at £10.92 in August and has declined to around £9.10 today. So if you’d bought shares in Energean a year ago, they’d have gained around 43% today. The share price has actually doubled since listing on the London Stock Exchange in early 2018. outperforming FTSE 250 industry peers such as Tullow Oil, Cairn Energy and Premier Oil during this time.
Global gas prices fell by an average of 2.4% during the third quarter of 2019, which contributed to that share price decline from August to December. A glut of cheap gas available from Russia and the US has also kept prices subdued and the price of oil has been suppressed by the ongoing US-China trade war.
Wheeling and dealing
In July Energean bought Italian Oil Company Edison for £600m. This deal included a 25% stake in the Glengorm North Sea project. In October, it then sold its stake in Glengorm, along with gas development stakes in the Norwegian North Sea, to Neptune Energy for £200m.
But where do its green ambitions come in? It has pledged to meet the sustainability agenda and hit net-zero carbon emissions by 2050 by committing to and supporting the UN’s ‘Business Ambition for 1.5°C: Our Only Future’ campaign. While such a pledge is an excellent PR move, Energean wants to lead on the ESG (Environmental, Social, and Governance) front. This could be a relatively easy promise for it to pull off compared with many of its Oil & Gas contemporaries. Mainly based in the Mediterranean, since selling its North Sea stake, it’s now close to becoming an 80% gas company with most of its gas fields focused on offshore Israel. With a concentration on gas production, it forecasts it will be able to successfully reduce emissions within the specified timeframe.
Environmental transition
One reason companies are against a rapid change from fossil fuels to renewable energy is that it can’t be transitioned quickly enough to replace electricity production. Renewable energy options are not yet comparable with existing electricity creation. A compromise is to allow gas plants to step in as a less damaging alternative to coal. However, natural gas is mostly composed of methane, so if it leaks into the atmosphere, its benefits over coal are negligible. How quickly the world can transition to renewables, while keeping up with the increasing demand for energy is the million-dollar question.
Energean has good fundamentals, has strategically positioned itself as a major player in gas production and, with its ESG focus, I think it will continue to do well in 2020. It also has commercial interests in Montenegro, Italy, Croatia, Greece, Egypt and Algeria.
Exploration in the Eastern Mediterranean is a challenge, with political risks, warring religious factions and country rivalries to face. As far as Oil & Gas investments go, I think it has potential, but its location makes it a risky investment, particularly with no dividend to compensate.
