International oil prices continue to run at high levels, allowing related companies to make a lot of money.
On the evening of April 24, Intercontinental Oil & Gas (600759), which is mainly engaged in the oil and gas exploration and development industry, disclosed its first quarterly report for 2022, which showed that benefiting from the sharp rise in oil prices, the company’s net profit during the period increased by about 96 times year-on-year.
Oil prices soared to support performance
The first quarterly report of 2022 disclosed by Intercontinental Oil & Gas shows that during the period, the company achieved operating income of 680 million yuan, a year-on-year increase of 27.17%; net profit of 77.6996 million yuan, a year-on-year increase of 9664%; basic earnings per share of 0.03 yuan per share, a year-on-year increase of 8482% .
The 2021 annual report disclosed by the company at the same time shows that during the period, the operating income was 2.453 billion yuan, a year-on-year increase of 51.22%; the net profit loss was 943 million yuan, a year-on-year decrease of 639.62%.
Although the performance in 2021 fell to a loss year-on-year, Intercontinental Oil & Gas also admitted in the performance forecast that in 2021, when oil prices rose sharply compared with 2020 and continued to improve, the company’s main holding company, Ma Teng Oil Co., Ltd. It is estimated that the sales revenue will be about 2.383 billion yuan, an increase of about 50% compared with the same period of the previous year, and the net profit after deducting non-recurring gains and losses is expected to be about 547 million yuan, an increase of about 900% compared with the same period of the previous year.
The company’s 2021 annual consolidated statement level is expected to achieve operating income of about 2.437 billion yuan, an increase of about 50% compared with the same period last year. After deducting the aforementioned non-recurring profit and loss matters, as well as the company’s financial expenses and management expenses, the company estimates that the net profit attributable to shareholders of the listed company is 80 million to 95 million yuan, which is a profit compared with the loss after deduction of non-recurring losses in 2020.
Indeed, the performance of Intercontinental Oil & Gas in recent years has mainly benefited from the rise in international oil prices.
In 2021, crude oil has been advancing vigorously and fluctuating upwards. WTI crude oil surged from $48 at the beginning of the year to above $80 in late October, and fell back in the last two months of the year. The core logic of the rise in oil prices in 2021 is basically highly related to the evolution of the epidemic. In addition, against the macro backdrop of inflation expectations, tightening supply and economic recovery also provide impetus for oil prices to rise. In 2022, due to the impact of geopolitical conflicts, the international oil price even exceeded the US$100 mark and continued to fluctuate at a high level.
In the first half of 2021, supply tightening and demand recovery will be the main theme of rising oil prices. In the first quarter, oil prices continued to soar, mainly due to supply contraction. The Organization of the Petroleum Exporting Countries and its allies (OPEC+) have contributed to the deepening of production cuts, especially Saudi Arabia’s unexpectedly large production cuts of its own accord. In addition, the period was interspersed with the reason why the United States suffered an unprecedented snowstorm in February, the decline in shale oil production in the United States, and the continuous decline in crude oil inventories brought upward momentum to oil prices. There was a strong correction in oil prices in mid-to-late March, stemming from the re-emergence of the epidemic in Europe and concerns about the demand outlook.
In the second quarter, oil prices returned to the upward trajectory and rose in shocks. The core logic was the prospect of recovery brought about by vaccination, the control of the epidemic in Europe, and the bullish supply side such as OPEC+ cautiously increasing production. At the same time, affected by high domestic inflation, the United States began to pressure OPEC to increase production and restart negotiations on the Iranian nuclear issue. During the period, the oil price corrected, but the logic of the rise remained basically unchanged.
In the second half of the year, the outbreak of the epidemic and the energy crisis coexisted, and the oil price fluctuated higher. In July and August, there was a strong correction in oil prices, with WTI falling from $75 in early July to $62 in late August. The main reason is still the recurrence of the epidemic, the rapid increase in the number of new cases of the Delta virus, and the reduction in the scale of bond purchases by the Federal Reserve. Expectations of a slowdown in economic recovery have risen sharply. Since September, oil prices have ushered in a strong rise again, the energy crisis has broken out, and many places around the world are experiencing “energy shortages”, especially in Europe, where natural gas is in short supply, electricity prices have skyrocketed, and China has also suffered from coal shortages and power cuts for a time. The demand for oil as an alternative energy source has risen , oil prices continue to push up. Oil prices have remained above $80 for a long time. After November, oil prices have cooled down again, which is still related to the epidemic. The mutant strain Omicron was discovered and widely spread. The economic recovery is worried about restarting, and oil prices have fallen sharply, interspersed with US inflation expectations. As a result, the U.S. government, together with many countries, released strategic crude oil reserves and restarted negotiations on the Iranian nuclear issue.
Driven by a sharp recovery in oil and gas prices, global oil production will rebound moderately in 2021, rising 1.3% from 2020 to 4.423 billion tons. OPEC’s production was 1.541 billion tons, an increase of 2.3% over 2020, and its proportion in global production rose to 34.9%.
The industry pattern is expected to improve
Intercontinental Oil & Gas, formerly known as Zhenghe Co., Ltd., is mainly engaged in real estate development, leasing and trading. In 2014, the company acquired a 95% stake in Maarten Oil in Kazakhstan, and its business has also transformed from real estate to oil and gas industry.
At present, the operating blocks of Intercontinental Oil and Gas are mainly concentrated in Kazakhstan. The main production projects, Ma Teng Oilfield and Keshan Oilfield, are located in the pre-Caspian Basin of Kazakhstan. The production and sales volume of Ma Teng Oilfield and Keshan Oilfield have increased year by year through the formulation of scientific mining plans and the use of advanced mining technologies.
In 2021, the Keshan Project will produce 626,300 tons of crude oil throughout the year, and the Ma Teng Project will produce 306,000 tons of crude oil throughout the year under the guarantee of the smooth implementation of drilling, production operations, ground, monitoring and other projects.
In 2021, Intercontinental Oil & Gas will continue to manage its commercial properties, and the company’s Liuzhou Gubu Street International Mall and Beijing Fangzhuang Property will achieve rental income of 51.9289 million yuan.
Regarding the prospect of the oil and gas industry, Intercontinental Oil and Gas is expected to be positive. The company said that the overall trend of the epidemic may improve in 2022, which will have a positive impact on oil prices. Although the mutant strains Delta and Omicron will still play a role, vaccination and herd immunity will continue to weaken the impact of the epidemic. The probability is still in the recovery channel.
Analysts believe that since 2021, U.S. inflation will continue to rise. Inflation will lower the US dollar index, which will continue to push up the valuation of oil prices. Although the Fed’s monetary policy has turned to be tightened, it has reduced the scale of bond purchases and is expected to start raising interest rates in 2022. However, based on the consideration of employment-related economic data, the intensity and frequency of interest rate hikes may be limited. Therefore, it is expected that U.S. inflation may remain high in the first half of 2022, which will continue to be good for oil prices; the earliest in the second half of the year, inflation may increase. Fall back, lower inflation will stabilize oil prices.
Global crude oil supply will continue to grow in 2022, approaching pre-pandemic levels. OPEC+ and U.S. shale oil, led by Saudi Arabia and Russia, may re-enter the game. In 2021, OPEC+’s relatively cautious production control policy may continue, and the pursuit of high oil prices by oil-producing countries will still limit crude oil supply to a certain extent. However, the United States tends to suppress oil prices due to domestic inflation, and the main growth point in the future will be American shale oil. At present, there is still a certain gap from the pre-pandemic supply of about 13 million barrels per day, and it is expected that after the second half of 2022, U.S. crude oil production may approach this level.
In addition, Iranian crude oil is still an uncertain factor for future supply. At present, the US-Iran nuclear negotiation continues to advance, but the possibility of reaching an agreement in the short term is low. Even if the talks reach an agreement, the return of Iranian crude to the international market could not be until the second half of the year at the earliest. Therefore, it is expected that the supply of crude oil will remain tight in the first half of the year, and oil prices may still be on the rise. In the second half of the year, with the continued growth of U.S. shale oil production and the possibility of Iranian oil returning to the oil market, it will put pressure on oil prices.
In the post-epidemic era, the global economy will continue to recover, and oil demand will further increase. However, with the emergence of the Omikron variant virus, the more optimistic forecasts will be lowered, and inflation will be high. The rising risk of stagflation will curb consumption, but The overall trend is still positive, which will continue to be good for oil prices, and natural gas will still maintain the status quo of high prices and shortages.