BMO Predicts Windfall for Oil & Gas Producers Despite Rising Costs

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In a new report cited by Upstream, BMO Markets has said despite rising costs, oil and gas producers globally are expected to book new records in cash flows and offer the best return on capital employed (ROCE) in 15 years.

BMO Markets is the investment banking subsidiary of Canadian Bank of Montreal. The company offers corporate, institutional and government clients access to a range of financial services.

In the analysis of 120 oil and gas firms globally, BMO Markets stated further that stronger oil and gas prices will be the key driver of record cash flows in the industry.

It noted for instance that last year those companies generated a record $300 billion of free cash flow, compared to just $17 billion in 2020.

And cash flows are set to rise further as energy commodity prices rally.

The Canadian bank said massive cash flows are expected to boost the role of the oil and gas sector in investing in the energy transition and decarbonization.

Despite rising costs of production and cost inflation in the supply chain, the bank says that the oil and gas sector offers “compelling value for a select subset of producers with vastly improving returns profiles.

“We continue to believe that global under-investment presents substantial upside to fundamental support levels through 2025,” BMO said in its report carried by Upstream.

The oil and gas sector’s return on employed (ROCE) could hit next year the highest level since the 2008 financial crisis, with ROCE possibly topping 25% by 2023.

In another report, Deloitte said last week that oil and gas and production (E&P) firms globally could generate combined cash flows of a record $1.4 trillion this year, thanks to high prices in the ongoing readjustment in the energy markets.

discipline has resulted in the being “in one of its healthiest periods currently, with its lowest ever leverage ratio (20%) and one of its highest ever dividend yields (6%), compared to other sectors,” according to Deloitte.


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