The Motley Fool

Should I buy UK shale oil and gas stocks?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images.

“Be greedy when others are fearful”. This is a view held by Warren Buffett, the renowned Oracle of Omaha. This involves buying companies whose intrinsic value is substantially above their share prices because they are on sale due to the markets’ irrationality and panic.

The intrinsic value of a business can be measured according to the future net cash flows it should generate in the future or according to its net profit history. But it is also common to estimate how much an enterprise is really worth by looking at its book value and comparing this figure to the company’s current share price.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

An enterprising value investor might purchase an unprofitable company whose book value per share is considerably higher than its share price, especially if there are good recovery perspectives.

This seems to be the case with the offshore drilling sector now that the shale oil boom might go bust sooner or later. The largest oil companies from the FTSE index include BP (LSE:BP) and Royal Dutch Shell (LSE:RDSB). These giants consider shale oil to be one of the most important areas of their business activities. However, these companies are quite diversified and they also invest heavily in offshore drilling. I would like to explain why the latter is highly likely to recover, whereas the shale oil sector is rather risky.

Even though the US shale oil production hit new records in 2019, most oil producers reduced their exploration spending. This means that new oil would not be discovered, whereas old oil fields might plateau very soon. This is a view held by John Hess, an American shale pioneer. His company – Hess Corporation – is involved in exploring the Bakken, but he is going to use the income received from the shale to invest heavily in offshore drilling.

The number of bankruptcies among shale oil producers is rising heavily in the US. Moreover, the slowdown in the US manufacturing activity is partly attributed to decreasing business investments in the Permian.

Both Shell and BP are oil and gas producers with strong presence in the US. Not only is shale oil a key problem for local producers, in many cases gas cannot be sold at reasonable prices. Instead, some local producers have to pay for their gas to be taken because in many areas there is no access to appropriate infrastructure.

Even though BP and Shell might benefit from their smaller competitors’ difficulties, one has to consider the effect that this year’s US presidential election might have on US shale. If a Democrat wins the election, it is quite likely that many companies would lose their drilling permits on federal lands and new ones would not be given.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Anna Sokolidou does not own any shares of the companies mentioned in this article. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.