Energy security fuels interest in IOG and Hunting

Rising prices and energy security planning mean these two stocks are being closely watched. How were their half-year results received today?

The drive for energy security continues to underpin the outlook at IOG (LSE:IOG) and Hunting (LSE:HTG), although the reaction to their half-year results couldn’t have been more different today.

Low-carbon operator IOG made an immediate profit following the first production from its Blythe and Elgood fields in the southern North Sea, but the impact of this landmark was more than offset today by its reduced output guidance in the second half.

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Shares reversed some of their recent gains on AIM by falling 8.95p to 30.35p, whereas US well services firm Hunting jumped 40p to a two-month high of 266p in the FTSE All-Share.

Hunting’s half-year earnings of $20.6 million (£17.5 million) beat previous guidance of $16–18 million (£13.5 million-£15.2 million) after an acceleration in its second quarter performance on stronger activity and price increases.

The company, whose Titan perforating guns, energetics and instrumentation tools are used in the shale oil Permian Basin region of West Texas, said the second half is expected to see a further improvement in earnings.

Its forward sales order book now exceeds the position seen in 2019, with confidence heading  into 2023 boosted by the company’s Asia-Pacific division winning a contract worth up to $86 million (£72.8 million) with CNOOC for an offshore project in China.

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Chief executive Jim Johnson added today: “Energy security planning will likely support industry growth for western economies into 2023, with the company well placed to benefit from this outlook."

Johnson backed up his optimism by increasing the half-year dividend by 12.5% to 4.5 cents (3.8p) for payment to shareholders on 28 October.

Analysts at RBC believe the shares have the potential to reach 400p after highlighting an “outperform” rating in the wake of the results.

The broker said: “The prospect of a much tighter oil market has driven prices materially higher in recent weeks, and while we continue to believe that energy companies will remain disciplined, we expect US onshore and international activity to increase going forwards.”

Today’s results from IOG marked its journey from an unfunded micro-cap to full-blown producer after its Saturn Banks project delivered the first gas to the Bacton terminal for onward sale.

The fields have been developed through a joint venture partnership with CalEnergy Resources, which is part of Berkshire Hathaway Energy.

IOG is a net-zero operator through a low-carbon intensity operating model, which highlights the economic and environmental advantages over pipeline and LNG imports.

Chief executive Andrew Hockey regards the recent production landmark as the first step on a bigger journey as IOG targets multiple further phases of growth.

Phase 2 of Saturn Banks project entails the Nailsworth, Goddard and Elland gas discoveries, which are subject to future investment decisions and expected to be commercialised through the same export infrastructure. 

Hockey said: “In the current energy crisis, security of supply has returned to the top of the global agenda, which in turn is fuelling government plans for new licensing.

“Developing further low-carbon UK gas resources is the right thing to do both from an energy security and environmental perspective. Saturn Banks gas is projected to have only a small fraction of the emissions intensity of the LNG imports on which the UK now relies.”

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Buoyed by a strong gas price, the business racked up a half-year profit of £11.4 million even though it was only in production for two and a half months of the period.

However, salinity levels have been higher than expected and this has led the company to  revise its second-half guidance, while it attempts to establish the source of these fluids.

Broker Peel Hunt said: “The good news is that in spite of lower than anticipated production rates, the current UK gas price is about 10 times the historic seasonal average, meaning that revenue and cash flows are still materially higher than would have been expected.”

Its preliminary assessment means it has reduced its 2022 forecasts by up to 9% but the City firm continues to have a “buy” recommendation and 63p target price.