As previously highlighted on BRIIDGE, the reopening of global economies, coupled with rampant inflation and subsequent geopolitical tensions affecting alternative energy sources, has significantly increased demand for Oil & Gas investments. The Oil & Gas Drilling industry—comprising companies contracted by the Exploration & Production (E&P) industry—exhibits heightened volatility, closely aligned with fluctuations in demand.

This volatility is further amplified by sharp reversals in performance, coinciding with declines in oil and natural gas prices driven by government initiatives to diversify energy sources and reduce dependency on Russia.

Fig 1: Performance 1YR Horizon

BRIIDGE Shortcut: TS Reference Index

Fig 2: Sales Growth [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Despite these challenges, the industry's recovery from pandemic-era lows has been remarkable. In contrast to the Drilling industry, the Exploration & Production industry demonstrates healthier and more stable margins, reflecting less pronounced volatility despite occasional pressures on profitability. While both industries belong to the upstream segment of Oil & Gas operations, their financial dynamics differ significantly.

Conversely, the Refining & Marketing industry has shown more subdued volatility but failed to match the market performance of its upstream counterparts in the medium term.

Despite similar top-line trends, the industry has performed in line with the benchmark over a 4-year Horizon while its counterparts outperformed by over 200%.

This underperformance can be attributed to a higher debt burden and thinner margins, albeit more stable. While cyclicality and lower margins explain the Drilling industry's volatility, the Refining & Marketing industry's weaker performance reflects the challenges posed by its leveraged nature within an industry characterized by razor-thin profitability.

Fig 3: Operating Margin [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Fig 4: Free-Cash-Flow To Sales [1YR Rolling]

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Geopolitical macroeconomic tailwinds have provided some support to the industry. However, the impact has been counterbalanced by surging interest rates, which weigh heavily on highly leveraged companies. With an interest rate easing cycle now underway and expectations of declining rates in the coming quarters, opportunities for arbitrage may emerge.

Nevertheless, these prospects remain uncertain, given the lingering political instability and its potential repercussions on the broader economy.

Fig 5: Net Income Margin [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Fig 6: Performance [1YR]

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Fig 7: Dividend Yield

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA

Fig 8: Net Debt To Ebitda [1YR Rolling]

BRIIDGE Shortcut: BRIIDGE FA | BRIIDGE CUSTOM FA