FTSE 350 Review: The energy shares most likely to thrive in 2024

The energy industry is often at the centre of geopolitical drama as traders look to take advantage of uncertain oil and gas supplies. Sector bosses will have been checking their screens with incredulity in recent months, however, as prices have largely stayed low despite the conflict in the Middle East and Saudi Arabia cutting supply. 

This is partly down to continued Russian exports to countries such as India and China, and increasing supply from Iran, Venezuela and the US. 

Share prices have been similarly uncertain, even considering that most companies now sit on far lower levels of debt than they did prior to the price boom in 2022. In January alone, Tullow Oil (TLW) bounced between 30p and 38p, while Ithaca Energy (ITH) and Energean (ENOG) trended down even as gas prices ticked up. Shell (SHEL) and BP (BP.) were also weak, although the latter received a boost when it gave Murray Auchincloss the top job on a permanent basis.  

Energy demand forecasts see continued growth for oil and gas despite the transition to greener options, although some analysts expect that an inflection point will come before the decade is out. This is most relevant to producers considering new projects. “Longer-term, the crude oil demand/price outlook features the bearish risk of ballooning net-zero carbon emissions targets,” say analysts at Liberum. “Russia’s war shows that a geopolitical incentive exists for oil-dependent economies to invest in renewables’ capacity growth, backed by gas/nuclear.” 

Of the largest UK-listed energy companies, Ithaca has the largest projects in the pipeline relative to company size. It has taken on 100 per cent of the Cambo North Sea project after Shell backed away, and is also the 20 per cent owner of the Rosebank project, which is operated by Equinor (NO:EQNR). 

Stifel analyst Chris Wheaton said last month he saw “Cambo at significant risk of not proceeding due to the politicisation of the UK energy industry amid the cost of living crisis and a 2024 election”. He recommended in December that the company race ahead before securing a funding partner, or else just abandon the project. 

But Rosebank is already in development, after a green light from the government last year. Ithaca’s share of capital spending for this year is $90mn-$110mn (£70mn-£85mn).

Political interventions have already knocked the North Sea-exposed mid-caps significantly, via the government’s 2022 windfall tax. Harbour put the brakes on its UK investment as a result, and has now agreed a merger with Wintershall Dea, which will bring significant Norwegian production into the portfolio. This is another high-tax jurisdiction, but producers are happier to operate there because of the stability of the fiscal regime. 

Harbour’s 2023 was marked by a significant slide in the shares as investors looked at its falling reserves, but the Wintershall news has pulled it back from a slow decline. 

Chris Wheaton at Stifel thinks the deal is almost certain to close. He says of the tie-up, which will take Harbour production from a forecast 187,000 barrels of oil equivalent per day (boepd) to over 300,000 boepd: “The market in our view is ignoring the Wintershall deal and focusing solely on the base portfolio, which is going to be only circa 35 per cent of the business from 2025 onwards.” But the merger will rev up debt again and hand German industrial giant BASF (DE:BASF) just under 50 per cent of the combined company. This new leverage ($4.9bn in bonds) brings a new stakeholder for Harbour boss Linda Cook to manage, as well as adding risk if oil and gas prices drop off from current levels.