ConocoPhillips, ExxonMobil: Two Safest U.S. Oil Producers

U.S. Integrated Producers offer attractive investment value, in our opinion, as stock prices may have turned upward again after declining in anticipation of the depressed economic conditions now unfolding. Buy-recommended ConocoPhillips (COP) has the lowest McDep Ratio, implying the most appreciation potential (see chart McDep Ratio below). Buy-recommended ExxonMobil (XOM), having demonstrated its “safest” characteristics on the downside, is leading the uptrend as the first to trade above its 200-day average stock price.

While hold-rated Chevron (CVX) and Marathon (MRO) are also attractive values, we delay recommending a buy until stock prices break through the 200-day average to the upside or something surprising happens. The four integrated companies are each represented in the four main business segments where we have a qualitative preference for XOM’s greater concentration on Rest of World (ROW) Natural Gas and COP’s concentration on North American Natural Gas (see chart Natural Gas and Oil Segments below).

Reflecting commodity price expectations as well as operating trends, COP, CVX and XOM scored a similar quarterly trend in estimated Net Present Value (NPV) (see chart NPV below). Oil and gas price also may have seen a bottom for now.

Like the prospects for near-term economic activity, the profit outlook for refining, as reflected in the margin or “crack”, has tumbled in recent months. Judging by the trend for the past few years, we can expect that actual cash flow from refining in 2009 will be more volatile than we project.

Originally published on January 6, 2009.

Comments

[welcome2work:]

Anotherwards given the word on the street is buy big oil companies, one must do the exact opposite. The time to buy is when noone is talking.

Jan 27 04:30 PM

[lngjim:]

In other words, they are very well managed companies. The numbers don't lie.

Jan 29 01:53 PM