So, which integrated oil companies make the most sense now? You could consult your favorite rating firm [S&P, Value Line, Argus, Morningstar or any number of banks and brokerage houses], or you could take the “street” view as reported by Reuters. Let’s look at the latter to see what we might glean:
They are not a much loved company. They have made large investments in Russia where investments have been injured by government action. They have had some public perception problems with environmental issues. They have more debt than the other giant oils. The mean street opinion is just middle of the road. It’s a British company and, like the US, the Brits have some relationship problems in the Middle East.
On the other hand, they have the highest yield [3.5%], a reasonable gain implied by the consensus target price, the greatest gain were they to achieve their 52-week high and the least loss were they to achieve their 52-week low. Their 1-year consensus price target is below their 52-week high.
They have begun to follow others into Russia, whose riches seem to us to be elusive for all by state controlled entities.
They have the greatest portion of their oil reserves in North America of the companies listed. That reduces their risk to expropriation outright or in effect through increased host country royalties [as in Bolivia], civil unrest about oil [as in Nigeria] or other government action [as BP has experienced in Russia].
They have a better mean opinion than the overall stock market. They have about a 10% expected 1-year price gain. They carry a reasonable yield (2.1%). However, they must make new highs to achieve their 1-year mean target price, and they have further to fall if they achieve their 52-week low.
They have the lowest of the positive gains implied by the mean 1-year target price and are virtually at their 52-week high now. They have the same nearly 20% decline risk as COP if they achieve their 52-week low.
They are a French company with Middle East and African reserves. As a French company they probably are in a somewhat better position to win permission to work fields in those countries that are not happy with the US and the UK. They have a good yield at 2.7%
Petroleo Brasileiro (NYSE:PBR)
It is a government controlled company in Brazil. It has the risk of populist political manipulation and volatile Brazilian currency risk, but since its product is traded in dollars, currency risk is not that much of a worry. The 52-week low is a long way down at over 30% below the current price. The yield is an uninteresting 1%.
It has the highest implied gain by the 1-year consensus target price, and 2/3 of that could be achieved without exceeding the 52-week high. Brazil does not appear to have relationship problems in the Middle East or Africa.
PBR is subject to country rotation of portfolios too. Because PBR is such a large component of the Latin American indices, a new wave of rotation into Latin American stocks could increase these shares independent of oil action (however, an outward rotation could reduce the shares).
Occidental Petroleum Corporation (NYSE:OXY)
We don’t know much about this company and don’t see why we should invest in a smaller integrated oil company with a below S&P500 yield when other larger oil companies seem to offer equal or better on-balance opportunities. Nothing really jumps out at us as compelling.
Disclosure: Author does not own any of the above-mentioned stocks, but has owned all but OXY from time-to-time and plans to do so again much sooner than later.