5 Oil Majors Set To Gain From Higher Prices

 |  Includes: BP, COP, CVX, HAL, XOM
by: Investment Underground

By E. Prader

According to the U.S. Energy Information Administration, its average 2012 oil price forecast has been raised by more than $2 a barrel to $100.25 a barrel. Further, the outlook for 2013 WTI (West Texas Intermediate) prices have been increased to $103.75 a barrel.

This increase in the average price of crude is bad for the price of gasoline (yes, it will go up). But will this be good for the producers of that oil? As long as the increase is not overly large (and $2/Bbl is not large), we should see very limited demand destruction. However, increases in the price of oil tend to increase the amount of money spent looking for even more oil. I have chosen 5 of the largest integrated oil producers to compare. Let's get some information on each company and see if any one of them stands to gain from this projected price increase.

Exxon Mobil Corporation (NYSE:XOM) was formed with the merger of Exxon and Mobil in late 1999. It is the world's largest publicly owned integrated oil company, with a market cap in excess of $407 billion. The company boosts oil equivalent reserves of 24.8 billion barrels.

XOM may see increased reserves with its new deal in Russia that garnered it exploration rights to the Russian portion of the newly opening artic.

Exxon is trading at a P/E ratio of 10, the largest ratio of all 5 of these large oil companies. The offset for this is the lowest beta at 0.51. So, you are paying a premium for the lower volatility (compared to the overall market) of the stock. XOM currently has a dividend yield of 2.2%, handily beating the 10 year treasury rate of 1.87%.

Chevron Corporation (NYSE:CVX) is a globally integrated oil company (formerly ChevronTexaco) that has interests in all aspects of the oil production process, from exploration, production, and refining to marketing and petrochemicals. The oil equivalent reserves for this company come in at 10.55 billion barrels. Chevron announced that its 4th quarter results would be below expectations. International output reached 1.979 million barrels of oil equivalent a day, down 5.2% on the year but up 2.2% from the third quarter.

Chevron's P/E ratio is currently at 8, placing it in the middle of the group. The beta for Chevron comes in above XOM at 0.75, still nicely below the average market volatility. The CVX dividend is a nice 3.0%, which we identified as a share buffer last month.

BP Plc (NYSE:BP), formerly known as British Petroleum, is a London-based international crude oil and natural gas company. BP also has large power and renewable divisions. The oil equivalent reserves for BP run at 7.9 billion barrels.

Though we may not see the end of the BP gulf spill news for years, we may be coming to the end of huge costs for BP as a result of the spill. In an effort to get some of its related costs reimbursed, BP has announced that it will sue Halliburton (NYSE:HAL) and other firms for their involvement in the spill.

BP has the highest beta of these 5 stocks, at 1.2. This is 20% higher that the index and more than twice as volatile as XOM. The P/E ratio here is the lowest of the group at 6. I believe that this is due, in part, the all the negative news BP has generated over the last 2 years. Even with all this, the dividend yield on BP is a generous 3.8%

ConocoPhillips (NYSE:COP) was formed by the 2002 merger of Phillips Petroleum and Conoco. This merger created the fourth largest integrated oil company in the world (making it the second largest in the U.S). Oil equivalent reserves for COP stand at 8.3 billion barrels.

This last summer, ConocoPhillips announced that it would split itself into two different companies. This split will give you the ability to focus your investment dollars into the refining or production sides of this company.

COP beta is just about as high as BP and is currently at 1.17. The P/E ratio for COP is 9 which starts getting it into the XOM valuations. The yield on dividends for ConocoPhillips runs at 3.7%

Royal Dutch Shell Plc (NYSE:RDS.A), like BP, is a European based major international integrated crude oil and natural gas company. It also has chemical, power, and oil sands divisions. This company has two classes of shares that were created in 2005 when the company was formed with the merger of Royal Dutch Petroleum Co. and the Shell Transport and Trading Co., p.l.c. RDS shows oil equivalent reserves to be 10.8 billion barrels.

RDS has teamed up the PetroChina in a bid to increase its gas business in China. This move may also help the company in other China energy projects.

RDS runs in the middle of the pack for all the areas we have been addressing. Its beta is 1.03 and the P/E ratio runs 7 for the "A" shares and 10 for the "B" shares. The dividends here are the best of the batch with "A" shares sporting a 4.8% yield and the "B" shares a 4.6% yield.

Now I would like to take a look at what the analysts think of earnings for 2011 and 2012. The full year 2011 is currently an estimate, as it includes the 4th quarter, which has not been reported yet.

Average analyst earnings expectations ($)


2011 E

2012 E
















Click to enlarge

As you can see from the table, Exxon, Chevron, ConocoPhillips, and Shell come into 2012 with expectations of reduced year-over-year earnings. BP holds its own with flat earnings.

Will the increased 2012 oil forecasts translate into a change of the 2012 earnings forecasts? Will increased capital expenses erase any gains in oil revenues as the companies race to increase reserves? We will have to see. If they do revise upwards, there may be room for these stocks to move upwards. Now it is time for you to do your own due diligence to determine if any of these stocks deserve a place in your portfolio.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.