Public opinion is fluctuating around the oil and gas industry now, and news about negligence and unsafe practices could drag energy companies down. Recovery strategies like asset divestiture are playing out differently among these companies, and some of them might not be able to keep a long-term competitive edge. In the following article, I will focus on five oil and gas giants that are taking steps to stay competitive, whether through acquisitions, the sale of assets, fighting a tax plan to sustain profitable operations. Will these steps work?
Exxon Mobil Corporation (XOM) made a bold decision to buy out XTO Energy in 2009 as a foray into the natural gas industry, which only sells at about $3 per mcfe (thousand cubic feet) these days. A lot of people were skeptical about this move, but the $10 billion debt incurred by Exxon Mobil for the purchase of XTO seems to have paid off. Other than the mid-2010 dip in value, investors have shown more or less consistent confidence in this company by keeping the price of shares relatively high.
The past week has been no exception, as we have seen the steady upward trend for Exxon Mobil continue. Projects like the company's licensing of its patented oil sands steam injection technology to Baker Hughes at the beginning of February say to me that Exxon Mobil is moving forward in a number of areas that will keep the company profitable should a single operation fail.
If it continues to produce and license technologies like this, then Exxon Mobil could potentially extract profits from its own competitors, by which I mean other energy companies in the United States and elsewhere. I think this would remain true even if its own extraction and refinement operations started to decline.
With these prospects in mind, I would say it's been a good time to buy into this company for a while now, and that doesn't look like it's about to change any time soon.
Total, S.A. (TOT) has been creeping up in value for the past few months, but this could change if it continues to focus heavily on natural gas. This might very well be its plan, since it decided earlier this month to sell off $1 billion worth of mature production and pipeline assets in Colombia.
Ostensibly, this strategy helps to reduce costs by letting go of operations that are not worth the investment anymore. But I believe that the series of sell-offs that Total has presented recently indicates financial uncertainty for the company.
In my view, Total seems overly involved in exploring new possibilities, but I think that it should hold onto what it has done well in the past, until those explorations turn into viable new operations. I feel that it's unlikely that the future bodes well for the company, unless it can beef up its alternative energy operations.
Last year's 50-50 partnership with Amyris, Inc. (AMRS) to produce and market renewable diesel and jet fuel, among other alternative energy sources, is due to begin this year. If it is successful, it might be worth letting go of fossil fuels to an even greater extent and pushing further into alternative energy.
Right now, though, Total just seems confused to me, like it's trying to keep a hand in every basket. If it keeps up this blurred focus, I believe the company will lose its competitiveness in any single industry, because it will have thinned out its resources too far instead of putting them in a few key places.
ConocoPhillips (COP) still pays out a $0.66 dividend every quarter, which is usually a sign of security and good future prospects. Unlike Total, Conoco-Phillips is fighting the Alaska state tax plan in order to sustain profitable operations within its older holdings in that region, where it had planned to develop another slope.
With gas prices skyrocketing, tax plans could have a serious effect on how the company does in the next quarter or even year.
Conoco-Phillips has made plans to sell off its Vietnam business unit to a subsidiary of Perenco, but I don't see this as a panicky move like Total's asset divestiture program. Instead, I think optimizing operations makes sense, as the company seems to know when to hold 'em and when to fold 'em, so to speak.
Conoco-Phillips has been in Alaska longer than Vietnam, so I find it unlikely that it's just a matter of getting rid of old stuff. On the contrary, I see this as a decision based on intelligent analysis of current potential for the respective sites.
Chevron Corporation (CVX) looks to be ready for a short-term decline, in my opinion, but only in relative terms. The courts have officially indicted this company for its lax safety practices that led to the Kern County death of Robert David Taylor, a 54-year-old worker who fell into a sinkhole last June, and the media is quickly picking up the story.
However, the $350 fine extracted from Chevron for failure to put some elements of its safety code into writing prior to the accident is a laughable sum for a company with a market cap of more than $214 billion. So the fine won't be hurting the company's finances, but the blame could hurt its image in the eyes of investors and the general public.
Shares closed at $177.44, down 0.91%, which could have been partly caused by the news from the courts earlier in the day.
Meanwhile, Chevron is busy preparing to expand Kazakhstan's Tengiz oil field operations by investing between $6 and 8 billion over the next few years. Once this growth area is maximized, I think the stock value will go back up, but in the near future, investors might feel a bit of a pinch from Chevron.
BP (BP) has a fraction of the market value of Chevron or Exxon Mobil, but it's still a major player for now. The company has seen a strong upward trend since October of last year, and there's no reason for me think that this upswing is over yet.
Last year around this time, BP was selling off two of its US refineries in the wake of the Deepwater Horizon oil spill in the Gulf of Mexico which leaked 200 million gallons of oil into the water. This year, the company will soon begin battling it out in one of the biggest environmental lawsuits of in US history.
BP isn't the only one on the line: the actions of Transocean Ltd. (RIG) which owned the rig, Halliburton Company (HAL) the cementer, and Cameron International Corporation (CAM), which built the faulty blow-out preventer will also come under scrutiny, unless BP can convince the prosecution to settle out of court.
The results of this case could set BP back much more seriously than Chevron's measly fine did for that company. Investors should be watching closely to see how it plays out, ready to pull out at the first sign of trouble.
That being said, I don't think there's any need to take your money out of BP just yet. But vigilance will be key in the next month, in my opinion.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.