2 Oil And Gas Stocks To Buy, 3 To Avoid

| About: Exxon Mobil (XOM)

As expansion and new construction is usually a good omen for the stability of an oil and gas stock, I believe that the recent news stories will have a positive effect on Exxon Mobil (NYSE:XOM).

Exxon Mobil is the world's largest publicly-traded energy company, and in recent news, it revealed that it plans to build a new multi-billion dollar plant in Texas. The cheap North American shale gas in the area makes Texas a prime location for this new development. I believe this is a good move for the oil-and-gas company, as it will increase its reserves at a relatively low cost-once the cost of the actual construction has been accounted for. Shale gas, furthermore, gives U.S. companies a distinct edge over their European and Asian competitors.

There is a good chance that this plant will be up and running as soon as 2016. It will significantly increase Exxon Mobil's chemical production, making the company a far more serious competitor for Dow Chemical (NYSE:DOW). Dow is the biggest chemical manufacturer in the world, so Exxon Mobil will still have to work hard to take control of the market. However, this new plant will help give it an edge in the market that it did not previously have. In addition, Exxon Mobil is able to do business at a reduced cost when compared to Dow. Exxon Mobil does its own drilling, but Dow does not. This means Exxon Mobil will be able to use its own natural gas in chemical production, which will help it continue reducing costs.

This is a big change in the company's strategy. Exxon Mobil had previously declared that it would not expand chemical production in the United States. It would have been foolish, however, not to take advantage of the all-time low natural gas prices. In addition, Exxon Mobil would run the risk of letting the competition get an advantage if Exxon Mobil would not expand its chemical operations. Royal Dutch Shell (NYSE:RDS.A) and LyondellBasell (NYSE:LYB) have also made the decision to expand their chemical production, and Exxon Mobil is wise to make a move so as not to get left behind.

We must not lose sight of the fact that the plant still must be approved. Stockholders and potential investors all hope that this will happen soon. The plant, which will be built at the company's Baytown complex, would produce "1.5 million tons annually of ethylene, a key material used in the production of plastics." Approval seems to be in everyone's best interest, as the plant will also create $90 million per year in additional tax revenue and 3,700 extra jobs. If it gets approved, construction should begin toward the beginning of next year. The company seems relatively confident that it will receive approval within this year. If it does, this will surely make a huge impact on the company's stock, especially since now is the best time for the company to start revving up its chemical production.

BP (NYSE:BP) is currently attempting to sell its stake in the Russian company TNK-BP. As far as I am concerned, this is a wise move for the oil and gas company. For one thing, this will allow BP to free up funds that can be directed at paying for the damages from the Gulf of Mexico oil spill. The company will also be free of the Russian partners that the company has struggled to cooperate well with. Although a large portion of BP's revenue is generated in this area, selling its stake will allow it to pursue other ventures that could yield higher gains. For the moment, I believe this will have a fairly neutral effect on the stock, but in the long run, this may free up chances for improvements and have a very positive impact on the stock.

Competitor Chesapeake (NYSE:CHK) is struggling at the moment. It will have to sell a minimum of $7 billion in assets to stay afloat and avoid breaching a loan covenant. The company will have to raise even more money to make a significant difference. The company has put 1.5 million acres in the Permian Basin and half a million acres in Colorado and Wyoming up for sale. On top of that, the company is also searching for a "joint venture partner in the Mississippi Lime basin," and it hopes to raise between $9.5 billion and $11 billion. The company will have to show some real progress before the stock will stabilize though, so for the moment, I believe this stock will be dropping.

Devon (NYSE:DVN) has achieved greater success, as it was on Fortune magazine's World's Most Admired Companies list. This is a notable achievement, especially since Devon is the only oil-and-gas company on the list. Unlike other oil-and-gas companies, we seldom hear that Devon is involved in a lawsuit of any kind, and this can go a long way in helping a company's reputation. If companies like Exxon Mobil want to compete in the market at a reasonable level, they will need to follow this example. Compared to Devon, Exxon Mobil just cannot seem to make the same headway. While this will positively affect Devon stock, it will negatively impact competitors.

Another competitor is not doing so well in terms of its reputation. Valero (NYSE:VLO) is one of the companies that have been recently accused of not making good on their promises related to climate change. Peabody (BTU), Caterpillar (NYSE:CAT), and ConocoPhillips (NYSE:COP) have also been accused of this. Companies like these are known to distort information about climate change in order to put themselves in a better position. This kind of deception simply cannot benefit a company though, and it will give it a bad name as it moves forward. Almost needless to say, this will affect Valero stock in a bad way.

Devon is doing well while several of its competitors are struggling. I still think that Exxon Mobil will see improvements in the stock market though, as its new plant will be greatly beneficial for the business. As far as oil and gas stocks are concerned, I believe Exxon Mobil is the one to consider. Assuming the plant gets approved in the near future, I think this is a fairly strong stock at the moment.

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