It's always a good time to own oil companies but sometimes when they're on sale it also a great time to be buying these companies. With oil currently in free fall, this may just be the perfect time to be accumulating shares in the oil companies. You just may have to be a little selective about which companies to buy.
 | In an era in which the fracking of oil wells and horizontal drilling has become pretty commonplace, the availability of oil is no longer the oil industry's biggest problem. The industry's number one oil problem today is maintaining market share in an extremely competitive environment as new oil wells are bought on line and new oil is brought to market. This is no more truer anywhere than it is in the US oil market. As anyone can easily see in the chart to the left, the world apparently woke up to this realization this past summer and the price of oil hasn't been the same since. |
Most of this new oil has been found within the territorial boundaries of the United States and Canada and that has put a lot of pressure on foreign oil producers to lower their prices to maintain their market share. Those countries in the Middle East that have lower costs of production are being forced to reduce their prices below the costs of bringing oil to market in the US (which has higher costs of production) in order to force the US oil exploration and production companies to cap off their oil wells until prices stabilize. Their intent is to reduce the availability of oil to stabilize and eventually raise the price per barrel (a simple example of the supply and demand theory). But those wells aren't going anywhere and can easily be uncapped at any time once the price increases again.
The ongoing price cuts currently occurring are beginning to reduce the profit margins for the OPEC members and it is effecting their ability to pay their bills and balance their budgets. With these countries having fixed financial commitments, the shrinking profit margins are forcing them to produce and sell even more, which will put additional pressure on the price to oil. The overall result for American consumers has been lower gas prices at the pumps. It's something all of us notice everyday as we travel past our local gas stations.
While this strategy may or may not make sense to most investors, the result has been that exploration and production oil companies that haven't hedged their future product sales are now beginning to cap those oil wells that have high production costs. This will begin to limit new drilling in areas that would result in a high cost of production. That action will soon begin to hurt the exploration and production oil and gas companies as they figure out how to cover their fixed costs. But for those companies that buy and process oil, their costs of production have fallen with the drop in the price of oil. This will eventually increase their profit margins going forward. These are the companies in the oil refining and chemicals businesses.
A quick look at the stock charts of selective upstream, midstream and downstream oil companies will show any investor that the price of oil affects each of these areas differently. This also makes it critical to buy the right one and hold it only as long as that portion of the oil business is booming. The advantage of investing in the integrated oil companies is that they operate in all three areas of the oil industry and therefore they take advantage of both higher and lower oil prices. They also operate worldwide so they're not necessarily affected by any individual country's economy. And by their size alone they can take advantage of the effects of volume in their processes.
The demand for oil, however, is not going to go away any time soon and I don't think the oil producing countries are going to flood the market with oil indefinitely. As the flow of oil begins to slow and the price stabilizes companies will adapt and additional oil wells will be drilled. The major integrated oil and gas companies will start to operate at top capacity once again. The best of these companies will take advantage of this volatility in the oil economy and the integrated oil companies are best suited to take advantage of this.
Below is a quick look at the largest six companies in the Major Integrated Oil and Gas Industry to see which companies are worthy of additional research. This is the first step for me when buying shares of any company. The second step is always looking at the price chart technical indicators to determine a price basis for accumulation. The final step is to determine if selling cash secured options and covered calls is a financial benefit I can take advantage of by owning shares of the company. Being able to accomplish all three of these things is the real trifecta of investing.
The ongoing price cuts currently occurring are beginning to reduce the profit margins for the OPEC members and it is effecting their ability to pay their bills and balance their budgets. With these countries having fixed financial commitments, the shrinking profit margins are forcing them to produce and sell even more, which will put additional pressure on the price to oil. The overall result for American consumers has been lower gas prices at the pumps. It's something all of us notice everyday as we travel past our local gas stations.
While this strategy may or may not make sense to most investors, the result has been that exploration and production oil companies that haven't hedged their future product sales are now beginning to cap those oil wells that have high production costs. This will begin to limit new drilling in areas that would result in a high cost of production. That action will soon begin to hurt the exploration and production oil and gas companies as they figure out how to cover their fixed costs. But for those companies that buy and process oil, their costs of production have fallen with the drop in the price of oil. This will eventually increase their profit margins going forward. These are the companies in the oil refining and chemicals businesses.
A quick look at the stock charts of selective upstream, midstream and downstream oil companies will show any investor that the price of oil affects each of these areas differently. This also makes it critical to buy the right one and hold it only as long as that portion of the oil business is booming. The advantage of investing in the integrated oil companies is that they operate in all three areas of the oil industry and therefore they take advantage of both higher and lower oil prices. They also operate worldwide so they're not necessarily affected by any individual country's economy. And by their size alone they can take advantage of the effects of volume in their processes.
The demand for oil, however, is not going to go away any time soon and I don't think the oil producing countries are going to flood the market with oil indefinitely. As the flow of oil begins to slow and the price stabilizes companies will adapt and additional oil wells will be drilled. The major integrated oil and gas companies will start to operate at top capacity once again. The best of these companies will take advantage of this volatility in the oil economy and the integrated oil companies are best suited to take advantage of this.
Below is a quick look at the largest six companies in the Major Integrated Oil and Gas Industry to see which companies are worthy of additional research. This is the first step for me when buying shares of any company. The second step is always looking at the price chart technical indicators to determine a price basis for accumulation. The final step is to determine if selling cash secured options and covered calls is a financial benefit I can take advantage of by owning shares of the company. Being able to accomplish all three of these things is the real trifecta of investing.
Exxon Mobil Corporation (XOM) explores and produces crude oil and natural gas worldwide. As of December 31, 2013, the company had approximately 37,661 gross and 31,823 net operating wells. The company also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene, polypropylene plastics, and specialty products; and transports and sells crude oil, natural gas, and petroleum products. In addition, the company has interests in electric power generation facilities. It operates in the United States, Canada/South America, Europe, Africa, Asia, and Australia/Oceania. Exxon Mobil Corporation was founded in 1870 and is headquartered in Irving, Texas. (Daily Chart) (Weekly Chart)
| Price $90.54 1yr Target $101.00 Analysts 18 1yr Cap Gain 11.55% Dividend $2.76 Yield 3.04% 1yr Est Tot Return 14.59% | Market Cap $383.39 Bil Beta 0.90 EPS (ttm) $7.95 Payout Ratio 34.71% EPS next yr $6.82 P/E 11.39 PEG 2.85 Forward P/E 13.28 | Debt/Equity 0.12 ROA 9.70% ROE 19.30% ROI 8.20% Sales $417.50 Bil Income $34.30 Bil Profit Margin 8.21% |
Royal Dutch Shell plc (RDS-A) operates as an independent oil and gas company worldwide. The company explores for and extracts crude oil, natural gas, and natural gas liquids. It also converts natural gas to liquids to provide fuels and other products; markets and trades natural gas; extracts bitumen from mined oil sands and converts it to synthetic crude oil; and generates electricity from wind energy. In addition, the company is engaged in manufacturing, supplying, and shipping crude oil; selling fuels, lubricants, bitumen, and liquefied petroleum gas (LPG) for home, transport, and industrial use; converting crude oil into a range of refined products, including gasoline, diesel, heating oil, aviation fuel, marine fuel, lubricants, bitumen, sulphur, and LPG; producing and marketing petrochemicals, such as the raw materials for plastics, coatings, and detergents for industrial customers; and alternative energy business. Further, it trades hydrocarbons and other energy-related products; governs the marketing and trading of gas and power; provides shipping services; and produces base chemicals comprising ethylene, propylene, and aromatics, as well as intermediate chemicals, such as styrene monomer, propylene oxide, solvents, detergent alcohols, ethylene oxide, and ethylene glycol. The company holds interests in approximately 30 refineries; 1,500 storage tanks; and 150 distribution facilities. It sells differentiated fuels under the Shell V-Power brand. Royal Dutch Shell plc is headquartered in The Hague, the Netherlands. (Daily Chart) (Weekly Chart)
| Price $66.41 1yr Target $ --- Analysts --- 1yr Cap Gain --- % Dividend $2.92 Yield 4.39% 1yr Est Tot Return --- % | Market Cap $216.20 Bil Beta 1.27 EPS (ttm) $5.09 Payout Ratio 57.36% EPS next yr $6.81 P/E 13.05 PEG 1.50 Forward P/E 9.75 | Debt/Equity 0.24 ROA 4.40% ROE 8.80% ROI 4.40% Sales $437.97 Bil Income $16.06 Bil Profit Margin 3.66% |
PetroChina Company Limited (PTR) produces and sells oil and gas in the People’s Republic of China. The company operates in four segments: Exploration and Production, Refining and Chemicals, Marketing, and Natural Gas and Pipeline. The Exploration and Production segment is involved in the exploration, development, production, and marketing of crude oil and natural gas. The Refining and Chemicals segment refines crude oil and petroleum products; and produces and markets primary petrochemical products, derivative petrochemical products, and other chemical products. The Marketing segment is engaged in marketing refined products, as well as trading business. The Natural Gas and Pipeline segment is involved in the transmission of natural gas, crude oil, and refined oil products. It also operates a network of service stations. The company operates oil and gas pipelines of 71,020 km consisting of 43,872 km of natural gas pipelines, 17,614 km of crude oil pipelines, and 9,534 km of refined product pipelines. PetroChina Company Limited was founded in 1988 and is based in Beijing, the People’s Republic of China. PetroChina Company Limited is a subsidiary of China National Petroleum Corporation. (Daily Chart) (Weekly Chart)
| Price $107.02 1yr Target $145.08 Analysts 3 1yr Cap Gain 35.56% Dividend $4.85 Yield 4.53% 1yr Est Tot Return 40.09% | Market Cap $237.96 Bil Beta 0.89 EPS (ttm) $12.42 Payout Ratio 39.04% EPS next yr $11.46 P/E 8.62 PEG 1.06 Forward P/E 9.34 | Debt/Equity 0.44 ROA 8.10% ROE 16.70% ROI 9.40% Sales $379.28 Bil Income $21.22 Bil Profit Margin 5.59% |
Chevron Corporation (CVX), through its subsidiaries, is engaged in petroleum, chemicals, mining, power generation, and energy operations worldwide. The company operates in two segments, Upstream and Downstream. The Upstream segment is involved in the exploration, development, and production of crude oil and natural gas; liquefaction, transportation, and regasification associated with liquefied natural gas; transportation of crude oil through pipelines; and processing, transportation, storage, and marketing of natural gas, as well as holds interest in a gas-to-liquids project. The Downstream segment engages in refining crude oil into petroleum products; marketing crude oil and refined products; transporting crude oil and refined products through pipeline, marine vessel, motor equipment, and rail car; and manufacturing and marketing commodity petrochemicals and fuel and lubricant additives, as well as plastics for industrial uses. Chevron Corporation is also involved in coal and molybdenum mining operations; cash management and debt financing activities; insurance operations; real estate activities; and energy services, and alternative fuels and technology businesses. The company was formerly known as ChevronTexaco Corporation and changed its name to Chevron Corporation in 2005. Chevron Corporation was founded in 1879 and is headquartered in San Ramon, California. (Daily Chart) (Weekly Chart)
| Price $108.87 1yr Target $132.02 Analysts 21 1yr Cap Gain 21.26% Dividend $4.28 Yield 3.93% 1yr Est Tot Return 25.19% | Market Cap $206.81 Bil Beta 1.15 EPS (ttm) $10.86 Payout Ratio 39.41% EPS next yr $9.45 P/E 10.02 PEG 1.74 Forward P/E 11.52 | Debt/Equity 0.16 ROA 8.00% ROE 13.60% ROI 7.90% Sales $212.28 Bil Income $20.70 Bil Profit Margin 9.75% |
TOTAL S.A. (TOT), together with its subsidiaries, operates as an oil and gas company worldwide. The company operates in three segments: Upstream, Refining & Chemicals, and Marketing & Services. The Upstream segment is engaged in the exploration, development, and production of oil and gas; shipping, trading, and marketing natural gas, liquefied natural gas, liquefied petroleum gas (LPG), and electricity, as well as power generation and trading activities; and coal production and marketing activities. As of December 31, 2013, the company’s combined proved reserves of oil and gas were 11,526 Mboe. The Refining & Chemicals segment is involved in refining, marketing, trading, and shipping crude oil and petroleum products. This segment also produces petrochemicals, including base petrochemicals (olefins and aromatics) and polymer derivatives (polyethylene, polypropylene, and polystyrene); and specialty chemicals, such as elastomer processing, and adhesives, as well as electroplating chemistry. In addition, it holds interests in 21 refineries located in Europe, the United States, the French West Indies, Africa, the Middle East, and China. The Marketing & Services segment produces and markets a range of specialty products, such as lubricants, LPG, jet fuel, special fluids, bitumen, heavy fuel, and marine fuels; and develops renewable energies. TOTAL S.A. was founded in 1924 and is headquartered in Paris, France. (Daily Chart) (Weekly Chart)
| Price $55.63 1yr Target $69.90 Analysts 6 1yr Cap Gain 25.65% Dividend $2.57 Yield 4.61% 1yr Est Tot Return 30.26% | Market Cap $133.39 Bil Beta 1.43 EPS (ttm) $5.32 Payout Ratio 48.30% EPS next yr $5.70 P/E 10.46 PEG 1.97 Forward P/E 9.77 | Debt/Equity 0.55 ROA 5.00% ROE 11.90% ROI 6.10% Sales $224.05 Bil Income $12.14 Bil Profit Margin 5.41% |
BP p.l.c. (BP) provides fuel for transportation, energy for heat and light, lubricants to engines, and petrochemicals products worldwide. The company’s Upstream segment is engaged in the oil and natural gas exploration, field development, and production; midstream transportation, and storage and processing; and marketing and trade of natural gas, including liquefied natural gas (LNG), and power and natural gas liquids (NGL). It also owns and manages crude oil and natural gas pipelines; processing facilities and export terminals; and LNG processing facilities and transportation, as well as NGL extraction business. The company's Downstream segment is involved in the refining, manufacture, marketing, transportation, supply, and trade of crude oil; petroleum; petrochemicals products comprising purified terephthalic acid, paraxylene, acetic acid, and olefins and derivatives, as well as provides related services to wholesale and retail customers. This segment also sells refined petroleum products, such as gasoline, diesel, aviation fuel, and liquefied petroleum gas (LPG). This segment offers lubricants under Castrol, BP, and Aral brand names to automotive, industrial, marine, aviation, and energy markets. BP p.l.c. is also involved in alternative energy business, as well as offers shipping and treasury services. The company was founded in 1889 and is headquartered in London, the United Kingdom. (Daily Chart) (Weekly Chart)
| Price $39.32 1yr Target $49.92 Analysts 9 1yr Cap Gain 26.95% Dividend $2.40 Yield 6.10% 1yr Est Tot Return 33.05% | Market Cap $120.57 Bil Beta 1.94 EPS (ttm) $2.98 Payout Ratio 80.53% EPS next yr $4.03 P/E 13.19 PEG 1.59 Forward P/E 9.77 | Debt/Equity 0.43 ROA 3.00% ROE 7.20% ROI 4.40% Sales $373.29 Bil Income $9.23 Bil Profit Margin 2.47% |
Print 
PDF
RSS Feed
