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. |
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% |
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% |
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% |
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% |
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% |
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% |