Millions of acres in oil shale prospects ... production continues to expand ... good times are just beginning ...
You've heard the stories. Almost every exploration and production company seems to have at least one. Here are 5 of the better ones. For this article, let's just stick with the stuff that really matters: Cash income, specifically free cash flow. I screened a dozen or more energy companies looking for those with the best market capitalization/levered free cash flow -- call it MC/LFCF -- over the last 12 months. This information is readily available in Yahoo Finance's Key Statistics. The lower the number, the more undervalued the equity.
Of the couple dozen energy companies I looked at, the following five had the best MC/LFCF -- all under 20. I also noted PEG (price/earnings to growth) ratio, when available, to see what analysts think earnings growth will be for the next five years -- admittedly at best an educated guess. The lower the PEG, the higher the earnings growth. I've also noted Libyan production exposure (source here). Libyan oil production losses (now shut down?) may not yet be reflected in the statistics.
Repsol YPF S.A. (REPYY.PK) -- Market Cap: $42 billion, MC/LFCF: 8.9
Headquartered in Spain, Repsol is an integrated oil and gas firm with a global presence. The company is concentrated in South America, through its majority-owned Argentine subsidiary YPF S.A. (YPF). The company, in addition to exploration and production, has interests in refineries and over 4,400 service stations. It's also involved in LNG and petroleum derived chemicals such as propane and butane.
Repsol pays a 3.6% dividend, while YPF pays a 6.9% dividend. PEG ratio was not available.
Repsol derives much of its revenue from YPF, a company far from Mediterranean troubles (Spanish debt and North African unrest). YPF is Argentina's largest oil company. Like Brazil, Argentina seems to have significant undeveloped oil and gas resources. Repsol is also seeking to expand into Brazil's offshore Santos basin. Repsol has been receiving 3.8% of its production from Libyan fields.
Statoil (STO) -- Market Cap: $88.0 billion, MC/LFCF: 10.2
This international Norwegian energy company was originally based in the North Sea fields. It's also involved in LNG and operates over 2,000 service stations in Scandinavia, the Baltics, and Russia. The company pays a 4.0% dividend. PEG is 2.38.
Statoil now gets 25% of it production from non-North Sea sources. In addition to new investments in the North Sea, it's investing in the U.S. (Marcellus and Eagle Ford Shales), Angola off shore, Indonesia, the far arctic north, and other areas (see here). Statioil only gets 0.2% of its production from Libya.
ConocoPhillips (COP) -- Market Cap: $111 billion, MC/LFCF: 10.5
This international company is an integrated, large international. In addition to exploration and production, it transports, refines and markets petroleum products worldwide. It also has a presence in the Canadian Oil Sands and produces petroleum-derived chemicals.
The company pays a 3.3% dividend. The PEG ratio is slightly negative, meaning earnings are expected to decline somewhat over the next five years.
ConocoPhillips at one time had a 20% interest in LUKOY (LUKOY.PK), Russia's second-largest oil producer. Russia (not Saudi Arabia) is the largest oil producer in the world. The company has now sold off the LUKOY investment, using the cash for capital expenditures, dividend payments, and debt reduction. ConocoPhillips has been getting 3.3% of its production from Libya.
Total S.A. (TOT) -- Market Cap: $135 billion, MC/LFCF: 18.0
France-based Total is the world's fifth-largest publicly-traded international oil company. The company operates worldwide as an integrated oil and gas company -- exploration, production, LNG operations, refineries, chemicals, and over 16,000 service stations. Its French origin has given it a large presence in Africa and the Middle East.
The company pays a 5.2% dividend. PEG is 2.67.
Since France was the first country to attack Gaddafi's forces, Total may be company non grata if the dictator manages to hang on to power. Libyan exposure is 2.6% of revenue. On the plus side: Thanks to the oil sands, the Bakken is increasing oil production.
Marathon Oil (MRO) -- Market Cap: $36 billion, MC/LFCF: 18.5
U.S.-based Marathon is also in exploration, refining and marketing. It has an oil sands presence in Canada and also (unfortunately) a significant presence in Libya -- 12% of revenue. Marathon operates in Africa, Europe, the U.S. and Canada. It is the largest refiner in the U.S. midwest.
The company pays a 1.9% dividend. PEG is a low 1.05.
Marathon has been doing well. The stock is up 65% YOY. The 12% Libyan production exposure, so far, has not impacted price -- not sure why.
Summary
I don't think you can find better, even more conservative, investments than some of the above companies. Dividends, inflation protection, cash generation now -- what more do you want? This isn't a "pie in the sky" story. It's profits now! It's true the Middle East could explode. That may hurt some of the above companies, but rapidly escalating oil prices would compensate.
These companies have made good money over the last 12 months. With oil prices continuing to go up, they will probably make even more in the future. Do take into consieration the loss of Libyan oil for at least several months.
Could the price of oil crash? Of course it could -- anything can happen in the markets. But don't worry, the Fed has your back. Crashing commodities and markets will set off massive dollar printing, which will push commodity markets right back up. Of course, it would be a wild ride.
The views in this article are just my thoughts and should not be construed as recommendations; investors should, as always, perform their own due diligence in consideration of their particular situation.
Disclosure: I am long STO.
No comments:
Post a Comment