Chesapeake Energy Corporation (CHK), EOG Resources Inc (EOG): Higher Oil Prices Will Not Help Everyone

The above chart shows that while Exxon Mobil Corporation (NYSE:XOM)’s operation margin has usually stayed within 14% to 16% over the past couple years, it recently took a turn for the worst. Its downturn to 12.07% was driven by increased refinery maintenance. While the firm is used to having 4% to 5% of its refinery capacity offline for maintenance, in the last quarter it reached 9%. Management expects this to be a onetime event, so in the next quarter’s margins should be back to the historical norm.

Don’t expect recent price volatility to have a big impact on Exxon Mobil Corporation (NYSE:XOM). Even if the price spikes above $130, its refineries will be stuck paying for more expensive crude and cancel out most of the increased downstream income. On the positive side its debt load is very low with a total debt to equity ratio of 0.12, meaning that the company can easily endure short term volatility.

Conclusion
Instability in the Middle East is sending oil prices upward, but it is hard for big companies to benefit from such short-term price increases. Exxon Mobil Corporation (NYSE:XOM)’s refining operations face higher crude oil costs, putting a damper on profits. Chesapeake Energy Corporation (NYSE:CHK) is working hard to boost its crude oil and NGL output, but its high debt load means that it cannot afford to truly expose itself to price volatility. EOG Resources Inc (NYSE:EOG) is another story. It has a smaller debt load, and only a portion of its crude production is hedged. If you are looking for a safer way to profit from rising prices, EOG Resources it is a better bet.

The article Higher Oil Prices Will Not Help Everyone originally appeared on Fool.com and is written by Joshua Bondy.

Joshua Bondy has no position in any stocks mentioned. The Motley Fool has the following options: long January 2014 $30 calls on Chesapeake Energy (NYSE:CHK). 

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