To keep up with Exxon Mobil Corporation (NYSE:XOM)’s Twitter Feed Saturday was something like listening to your Aunt Hilda after downing 6 mugs of tall blonde roasts:
“Exxon Mobil Corporation (NYSE:XOM) is paying for the cleanup in Arkansas. We’re not using the Oil Liability Trust Fund”
“Reports Exxon Mobil Corporation (NYSE:XOM) restricting media access in Mayflower aren’t true. Local law asking media to follow standard safety precautions.”
The above was damage control concerning Exxon’s oil spill in Mayflower, Arkansas about a week prior.
By comparison, the only thing Royal Dutch Shell plc (ADR) (NYSE:RDS.A) communicated over social media for the weekend, was its excitement about a fuel-efficient car building contest in Texas.
Really? How ’bout that spill? Apparently the company had already forgotten it leaked almost 30,000 gallons of crude onto that same State, plus a waterway connecting to the Gulf of Mexico days earlier. But perhaps, Shell figured the whole thing would eventually blow over. After all, it was just two months ago in February when Chevron Corporation (NYSE:CVX) beat a criminal rap in South America for its Brazilian oil spill.
Big oil highlights
With these incidents, one might get the impression that the only real problem Big Oil has is bad PR. After all…
1) Exxon Mobil Corporation (NYSE:XOM) closed another deal Friday to drill in offshore Liberia, acquiring an 80% interest from Canadian Overseas Petroleum Ltd. The deal received final approval from Liberia’s legislature and its president Ellen Johnson Sirleaf. Exxon has also generated $138 billion of free cash flow since 2008, and has distributed about $145 billion dollars in cash to shareholders (more than Chevron, BP, and Shell combined).
2) Chevron Corporation (NYSE:CVX) still retains its recommendation as a “strong buy” per NASDAQ analysis (an even better rating than Exxon’s). And as mentioned else where:
“Chevron Corporation (NYSE:CVX) currently supports a $228.8 billion market capitalization and trades with a forward price-to-earnings ratio of 9.49. Having consecutively raised its dividend yield since 1988, Chevron Corporation (NYSE:CVX) trades with a 3.0% annual dividend and offers a quarterly rate of $0.90 per share”
Yet there’s more afoot…
3) Royal Dutch Shell plc (ADR) (NYSE:RDS.A)
With a share price that is surprising, to say the least, Shell is definitely the under-performer of the group. It just doesn’t seem to trade like a company of its size
It also carries the following concerns:
1. only an 8% total stock return last year (comparable to BP)
2. a drop in reserve discovery
3. a declining Return on Equity (ROE), and
4. an ROA (Return on Asset) failing to meet the industry average for years
However, with Shell withstanding, there is sufficient reason to believe the market won’t be any kinder to major oil players in the coming years.
More leaks in the structure
While Big Oil may or may not care about its imprint on the planet, what they will remiss is the money and influence they’re projected to lose due to the following:
1) Lower Demand
Regardless of where gas prices, and rare optimistic forecasts, it remains that consumer oil demand is at its lowest point in 15 years (as low as when we were all doing the Macarena) and demand for gasoline has dropped since 2008.
Even by Big Oil’s admissions, transportation and industrial demand, is projected to continue to decline. Gasoline is down, crude is up, however the reserves are greater than they’ve ever been.
What NBC Business reported last week:
“a government report said U.S. crude oil inventories grew to their highest level since 1990. The U.S. Energy Information Administration reported crude stocks rose 2.71 million barrels last week. The rise was slightly more than the build of 2.2 million barrels expected in a Reuters survey of analysts and put U.S. commercial inventories at 388.62 million barrels, the most since 1990 and close to the record 391.9 million barrels reached in 1982, the year the EIA started tracking inventories. “
In addition, Financial Time’s Nick Butler, after reviewing Exxon’s energy outlook, saw the lack of specifics to mean the company is expecting dropping prices and plentiful supply in the near future.
2) Hydraulic Fracking and Competition
Thanks to the discovery of “fracking,” by frustrated geologist Bill Zagorski nearly a decade ago, natural gas is easier to get to. This combination of horizontal drilling and hydraulic fracturing has given an edge to companies mainly dealing in this natural energy source.
In a recent report, The National Intelligence Council called fracking a “technological revolution,” but more importantly shared that…
“A dramatic expansion of US production could also push global spare capacity to exceed 8 million barrels per day, at which point OPEC could lose price control and crude oil prices would drop, possibly sharply. Such a drop would take a heavy toll on many energy producers who are increasingly dependent on relatively high energy prices to balance their budgets.”
Energy hawkers can also expect ethanol to provide more competition for standard oil producers soon. According to Bloomberg New Energy Finance, cellulosic ethanol is on track to be cost competitive with corn ethanol in the next three years.
A final word
Though companies like Shell continue yearly under- performance alongside the Big Boys of Oil, analysts still remain somewhat squeamish about calling it a “no buy” due to its size and therefore ability to cushion its falls, though research suggests that purchasing into the firm will not do the investor any favors.
To create further ambivalence in the market, Exxon Mobil Corporation (NYSE:XOM) was recently downgraded to “Perform” from “Outperform” by Oppenheimer, with the rationale that it finds itself “challenged to maintain” its production and that “meaningful cost savings are unlikely.”
If there was a winner to be had here, it’d be Chevron Corporation (NYSE:CVX), but in the light of Big Oil’s future (and the fact that Chevron just cut CEO and executive compensation due to a long string of accidents), its like Paul Begala once wrote about a political winner in a weak field: “that’s a dubious honor,” he began, “kind of like being voted the sexiest member of the Supreme Court.”
Jean-Marc Saint Laurent has no position in any stocks mentioned. The Motley Fool recommends Chevron.
