At home, however, PetroChina Company Limited (ADR) (NYSE:PTR) has to wrestle with tight government regulation. Hence, the firm enjoys a great potential for new customers, but authorities regulate prices, limiting revenues. Nevertheless, the company will be able to expand to the coast from its settled inland base. So its market share will increase, but revenues may not be exorbitant.
Last, PetroChina Company Limited (ADR) (NYSE:PTR) has posted the greatest growth in the industry in the last 3 years. However, net growth and operating margins are well below industry averages. So given the stock is trading at almost a 40% premium, it is recommended to HOLD until its gas investment becomes profitable and some action is taken to control its rising debt.
Protests and isolation
Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) is the leading South American oil company. It is not associated to a socialist regime, and has pulled out of Argentina when the time called for such a move. Also, issuing $11 billion in debt while taking some advantage of the Brazilian economy will put managements’ skills to the test. Moreover, new oilfields were found around the Brazilian coast over the last few years, providing great exposure to deepwater oil.
The catalysts for Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) are the upcoming sports events to be hosted by Brazil. Demand for oil-refined products will increase, putting pressure on the company to deliver and meet world expectations. Recently taken debt should be thought in this context also, and not as a worrying sign. Debt is an issue that management has taken note of, and presented a plan to reduce its impact via cost cuts. Also, Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) reduced international exposure by leaving the Argentine market and isolating itself to the Brazilian market. The decision helped the company to meet domestic diesel demand and increase cash inflow.
In the end, Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) is trading with a 50% premium, even though prices have been declining steadily since 2009. Petrobras remains a risky investment, especially taking into account recent protests. It is recommended to HOLD until the company sets finances back on the right track, and social unrest settles down.
Bottom line
Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) is financially unhealthy at this point, and Brazil is suffering from increasing social disorder. On the other hand, PetroChina Company Limited (ADR) (NYSE:PTR) is better financially, has diversified risks, but the share price premium remains too high. So ExxonMobil is the best buy due to a lower premium, generation of a wide economic moat, and nearly spotless financials.
The article Oil & Gas: 3 Competing World Stocks originally appeared on Fool.com and is written by Damian Illia.
Damian Illia has no position in any stocks mentioned. The Motley Fool recommends Petroleo Brasileiro (NYSE:PBR) S.A. (ADR). Damian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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