Keep in mind that increasing costs for replacing reserves and the low prices of natural gas in North America could make this goal even harder to reach. I believe that Royal Dutch Shell plc (ADR) (NYSE:RDS.A) can reach its lowest prediction with some effort, but the $200 billion upper limit seems difficult.
Source: Shell Investor Relations, Presentation Slides
View: Bearish
Statoil: 5% yield and 2-3% CAGR forecasted for 2013-2016
With a current $68 billion market value, Norway’s biggest oil and gas group, Statoil ASA (ADR) (NYSE:STO), is small and relatively cheap. The company is sustainable because it replaces the oil it uses. In 2012 alone, it increased production by 8%.
The company also has intentions to keep growing its already attractive dividend. Due to increasing capital expenditures, however (currently around $19 billion), the company’s free cash flow is actually negative after dividends. Fortunately, a return to positive free cash flow is expected by 2016.
If this happens or happens sooner than expected, Statoil ASA (ADR) (NYSE:STO) could benefit from a more realistic valuation. Meanwhile, Statoil investors will enjoy generous dividends. In 2011 and 2012 the company paid $1.15 and $1.07 per year respectively.
View: Bullish
PetroChina: 22.3 billion barrels of oils in reserves and counting
PetroChina Company Limited (ADR) (NYSE:PTR) is a huge corporation with reserves of 22.3 billion barrels of oil. It is located at the heart of the most attractive emerging economy in the world and looks pretty secure as the largest oil and gas company in a nation hungry for oil.
The company’s stock price has declined 17% since early 2013, making shares even cheaper. This decrease is probably due to the short-run effect on profitability that the decrease in the price of gas by 310 RMB a ton had.
The long-run picture has plenty of upsides: PetroChina Company Limited (ADR) (NYSE:PTR) has safe domestic demand in the second largest economy of the world. It also has the ability to access resources in other countries (Europe, Canada, Iraq and Australia), adding more diversification to its revenue sources in the long run. As China shifts from an export-driven to consumption-driven economy, the demand for cars and gasoline is set to rise and will drive cash-flow generation.
View: Very Bullish
The final verdict
If you look at the recent performance of oil companies, you won’t find many reasons to get happy. Looking at the recent bullish momentum changes the picture drastically, however. Decreases in oil inventory shows that demand is increasing, and supply shocks are tightening the supply-demand balance. Investing in oil stocks with a medium-run horizon in mind can be rewarding. Amongst most big players, PetroChina Company Limited (ADR) (NYSE:PTR) with its diversified 22.3 billion barrels of reserves and high-yield Statoil ASA (ADR) (NYSE:STO) are totally worth watching.
Adrian Campos has no position in any stocks mentioned. The Motley Fool recommends Petroleo Brasileiro S.A. (ADR) and Statoil (ADR).
The article Choosing the Best Oil Stock originally appeared on Fool.com and is written by Adrian Campos.
Adrian 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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