Big Oil

[Viking]

Big oil looks to be getting pretty beat up. XOM is trading at under $60 = about where it was 5 years ago (and down from +$90 mid 2008)... appears they do not like the XTO nat gas purchase. Somewhat surprising to me, COP has held up pretty well the past year and it is still well above its 52 week low = $38. TOT is down 33% since January and now sports a dividend yield of about 6%. Analysts seem to prefer CVX (likely due to its concentration on oil).

 

With oil priced north of $70 earnings at all of these companies will be very good. While its looking like a major competitor is going up in smoke (BP) I have to think this is good for non-Gulf producers (like XOM). The key risk I see is if global demand for oil slows (we go back into recession); I give this perhaps a 25% chance of happening. Fortunately many of these companies have pretty clean balance sheets with lots of cash on hand, low or manageable debt.

 

Bottom line is I like the risk reward and likely will establish a 5% position, likely in XOM and TOT.

 

Would be interested in hearing what others think (I think some were following COP)???

[Crip1]

While I have not looked thoroughly, BP has piqued my curiousity. The well documented issues in the Gulf of Mexico are really pounding the price, to the extent that BP ius sporting a yield of 9%. Though this mess in the Gulf will cost them a pretty penny, they have a pretty penny and then some. It would appear highly unlikely that BP will cease to exist after this (Exxon survived the Valdez, JNJ survived the Tylenol scare, etc). It is also highly unlikely that the planet will no longer need oil in the next 5-10 years. So, while there is some downside (Congressional investigations which are, at least in part, US elected officials mugging for the cameras), there is limit to the downside. The price will most lilkely decline further, but the valuation certainly looks compelling right now.

 

The upside? Provided oil prices remain at or near current levels, BP is spewing cash. It may take some time, a 9% cash yield on my investment while waiting is fine by me.

 

Thoughts?

 

-Crip

[Viking]

I have been watching BP for the past couple of weeks and almost bought last week just before 'top kill' was to happen (thinking that most of the bad news was built in and that given a 60 to 70% chance of success). And then 'top kill' failed and the bottom fell out of the stock again.

 

My concern with BP is I just have no way of assessing the current situation as there is so much yet to be understood. I also expect the negative publicity and backlash to actually get worse in the coming weeks and months as the environmental damage begins to hit the region hard (reported 24/7).

 

Having said all that, BP certainly has fallen in value a huge amount...

 

I decided to go the safer route and today bought XOM & TOT. They are trading at multi-year lows, are very profitable at $70 oil, have solid balance sheets and sport good dividend yields (XOM = 2.9% and TOT = 5.6%). Being a Canadian investor, I also like the purchase with Can$ now trading back over US$0.96 and I also like getting a little exposure to the Euro given its dramatic fall the past few months (versus US and CAN$).

[Partner24]

My concern with BP is I just have no way of assessing the current situation as there is so much yet to be understood.

 

I second that.

[beerbaron]

Anybody has seen some numbers on the market value of BP's assets before the spill (not BV)?

 

Is there some debt available beside's common stock?

 

BeerBaron

[Myth465]

That number keeps going up. Many think the Dividend may have to be cut. The criminal investigations dont bode well either.

 

The latest estimate of gross liability for the Gull oil spill is up to $37 billion ($15 billion to $23 billion for cleanup and $14 billion in claims) from Credit Suisse. Those numbers do not include possible punitive damages awards or fines, which one report on Bloomberg today said could be as much as $9 billion. In combination, those numbers amount to $46 billion.

 

Read more: http://community.nasdaq.com/news/2010-06/gulf-of-mexico-oil-spill-liability-payment-capacity-view.aspx?storyid=23423#ixzz0pjTXbYu2

 

---

 

It seems as though we are getting an even better deal on Total with the Euro mess. I tend to not like the larger oil companies, but there is value in this space.