Although renewable energy is making inroads, the global economy still relies on petroleum products.
This week Norway approved the development of 19 oil and gas fields. In the U.S., the Biden administration in March greenlighted a huge oil-drilling project in Alaska. Meanwhile, an analysis by Rystad Energy and The New York Times in April showed hundreds of new production projects have been given the go-ahead over the past year around the world.
Although the energy transition away from fossil fuels such as coal, oil and natural gas is well underway, there is still a long way to go when it comes to the decarbonization of the global economy.
With that in mind, here is a look at some of the top oil and gas companies that are still going to be producing for years to come.
Keep in mind that oil and gas prices are notoriously volatile, as they are linked to broad economic health as well as production decisions by oil- and gas-producing nations. The energy transition also poses a systemic risk to these companies, but they have deep enough pockets to invest in renewable energy, carbon capture or other carbon-reducing technologies.
“The biggest risks of oil and gas stocks stem from potential recessionary risks as well as the potential for OPEC to increase production,” says Robert Johnson, finance professor at Creighton University.
|STOCK||DIVIDEND YIELD||MARKET CAP|
|Exxon Mobil Corp. (ticker: XOM)||3.5%||$428 billion|
|Occidental Petroleum Corp. (OXY)||1.3%||$51.9 billion|
|Chevron Corp. (CVX)||3.9%||$293.1 billion|
|Marathon Petroleum Corp. (MPC)||2.7%||$50.2 billion|
|EQT Corp. (EQT)||1.5%||$14.7 billion|
|Valero Energy Corp. (VLO)||3.5%||$42.1 billion|
|PBF Energy Inc. (PBF)||1.4%||$5.3 billion|
Exxon Mobil Corp. (XOM)
Exxon Mobil is not only one of the largest oil and gas companies out there, it’s also one of the biggest companies, period.
That size gives investors a certain expectation of stability, especially because of the diverse ways the company makes money.
The company’s upstream unit produces oil and gas, its downstream unit refines petroleum into fuels, and another segment is one of the largest chemicals producers in the world.
“XOM sells at a lower-than-market multiple on a forward earnings basis,” Johnson says. “It has an attractive forward dividend yield … and sells at a substantial discount to the market on a price-to-sales basis.”
Occidental Petroleum Corp. (OXY)
Warren Buffett, through Berkshire Hathaway (BRK.A, BRK.B), has been amassing shares of Occidental Petroleum, providing a deep-pocketed backstop against big declines in the company’s share price.
“Berkshire owns nearly 25% of OXY,” Johnson says. “It appears to have several qualities that make it a compelling value investment.”
The company sells at a forward price-to-earnings ratio that Johnson says is a big discount to the S&P 500’s forward P/E ratio.
Johnson notes that OXY also sells at a substantial discount to the market on a price-to-sales basis.
Chevron Corp. (CVX)
Chevron is a vertically integrated major oil and gas company, meaning it produces oil and gas in an upstream unit, transports petroleum products in a midstream segment and refines petroleum into usable products and sells them in its downstream unit.
“It has a strong balance sheet and a history of stable dividends, making it an attractive option for income-focused investors,” says Paul Wood, a business strategist and chief technology officer at COG. “Chevron is also investing in renewable energy technologies, which could provide growth opportunities in the future.”
In its U.S. downstream segment, refinery products sales were up 3% in the first quarter from the year prior, primarily because of higher renewable fuel sales after Chevron’s acquisition of Renewable Energy Group. The unit also sold more jet fuel.
Marathon Petroleum Corp. (MPC)
This company is focused on the downstream end of the oil and gas business. Its refinery business is focused primarily on the U.S. Midwest, West Coast and Gulf Coast regions.
It refines crude oil and other feedstocks, and purchases ethanol and refined products for resale. Its Speedway retail business segment sells transportation fuels. “It has a strong presence in the midstream and downstream sectors, which could provide some insulation against fluctuations in oil prices,” Wood says.
Marathon’s midstream segment is mostly operated by MPLX LP (MPLX), Marathon’s master limited partnership that transports, stores, distributes and markets crude oil and refined products and gathers, processes and transports natural gas as well as other activities.
Wood cautions that Marathon’s performance is closely tied to the health of the global economy, making it vulnerable to economic downturns.
EQT Corp. (EQT)
With operations in the Marcellus and Utica shales of the Appalachian Basin, EQT is the largest U.S. natural gas producer.
That means EQT is well positioned to take advantage of the longer-term trend of the commodity being used as a transition fuel helping to bridge the gap between coal and renewables.
“It has a strong position in the Marcellus Shale, one of the most productive natural gas fields in the country,” Wood says. “The company’s focus on natural gas could make it a good option for investors looking for exposure to this segment of the energy market.”
Valero Energy Corp. (VLO)
Valero is another downstream energy company. It manufactures and markets transportation fuels and other energy products. Its refining operations turn crude oil into petroleum products such as gasoline, propane and asphalt.
“Valero is one of the largest independent petroleum refiners in the world,” Wood says. “It has a diverse portfolio of refining assets and a strong track record of delivering solid returns.”
However, Valero’s performance is closely tied to the spread between crude oil and refined product prices, which can be volatile, Wood says.
PBF Energy Inc. (PBF)
This downstream company owns and operates six oil refineries in California, Delaware, Louisiana, New Jersey and Ohio.
It also has a substantial holding in PBF Logistics LP (PBFX), a master limited partnership it formed to own or lease, operate, develop and acquire crude oil and refined petroleum products, terminals, pipelines, storage facilities and similar logistics assets. The MLP receives, handles, stores and transfers crude oil, refined products, natural gas and intermediates from sources in the U.S. and Canada for PBF Energy and third-party customers.
Owning PBF Energy is “high-risk and potentially high-reward,” Wood says. “PBF comes with a high level of risk due to its smaller size and higher leverage compared to its larger peers, but the smaller size could mean a larger upside if it performs well.”
Source : usnews