COnsidering buying major integrated oil companies and want to evaluate risks - sounds like a long term buy & hold.
Elroy Jetson, Big Dog and some others on the Boom Boom Room thread could give good answers to this.
Kurt Wulff's accouting based assesment would also be useful
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A few notes :
I would look for diversity, buying at least 5 different companies.
Top tier -
The largest companies, Top 4, made from the Seven Sisters, are heavily Anglo Saxon, with some Dutch interest in in RD.
XOM, BP, RD, Chevron-Texaco.
Problem these companies have is replacing their oil. XOM did, RD didn't
These guys are so big as to be _almost_ unsinkable. They have lots of clout with governments all over the world.
Since they have the distribution systems and assets - tankers, storage, gas sttions, pipelines, refineries, etc. - they can make money if the price of crude oil is up or down.
Lots of diversity in assets also means they are in every trouble spot - all 4 are in Nigeria, for example.
They have a depth of experience - If you have drilled ultra deep Gulf of Mexico (all 4), and the North Sea (3 of 4), moderate depth drilling off West Africa is a walk in the park.
More good news - since they have seen Many more geological configurations than their competitors, the can find the best spots worldwide, including spots that the 'local' miss.
They often have special knownledge which they don't share for free - which is why you will see national governments willing to partner with them
The bad news is they are a bit pricey. See Kurt Wulff's take on this.
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Second tier integrated majors, non US
There is another tier which are still very large and capable, but have different origins.
Total Elf (French), Repsol-YPF (Spain, Argentina), ENI (Itay)
These have operations in many countries.
They have some experience with geology and operation in different locations.
With these you can get some currency diversity, geological spread, and they are associated with different economies, so they may have lower stock prices / higher payouts.
Often, their national governments will help them if needed.
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There is a group of mostly North America based Second tier companies - Connoco-Philips, Amerada Hess, Unocal (soon to be bought)Encana, PetroCanada, Kerr-McGee, Occidental, Devon, etc.
Most of these have emphasized growth over dividends. Some have issues like Occidental (CEO compensation, guerilla attacks) or resources which are high cost and need high oil prices, like Cononnoco-Phillips with heavy Alaska and North Sea properties, both with sky - high costs and some depletion.
Recent pricing for these companies may have been based on the assumption of takeovers and mergers, so the stocks could be over priced.
I would avoid most of this group for now. If we get much lower oil prices, it would be time to revisit.
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There are developing country oil companies, Petro China, CNOOC, Petro Brasil, etc.
These tend to be very heavily based in one country.
So they depend on one economy, one currency, and one area's resources, with maybe a few overseas developments.
Their experience tends to be concentrated with the geology of one region.
These companies have smaller shareholder bases, and will rise and fall with fashion (Buffet buys into PetroChina)
If the prices come down, could be worth while for a small peice of the portfolio.
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For a conservative portfolio -
first slice :about 35-50% in top 4
I would put 80% of this slice into XOM and BP.
Chevron is betting on Central Asia, which could blow up.
Shell has reserve replacement and management issues, and lots of Nigeria interests.
BP has a lot of assets in North America, having bought Ammoco and later ARCO. XOM and BP look somewhat similar in terms of which countires they are in now.
Beyond this, all of the top 4 are close to being everywhere, often partenerd in the same projects, and their exposure to country and political risk is similar.
second slice : about 25-35 % in the non-US second tier majors.
Get at least 3 different names.
Third slice : 0-10% in either Country based and/or North Amrican second tier.
I would be willing to sit on cash for a few months to see if a lower price would be availible.
The remainder : There are some closed end funds for oil and gas which often sell at a discount -
PEO Petroluem and Resources is one.
There are one or two decent mutual funds. FSTEX is one I have used in the past.
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Notice no Russia.
Also, no oil sands - they need sustained high prices.
There is some degree of currency and national origin diversity, but mainly buying size, experience, clout, expertise.
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If suitable (and prices come down) a slice of energy royalty trusts may fit well.... |
