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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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Oil Companies Market Caps Crushed By Oil Crash

Oil Companies Market Caps Crushed By Oil Crash

It is not just small companies that are being hurt by the plunge in oil prices. Around the world many of the biggest companies by revenues are oil firms. The outlook for many of these firms is bleak if oil prices continue at present levels. In addition to costing many of the biggest firms substantial profits, the oil price collapse has caused the stock market capitalization of these same firms to crater.

In North America for instance, two of the largest five companies by revenue are oil firms. Exxon Mobil ranks at #2 in size for revenue behind Walmart. Since the start of the oil price spiral, Exxon has seen its stock price fall roughly 25 percent or about $105 billion in value. Competitor Chevron ranks #3 by revenue in North America and has seen its stock price fall a similar amount.

Latin America and South America face similar issues. South America’s largest company by revenue, Petrobras is a basket case mired not only in difficulties surrounding the price of oil, but in its own internal corruption issues, and the general economic slowdown of Brazil.

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Mexico’s PEMEX, Venezuela’s PDVSA, Mexico’s America Movil, and Brazil’s Vale round out the top five companies by revenue for the Latin America/South America region. None of those firms are doing well. Only Vale is not an oil company, still it is being hobbled by many of the same issues hammering oil prices like weak international growth and China’s increasingly hard economic landing.

In Europe, the top 3 companies by revenue are Royal Dutch Shell, BP, and Total. All three oil companies are in at least as bad a shape as Exxon and arguably worse. European energy companies lack experience with new technologies like shale oil, and many are reliant on projects with foreign governments which are likely to come under increasing pressure in the future as oil producing nations face worsening budget situations and look for revenue anywhere they can. Royal Dutch Shell’s American ADRs are off by almost half since the price swoon began reflecting the difficulty the market expects Shell to face going forward.

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Finally in Asia, Sinopec Group and China National Petroleum are the top companies by revenue and each is struggling against twin headwinds of a low oil prices combined with a weakening domestic economy and the attendant pressure from the Central government.

All of these firms have been hammered by the oil price plunge and those with publicly traded stocks have seen their prices reset accordingly. Investors should not assume these companies are a good bargain at present levels just because they traded at higher prices historically though.

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Take Exxon for instance. According to SEC filings, the stock’s revenues peaked in 2011 at $467 billion. In 2013, revenues were $420 billion, for the full year 2014 revenues were $394 billion. Full year 2015 results have not been released by the company yet, but based on the quarterly numbers and present oil prices, revenues for the full year 2015 will probably be around $270 billion. That 42 percent fall from peak revenue production is broadly representative of the challenge most firms are facing. Chevron, Royal Dutch Shell, BP, and other oil majors have all seen double digit revenue declines, while profits have been halved in the last year alone.

Of course for all the pain in the oil majors’ court, the situation is much worse for smaller companies. In the long run if these smaller firms are forced to liquidate assets, the larger oil companies may be the only ones in a position to buy, and that could help the firms grow even larger when oil prices eventually do recover.

By Michael McDonald of Oilprice.com

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  • ashfaq on February 05 2016 said:
    Let see what happen in future with oil but previous analysis are showing that it can back at any time.

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