Want to invest in the oil majors? Take a look at Chevron and Royal Dutch Shell, but steer clear of ExxonMobil, BP, and Total.
That is the conclusion from a new analysis from Tudor, Pickering, Holt & Co., which identified Chevron and Shell as the best of the lot. The reason for choosing Chevron, for instance, is that the American oil major will have high-margin growth, largely due to the completion of several large-scale projects. The Gorgon LNG project is one example – with huge capex requirements behind it, Chevron will enjoy free-cash-flow turnaround. Tudor Pickering Holt also likes Chevron’s “top quality” Permian Basin assets.
For Shell, it is much more about the dividend, which Tudor Pickering describes as “safe.” Shell is in the midst of a $30 billion asset sale, which could be difficult to pull off. But Tudor Pickering is more optimistic, calling the disposal campaign “achievable,” helping Shell to slash its debt pile and return to share buybacks.
If Tudor Pickering Holt is keen on Chevron and Shell, it is less so on some of its peers. BP has a “stretched” balance sheet, in large part because of its massive liabilities related to the 2010 Deepwater Horizon disaster. Total has high debt levels and a dearth of new long-term projects, which could hurt growth. And what about the world’s largest publicly traded oil and gas company? Tudor Pickering Holt argues that Exxon faces growth challenges as well, “which should weigh on its premium valuation.” Related: Big Oil Could Spark A Renaissance In U.S. Shale
The oil majors were not without their own news in recent days. Exxon announced a very large oil discovery off the coast of Guyana, which might go a long way to improving its growth prospects. Separately, Chevron and Exxon, along with some partners, announced their decision to move forward with a $37 billion expansion of the Tengiz oil field in Kazakhstan, one of the largest final investment decisions in two years. Investors may differ on whether or not the decision is a smart one, but the oil majors are clearly still pursuing growth.
By Charles Kennedy of Oilprice.com
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