Which Oil Stock is Both Cheaper and Better Exposed to (Higher) Brent Crude Oil Prices?
An unusually wide disparity between the price of oil produced in North America and much higher priced oil in other parts of the world shows no sign of easing. The gap presents a challenge to the big three U.S. based oil and natural gas producers, ExxonMobil (XOM), Chevron (CVX) and ConocoPhillips (COP).
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In the first three quarters of 2012, for example, ConocoPhillips realized prices for its oil ranging from $78.44 a barrel in Canada to $126.06 in Vietnam. Two closely watched oil price benchmarks -- the West Texas Intermediate price reflecting central U.S. production and the Brent Crude price quoted for North Sea oil -- have diverged significantly for more than two years.
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The price gap reflects robust U.S. energy production and a lack of sufficient infrastructure to move the output from the central part of the country to international markets and the U.S. east coast, where the Brent price applies. Domestic oil giants Exxon, Chevron and ConocoPhillips have invested heavily in harvesting previously unavailable oil and gas in the United States and Canada and are unlikely to trim their North American production any time soon.
As a result, the domestic vs. international energy price gap is a creature of their own making. How they manage it matters to investors. As the gap persists and the sluggish outlook for U.S. economic growth remains, Chevron holds an edge in capturing the price premium available outside landlocked North America.
Based on third-quarter 2009 and 2012 financial reports, Chevron has held a slightly steadier level of international production. After three years of a tepid global economic recovery, barrels-per-day overseas output is down 18.7% at ConocoPhillips, 12.4% at ExxonMobil, and 9.3% at Chevron. In the last three years, non-U.S. production as a share of total worldwide oil production has slipped at ExxonMobil and ConocoPhillips but edged higher at Chevron.
Looking at capital expenditures, all three companies trimmed their cap-ex spending earmarked for non-U.S. production in the last three years as they ramped up U.S. investments in shale oil and natural gas. But Chevron has an edge in non-U.S. cap-ex. Through the first three quarters of 2012, Chevron had earmarked 75% of its worldwide cap-ex spending to non-U.S. production projects, compared to 71% at ExxonMobil and 55% at ConocoPhillips.
None of the three companies has signaled any intention to reverse its current strategy to chase higher oil prices outside North America. But Chevron, with a slightly more favorable PE ratio than ExxonMobil, seems to be in the best position to capture the international oil price advantage.
Bill Barnhart, a contributing editor at YCharts, is a 36-year veteran of business reporting. Most recently he was the financial columnist for the Chicago Tribune, where he offered daily commentary on financial markets. He is a past president of the Society of American Business Editors and Writers. He can be reached at editor@ycharts.com.
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