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3 Top-Notch Oil & Gas Companies: Exxon Mobil, ConocoPhillips, and Marathon Petroleum

A gradual normalization of economic activity and investor optimism about the effectiveness of COVID-19 vaccines have helped stabilize oil prices since mid-2020. Also, the OPEC+ alliance implemented production cuts and several other actions to curb oil price volatility. So, we think stocks such as Exxon Mobil (XOM), ConocoPhillips (COP) and Marathon Petroleum (MPC) are well-positioned to climb higher as the global economy moves towards pre-pandemic production levels this year. Read on for details.

The oil and gas industry was one of the worst hit industries in 2020 owing to the global shut down of businesses and economic activities since March last year. The COVID-19 pandemic triggered a major collapse in oil prices, intensified by a short-lived yet aggressive Saudi Arabia-Russia price war. Domestic gasoline demand fell by 45% in April 2020, and lower oil prices drove down associated gas production by potentially 10 billion cubic feet per day in 2020.

However, after a period  extraordinary turbulence, oil prices stabilized in mid-2020. Prices picked up strongly as optimism grew around a COVID-19 vaccine. On the supply side, the OPEC+ alliance came to a settlement and implemented production cuts and several other actions to curb oil price volatility. The 13th OPEC and non-OPEC Ministerial Meeting (ONOMM) held on January 5 reconfirmed the decision made at the 12th ONOMM to increase production by 0.5 mb/d beginning this month to meet rising demand.

With the gradual resumption of economic activity, demand for crude oil has been recovering from the all-time lows and is expected to return to near pre-pandemic levels soon. While the clean energy drive is a potential threat to this industry, the demand for crude oil is expected to hold steady for the foreseeable future because  the cost of renewable energy infrastructure is very high. With most countries focusing on economic recovery over the next couple of years, we think companies such as Exxon Mobil Corporation (XOM), ConocoPhillips (COP) and Marathon Petroleum Corporation (MPC) will deliver promising results in the upcoming quarters.

Exxon Mobil Corporation (XOM)

XOM is one of the largest refiners and marketers of petroleum products and other specialty products. The company operates through Upstream, Downstream, and Chemical segments. The company is primarily involved in the exploration and production of crude oil and natural gas.

In late November, XOM announced its plan to prioritize near-term capital spending on advantaged assets with the highest potential future value. The company expects to invest $16 billion to $19 billion in capital and exploration expenditures in 2021, and $20 billion to $25 billion annually through 2025. The emphasis on high-grading the asset base should l improve earnings power and cash generation and rebuild the company’s balance sheet capacity to manage future commodity price cycles.

In December, XOM and PETRONAS jointly discovered hydrocarbons located offshore Suriname. This discovery will extend XOM’s leading position in South America and further strengthen XOM’s industry-leading portfolio of resources.

Also in December, XOM announced its plan to reduce the intensity of operated upstream greenhouse gas emissions by 15- 20%, along with a 40 - 50% decrease in methane intensity, and a 35 - 45% decrease in flaring intensity across its global operations by 2025. This is consistent with  XOM’s sustainable policies that promote cost-effective, market-based solutions that  address the risks of climate change.

XOM’s Oil equivalent production has increased 1% sequentially to 3,672 kbd in the third quarter ended September 30, 2020. Its total revenues have increased 1.4% from its  year-ago value to $46.20 billion, while its EPS improved 42.3% sequentially over the same period.

Analysts expect XOM’s EPS to grow at a rate of 13.6% over the next five years. The stock has gained 16.5% over the past six months.

How does XOM stack up for the POWR Ratings?

B for Trade Grade

B for Peer Grade

B for Overall POWR Rating.

It is currently ranked #4 of 109 stocks in the Energy - Oil & Gas Industry.

ConocoPhillips (COP)

COP is an independent exploration and production company. The company explores, produces, transports and markets crude oil, bitumen, natural gas, liquefied natural gas (LNG) and natural gas liquids.

On January 15, COP completed its acquisition of Concho Resources in an all-stock transaction for 1.46 shares of ConocoPhillips common stock for each are of Concho Resources stock. The acquisition will help the company deliver differential performance on three key mandates: providing affordable energy to the world, generating superior returns on capital and demonstrating ESG leadership.

In late December, COP announced a new oil discovery estimated to be between 75 million and 200 million barrels of recoverable oil equivalent in the Norwegian Sea. This discovery represents a very low cost of supply  that is expected to extend COP’s  multi-decade success on the Norwegian Continental Shelf.

Despite 2020’s historic volatility  for the industry, COP’s total underlying production (excluding Libya) has increased 11.3% sequentially to 1065 MBOED in the third quarter ended September 30, 2020. Its adjusted EPS improved 66.3% over the same period.

Analysts expect COP’s revenues to grow 25% year-over-year to $6.02 billion in current quarter (ending March 31, 2020). The stock has gained 15.3% over the past six months.

COP has an overall rating of “Buy” with a “B” for Trade Grade and Peer Grade. It is currently ranked #6 out of 109 stocks in the same industry.

Marathon Petroleum Corporation (MPC)

MPC is a leading, integrated, downstream energy company engaged in refining, marketing, retail and transportation of petroleum products primarily in the United States. The company operates through three segments: Refining & Marketing, Retail, and Midstream.

MPC’s income from continuing operations in the midstream segment has increased 4.5% year-over-year to $960 million in the third quarter ended September 30, 2020, while income  for the corporate segment improved 4.4%.

The consensus EPS estimate for the current quarter ending March 31, 2021 indicates a 415.5% improvement year-over-year. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in each of the trailing four quarters. MPC has gained 25.6% over the past six months.

MPC’s POWR ratings reflect this promising outlook. It has an overall rating of “Buy” with a “B” for Trade Grade, and Peer Grade. It is currently ranked #9 of 109 stocks in the same industry.

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XOM shares were unchanged in after-hours trading Thursday. Year-to-date, XOM has gained 16.72%, versus a 2.77% rise in the benchmark S&P 500 index during the same period.

About the Author: Rishab Dugar

Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands.


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