Oil Companies Just Don't Go Down Easy

Josef Ray is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The market for domestic energy has been booming fairly recently, fed by the processing and use of natural gas. Companies that provide energy have invested billions into tapping resources that sit miles below the Earth’s surface in order to offer cheaper heating, fuel for vehicles, plastics, and other needs. The industry is currently in the throes of a petrochemical renaissance, as alternative forms of energy have yet to take over. One of the companies taking advantage of this boom is Royal Dutch Shell (NYSE: RDS-A), which is undergoing many developments for more efficient and lucrative operations.

Being Optimistic Despite of the Disappointment

The company’s efforts for expansion have not gone as smoothly as investors have hoped. For example, the start of the year saw Royal Dutch Shell PLC suffer setbacks in its attempt to obtain oil in the Arctic waters of a site in the United States, wherein an offshore rig disconnected from the ships that towed it in waters that were, unfortunately, less than pacific. Also, Jan. 31 saw RDS report low earnings of $5.6 billion, a disappointment when compared to forecasted profits of $6.3 billion. However, the year’s profits did grow by 15% compared to the same period of 2011.

In the beginning of 2013, reports from Dow-Jones stated that an upcoming partnership with Hyundai Oilbank would begin with the construction of  a venture-based plant for oil manufacturing that would increase production and supply to China and other parts of Asia; the site being in Daesan, South Korea. More good news for investors included the company setting aside $19 billion on a Qatar GTL (gas to liquid) facility for more revenue, although it was not expected that spending would be thrice the initial estimates, with present operations raking in an additional 235,000 oil barrels per day to total company production. There are also plans in establishing an ethane facility outside the borders of Pittsburgh to harness the reserves of natural gas, with the developments costing over $2 billion. The outlay of capital may seem high, but as long as the prices of natural gas and the demand for it are stable, RDS and other mainline energy providers would eventually recover from these pitfalls and stay in the black for quite a while.

Players in the Oil Industry Sees Growth

Chevron (NYSE: CVX) has a brighter outlook, profit- and stock-wise, with earnings expected to shoot up to $260 billion, a projected EPS increase of 18%, or $2.58 per share, compared to 2011’s fourth quarter. 17 out of 24 analysts rate the stock at a minimum rating of “buy.” Its closing price of $115.20 for Feb. 4 is not so far from its high of $118.53 for fifty-two weeks preceding, but leagues away from its $95.73 nadir.

ExxonMobil (NYSE: XOM) also appears to be a good buy, as earnings expectations for the year aren’t expected to affect long-term profits, although oil prices for 2012 were not as beneficial for investors. It is also relatively near its fifty-two-week high of $93.67 when it closed at $89.15 for Feb. 4’s trading day, and has an EPS that improved 11.7% from the year prior, or total per-share earnings of $2.20 over the previous year’s $1.97.

The shale formations found in the US and parts of North America are obviously of significant benefit to RDC and its competition, as the massive amount of natural gas therein virtually guarantees a cap on prices for the coming years; said stability, of course, being proportional to the stability and earnings or growth potential of related stocks.

Some Words on Shell’s Pace

Along with Obama’s drive to ensure sustainability and reduced reliance on oil from foreign countries, forecasts predict that stocks in the energy industry and companies such as Royal Dutch Shell will be coasting on record-low prices for natural gas. Current and future investors alike will see its development as a boon despite of the upward trajectory of Royal Dutch Shell’s capital spending (as analysis from Merrill Lynch reports). Consider the fact that their confidence in garnering such costs only indicates that the company is optimistic when it comes to returns that will be generated from various market strategies and expanded business operations.

JosefRayDagatan has no position in any stocks mentioned. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus