Canadian Oil Bonanza

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ExxonMobil (NYSE: XOM), the number one ranked company on the Fortune 500 list, made a big announcement last week. It plans to spend upwards of $14 billion to extract oil in the Atlantic Ocean off the coast of the Canadian province of Newfoundland. 


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The Hebron field, first discovered in 1980, contains an estimated 660 million to 1 billion barrels of recoverable crude. ExxonMobil, which has 36% of the equity in the project, and its partners, plan to pump 150,000 bpd from Hebron beginning in 2017.


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The announcement adds to other reports which indicate that the boom in the North American energy industry will continue. Recently it was projected that the United States will become the world's number one oil producer by 2020, surpassing Saudi Arabia. Within two years the U.S. will also become the largest natural gas producer in the world.

These developments will not necessarily result in lower prices at the pump, but do have the potential to contribute to improved overall economic growth and corporate profits in this part of the world, including at the companies involved in the Hebron project.

The other major partners include Chevron (NYSE: CVX) (26.7% equity), Suncor Energy (NYSE: SU) (22.7%) and the Canadian subsidiary of the Norwegian company Statoil (ADR) (NYSE: STO) (9.7%).

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Although I tend to focus more on the long term, recent earnings reports showed a short term slowdown at some of the companies involved in the new Canadian project.

Chevron's latest quarterly report indicated a 30% decline in EPS (10% on a TTM basis). Company earnings are projected to decline again this year. However, the company does have a few things going for it: a low debt level, a competitive P/E (below its peers and the overall market) and a chunky divided yield of 3.28%.

Suncor has had mixed results lately. While revenue growth has been strong over the past half decade earnings have been relatively flat, in spite of a 20% rise last year. Growth is expected to slow down again next year, mirroring the overall market. The company does have low debt levels and pays a $0.52 per share dividend. 

Statoil has been performing well of late. Earnings and revenue growth have been robust. And it could be considered a value-orientated stock -- its P/E is around 6. Other strong points are a relatively low amount of long term debt and higher margins than some of its peers. For example, ExxonMobil and Chevron have gross margins 5 and 12 points less than the 40% of Statoil. Of all the partners in Hebron, Statoil may have the strongest case for an investment.

ExxonMobil's earnings, although beating consensus late last year, are expected to be flat this year. Like Statoil and Chevron it has a low P/E multiple. It generates plenty of cash and has a very small amount of debt. The company pays a $2.28 per share dividend and has a history of increasing it every year. It could be considered for both an income and a value-oriented portfolio.

So it looks like the North American oil industry is poised for more growth. Several exploration and production companies will start reaping some rewards in a few years. I'd bet we'll see more of this in the near future.


Mathman6577 has no position in any stocks mentioned. The Motley Fool recommends Chevron and Statoil (ADR). The Motley Fool owns shares of ExxonMobil. 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!

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