Tuesday Integrated Wrap-Up: Earnings from BP; PBR Gains; CVE Slips
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Integrated oil stocks outperformed the S&P 500 index +0.80% to +0.20% in today's session. Industry leaders included Tesoro Corp. (NYSE: TSO), a security I reported on yesterday, and Petroleo Brasileiro (NYSE: PBR). These stocks rose 4.77% and 1.84% on volumes of 7.42M and 14.40M, respectively. Industry laggards included Cenovus Energy Inc. (NYSE: CVE) and Suncor Energy Inc. (NYSE: SU). These securities fell 1.20% and 1.00% on volumes of 1.12M and 4.64M, respectively.
Sector-wide news included crude gaining on Greek optimism; the nation of Cambodia announcing that it expects to start offshore production by the end of this year; and a commentary on the continued collaboration and business ties between China and Mid-East nations.
BP (NYSE: BP) reported earnings today that are difficult to decipher. In one account, a fellow Fool stated that BP's EPS were $0.40, in another, Zacks investment research held that BP's EPS were $1.59, and in yet another, BP self-reported EPS of $2.41. These discrepancies demonstrate the difficulty analysts are met with when determining earnings for international companies. What exchange rate did each report use? Did these analysts include post-Deepwater credits owed to BP? Are these figures for BP's ADRs only? Only BP's report answers these questions (they used a per ADR measure, included post-Deepwater credits, and utilized a $1.29 per Euro rate of exchange).
Regardless of the exact EPS estimate however, savvy investors should note BP's reserve-replacement ratio. In one interpretation BP states that it was 103%. This figure would demonstrate that BP's excellent YoY revenue growth (14.7%) is likely to continue, but the fine print states that this is a life-of-field measurement, not a life-of-license measurement.
The difference here is whether or not the company is projecting reserve-replacement on the basis of their existing contractual agreements, or the estimated total reserves in their fields of operation without license consideration. If one utilizes the more conservative, life-of-license measurement, BP's reserve-replacement ratio comes in at a less than stellar 83%. This figure lags behind ConocoPhillips's 112% and is leagues behind Chevron's 171%.
Everything considered, I believe investors should look elsewhere if they are looking for integrated oil exposure in their portfolios. BP's post-Deepwater situation is still quite messy, its total potential exposure could reach $40B, and its financial statements will be laden with caveats and one-time adjustments (positive and negative) for the foreseeable future.
Petroleo Brasileiro's shares rose today on news that it expects to sign contracts to complete eight floating offshore oil platforms in the first half of 2012. Petrobras shareholders should be delighted with this news because these platforms will be installed at fields in the BM-S-9 and BM-S-11 blocks in Brazil's Santos Basin which is estimated to hold 50 billion barrels of crude.
Buy-and-hold investors would do well to glance these shares over: Petrobras has some compelling relative valuations, and at a macro level, the demand for oil does not appear to be going anywhere but up for at least the next decade.
Currently, Petrobras's gross margins (38.17%), operating margins (19.24%), P/B (1.07) and P/E (9.16) significantly best industry averages. Further, the company's reported 2011 reserve-replacement ratio of 114% should only grow larger when the above mentioned platforms reach maximal production. With energy demands predicted to rise 45% out to 2035, these valuations appear low, and the company's reserve strength is a major boon.
All told, I believe Petorbras's shares will outperform the market over the next few years. I believe it so strongly I am adding it as a CAPS call in order to demonstrate transparency, and in the hopes that some readers will join the CAPS community as well. Check CAPS out at: http://caps.fool.com/.
Cenovus Energy Inc.'s shares fell today even though a recent interview with the company's VP of new resource plays presented some impressive forward-looking figures.
Overall, the Calgary-based company operates predominately in Canada and has 2.1B bo/e in reserves. Last year's production forecasts were 135,000 bo/e per day, and the company managed a very close 133,496.
Today's interview saw the VP of new resource plays revisit these numbers and project production rates of 500,000 bo/e daily for the next ten years. Sadly, much of this future growth is already factored into Cenovus's current valuations. The company's P/E (23.47), P/S (1.91), and P/B (3.09) are altogether too high for buy-and-hold investors to consider purchasing any shares in my opinion.
Everything considered, growth for Cenovus is projected to total 21% in 2012, and the company has $3B to $3.5B to fund future operations. If a significant pullback in share-price occurs over the coming months, buy-and-hold investors should certainly consider Cenovus.
Motley Fool newsletter services recommend Petroleo Brasileiro S.A. (ADR). The Motley Fool has no positions in the stocks mentioned above. maxwellkirchhoff has no positions in the stocks mentioned above. 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.