Your Oil And Gas Stocks Simplified!
Shaunak is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
BP (NYSE: BP) has been in the news lately regarding sale of its gas fields with the sale of their North Sea Oil holdings which is valued at about $1.1 billion. They have also come to a deal with SSE which will get them $288 million for 50% non-operated stake in the Sean field.
Through a few such off loadings, BP has actually been able to push up their earnings for the quarter by about 12%. BP's dividend yield of 5.3% seems to be one of the best in the industry, making it very an attractive stock indeed. After all, you will probably get less if you put your money in the average savings account!
So how is BP able to give this dividend while others in the same industry fail to?
Well the answer is very evident as this rich dividend payout is a direct result of the $38 billion they've got from gas field sales. They have a very attractive dividend ratio, nearly 30% of the net income, which basically means that when the company makes money it'll trickle down to the shareholders as a decent blob of earnings from their shares. The question here is if this will continue and if not, how is BP going to fare in the next few years?
What does the Future Hold?
So what does the future hold for BP? Where will the profits come from BP? These are questions that need to be answered to truly judge if BP really is an attractive buy or is it just too good to be real.
Russia is probably where BP is looking at to push up their oil production capabilities and why shouldn't they?
The country has the largest reserves of crude waiting to be explored. The current capacity is nearly 11 million barrels a month for the region. Although the conditions under which exploration and production is carried out is inhospitable to say the least, I doubt it will stop a hungry oil giant raring to post good profits.
I believe that BP is trying to draw investors by posting good dividends. They're making themselves seemingly attractive so that investors stick on to them in the future with hopes of reaping benefits.
What I personally feel is that the rich dividend payout will not continue and their growth will be constricted. If you own a BP stock already, hold on to it. There is less chance of your investment growing with BP in the next few years. It won't be until they start increasing their oil production capabilities in places like Russia that we would be able to see some consistent dividends. Its a bit too late to invest in BP as there are better options even in the same industry. Bottom line- divert your investments elsewhere!
Sending Out Clearer Signals
ExxonMobil Corp.(NYSE: XOM) has been making some strategic acquisitions with the likes of Denbury Resources and Celtic Exploration which will allow them to churn out oil to the tune of over 1 billion barrels a day in a couple of years from the Bakken Region in the Williston Basin of North Dakota.
Apart from acquisitions, XOM is concentrating on explorations at offshore locations in South Africa which is an area of interest for their market competitors as well.
Although XOM has seen a fall in production in the last 5 quarters, these moves will help them overcome their slump and enable them to produce a lot more in the next few years. They remain a good buy in my books and the future looks bright for XOM stocks. A low D/E of 0.07 is just another sign that the company is well run and relatively stable $8.3 billion long term debt makes it an even better, stable deal.
Chevron (NYSE: CVX) might not be as big as ExxonMobil in its oil production capacity but they sure are aiming high. CVX has plans to invest heavily- nearly $37 billion on exploration in the next fiscal. CVX will definitely reap the benefits of its investment in the next 3-4 years and by 2017 they hope to come achieve a production capacity of over 3 billion barrels a day.
A profit margin of nearly 11% and a Debt to Equity ratio of 0.09 along with a forward P/E of 9.05 makes CVX a very good investment and a must have in the portfolio. I'd buy now, straight away!
That was a look into few of the more talked about stocks or rather the stocks that caught my attention in the Oil and Gas industry. Till next time!
Shaunak88 has no position in any stocks mentioned. The Motley Fool recommends Chevron. 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!