Why The United States Has Outperformed Europe

It's fair to say that US international oil companies have not had a good year so far. Year to date, Chevron (NYSE: CVX  ) and ExxonMobil (NYSE: XOM  ) have only risen 9% and 1% respectively compared to the S&P 500, which has gained 19%.

On the other hand, European international oil companies, such as France's Total SA (NYSE: TOT  ) , Norway's Statoil  (NYSE: STO  ) and Italy's Eni SpA (NYSE: E  ) have had an even worse year so far, with all but Total notching negative year-to-date returns. This got me thinking: with such a poor performance so far this year, do European oil companies now look more attractive than their respective US counterparts? 

Reserve valuation
To start the comparison, I'm going to look at these companies using an EV/reserves calculation. Companies that have a low per-barrel valuation in relation to their peers are undervalued in the context. 

Company

Exxon

Chevron

Total

Statoil

Eni

Reserves (Billion BOE)

25.2

11.2

11.3 

5.4 

7.2 

Enterprise Value

$397.0

$222.0

$118.0

$86.0

$107.0

EV/Reserves

$15.8

$19.8

$10.4

$15.9

$14.9

Reserves equal oil equivalent barrels. Reserve values taken at year end 2012. Figures in billions and where applicable $US. Data from Yahoo! Finance

We are quickly able to see that European oil majors all trade at low valuations in relation to their reserves compared to their US peers. While this figure is somewhat inaccurate as enterprise value takes into account the company's whole operations and not just the ones limited to oil, the figure does give a general consensus view that European oil majors are undervalued on a reserve basis compared to their US peers.  

Growth
Valuations are never the whole story, and a company's history of growth is usually more telling than a single valuation at a single point in time. So, has Eni earned its low valuation by chalking up a poor history of earnings, revenue, and equity growth?

Performance figures are based on the figures reported by each company from the end of fiscal 2009, to the trailing-12-month figures based on the last four quarters of data. 

Company

Exxon

Chevron

Total

Statoil

Eni

Revenue growth

43.6%

35.6%

58.2%

37.2%

48.3%

Earnings growth

86.1%

129.3%

10.1%

108%

32.8%

Shareholder equity growth

49.8%

55.4%

37.9%

65.5%

28%

Share price growth

32.5%

53.3%

7.3%

12.9%

9.4%

Share in issue

-8.3%

-3.4%

1.6%

0.2%

0.4%

Performance figures based on the figures reported by each company from the end of fiscal 2009, to the trailing-12-month figures based on the last four quarters of data. 

Now this is interesting, and it also supports the argument that I made just above. The European majors have all grown their revenues faster than Chevron, and Total and Eni in particular have expanded their revenues faster than ExxonMobil during the four-year period. However, earnings growth at all three companies has lagged that of their US peers, indicating falling profit margins. In addition, Chevron and ExxonMobil have both reduced the number of shares outstanding during the period. Furthermore, over the same four-year period, Total's and Eni's stock prices have risen less than 10%.

Summary
All in all, these results are slightly confusing. Having said that, there is a clear trend, excluding their higher than average price/earnings ratios, European oil majors do look cheaper than their US counterparts, but they are also less efficient. The standout firm here is Statoil, which has boosted earnings 100% during the last four years while expanding shareholder equity by 66% and trading at the lowest price/book and price/sales ratios in the group. Statoil also offers investors a nice dividend yield of 5.1% at current levels.

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