Energy Investing 101: Breaking Down Big Oil Stocks

Integrated major oil companies like ExxonMobil and Chevron can be extremely difficult to analyze as an individual, so here are three key things you should look for.

Jan 24, 2014 at 1:20PM

The irony of investing in the energy industry is that the companies most visible to individuals on an everyday basis, like ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX), just happen to be some of the most complex and difficult companies to analyze. There are, of course, the basics, such as income statements and balance sheets, but there are also some more specific things to look at when looking at these energy giants. To help you better analyze these integrated major oil companies, here is a primer on what these companies are, and what you should look for when analyzing them. 

Who are we talking about here?
Officially, companies like Exxon and Chevron are known as integrated oil and gas companies, but they're also referred to as super majors, integrated majors, or Big Oil. The reason they are called this is because they deal with the entire value chain of oil and gas: exploration and production, midstream pipelines, refining and chemical production, and retail and marketing. 

Exxon and Chevron aren't the only ones that fit into this category, either. Here is a list of the 10 largest integrated oil and gas companies that trade on the major US exchanges by market capitalization and production of oil and gas.

Company Market Capitalization ($Billion) Total Production (thousand barrels of oil equivalent per day)
ExxonMobil $430.3 4,018
Chevron $236.1 2,585
PetroChina (NYSE:PTR)


Royal Dutch Shell (NYSE:RDS-A)





Total (NYSE:TOT)

$136.7 2,299
Petrobras (NYSE:PBR) $90.0 2,314

Eni (NYSE:E)

$85.8 1,653
Statoil (NYSE:STO) $75.7 1,852
Occidental Petroleum (NYSE:OXY) $75.1 767

Source: S&P Capital IQ and quarterly earnings statements

A common metric in the oil and gas space is oil equivalent; it is used to lump both natural gas and oil into one. To do this, natural gas production is measured by how much energy it provides, and then divides it by how much energy is stored in a barrel of oil (one barrel of oil=about 6 thousand cubic feet of natural gas). So whenever you see barrels of oil equivalent (boe for short), it means both oil and gas. 

Where you should focus: Exploration and production
You could spend hours looking at the entire portfolio of these companies to find weaknesses and strengths within each segment of the business. If you're looking to do a more quick and dirty evaluation, then you should focus your attention on the exploration and production side of the business. The reason is because the majority of all these companies' income comes from there.

Company % of net income from exploration and production activities
ExxonMobil 85.2
Chevron 95
PetroChina 106
Royal Dutch Shell 77
BP 89
Total  78
Petrobras 172
Eni 124
Statoil 74
Occidental  90

Source: quarterly earnings reports, authors calculations

And no, those numbers are not a fluke. Both Petrobras' and PetroChinas' exploration and production division actually keep much of the rest of the business afloat. The reason that the other divisions of these companies suffer so much is because Brazil and China subsidize the price of oil and gas to curb inflation. In the case of Petrobras, this means the company's refining and marketing activities perpetually lose money. Eni does not have this problem, but the American oil boom has led to a major downturn in the European refining market, and the company has lost money on its investments there. 

The three P's of research: Property, production, and Projects
Even if we do boil these companies down to just their upstream assets, evaluating their production portfolio alone is still a mammoth task. So here are some of the most critical elements you should dig into when looking at a big oil company's balance sheet

Property: Look for Red Flags
There is oil everywhere and, for the most part, it all sells in a very fluid, open market across the globe at similar prices. There are, however, some places that are better than others, and you should know if a certain locale is a red flag for a company.

A perfect example of this right now is Nigeria. For several decades, theft, sabotage, and overall neglect have left much of the oil infrastructure in the region unreliable. This is costing certain companies lots of money. Shell, one of the largest operators in Nigeria, estimates that theft and sabotage there will cost the company $12 billion when 2013 is all tallied up. Other places that have been less than desirable for several big oil companies recently are Iraq, Libya, Egypt, Ecuador, Venezuela, the United Arab Emirates, and, surprisingly, U.S. shale.

Production: It's called black gold for a reason
Whenever a company explores for fossil fuels, they are likely to come across some mixture of natural gas, natural gas liquids, and oil. Even though all these products may come from the same well, they do not carry equal value. There are some exceptions, but it's pretty safe to say that a barrel of oil, or natural gas liquids production, is much more valuable than its natural gas equivalent. For instance, in the U.S., oil is currently three times as valuable as the natural gas equivalent. So when you're evaluating these companies, it's important to know the production mix. Here is how each of these 10 companies' production breaks down; since many of these companies don't break out natural gas liquids, they are included as liquids in the table below.

Company Production mix (liquids/gas as % of production)
ExxonMobil 52.6%/47.3%
Chevron 66.8%/33.2%


Royal Dutch Shell 50.6%/49.4%
BP 51.9%/48.1%
Total  51%/49%
Petrobras 83.1%/16.9%
Eni 51.6%/48.3%
Statoil 60.3%/39.7%
Occidental  73.4%/26.6%

Source: US Securities and Exchange Commission, quarterly earnings reports

Again, this isn't a perfect metric, because there are lots of other factors to consider, but it is an important, basic element to know about each of these companies.

Projects: What does the future hold?
Oil and gas reservoirs are diminishing assets, so big oil companies perpetually need to bring new production online to replace the decline at its existing fields. Petrobras, for example, says that it has a natural decline of its entire portfolio of about 9%, so every year, the company needs to bring on 230,000 barrels per day of new production just to maintain its current levels, and they are just over half the size of Exxon in terms of production. 

Not only do these giants need to maintain current production, they need to grow, as well. To do this, they need to take on extremely large development projects that can take several years and several billion dollars to develop. The Gorgon LNG project in Australia is one example of this. The project -- co-owned by Chevon, Exxon, and Shell--- involves developing offshore natural gas fields, building a 3.5 million ton per year LNG liquefaction facility, and putting all of the infrastructure necessary in place to get the project up and running. Gorgon

Source: Chevron Australia Investor Presentation

The benefit to companies like Chevron is that this project will result in huge jumps in production. Both of Chevron's Australian LNG projects- -- Gorgon and Wheatstone -- will net the company 400,000 barrels per day of oil equivalent production for several years. The downside of these projects is they are becoming increasingly more expensive to bring to reality. The Gorgon project was supposed to come online in the middle of 2014 at a price tag of $39 billion, but it has ballooned to $54 billion, and will not start up till mid 2015. 

So how can you, as an investor, evaluate these projects effectively? Here are three questions you should ask:

  • What is the potential for a project? Most companies have to evaluate not just how much oil they can get for a project, but also what kind of return they can get on that oil. Places like the Brazilian offshore fields hold vast quantities of oil, but Brazilian rules say that no foreign company can be the primary operator of those projects, so companies have been hesitant to spend big money there recently.
  • What are the risks involved? Even though some parts of the world hold vast quantities of oil, the risks associated with those projects makes them very difficult to pull off. One only needs to look at the problems Exxon and Shell have had with the Kashagan project to see how a risky project can impact a company. Most of these high-risk projects involve places where lots of infrastructure needs to be put in place, like Kashagan, Gorgon, and the Arctic. Conversely, places like the Gulf of Mexico and Canadian oil sands are proving to be much less risky investments because of track records in the respective regions, and the large amount of existing infrastructure.
  • Can they keep the project on time and on budget? In order to realize the potential of a new find, the projects to develop them need to stay within a reasonable budget. Otherwise, the rates of returns start to dry up. The Kashagan project was initially supposed to cost $57 billion, but today, those costs have skyrocketed to $187 billion. Both Exxon and Shell estimate that they will need to be involved with the project all the way into 2040 before they realize a decent rate of return because of these high costs.

If you ask these three questions while coming through the project portfolio of a big oil company, it should give you a much better picture of what the future has in store for these companies in terms of both production and profitability.

What a Fool believes
The idea that energy giants like Exxon and Chevron are safe, stable, no-brainer investments seems almost crazy when you consider what these companies have to do to maintain their levels of profitability. Nearly all of these companies have developed reputations over many years that they are more than capable of churning out strong returns in such a challenging environment. A prudent investor, however, would be wise to look at the elements outlined above, as well as the traditional financial metrics, before making any investment decisions when it comes to big oil.

The biggest benefit of owning big oil: They pay big dividends
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks, as a group, handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks, in particular, are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Fool contributor Tyler Crowe has no position in any stocks mentioned. You can follow him at under the handle TMFDirtyBird, on Google +, or on Twitter, @TylerCroweFool. 

The Motley Fool recommends Chevron, Petroleo Brasileiro S.A. (ADR), Statoil (ADR), and Total SA. (ADR). 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers