Past Performance
Q1 Earnings, and Mellon Bank

by Brian Graney (TMFPanic@aol.com)

ALEXANDRIA, VA (Nov. 24, 1998) -- "Why is the Drip Port studying oil?"

Jeff and I have heard this question a number of times over the past few weeks from more than just a few observers. Our answer is always the same: "Because the Foolish People have spoken." That's right, it was Fools everywhere who asked for an evaluation of the prospects for companies in the oil and gas industry. We are giving Fools what they want (don't you wish all retailers and restaurants worked this way?) and satisfying a newfound curiosity, too.

"Well, okay," the interrogator has typically responded to our answer. "But can anybody really make money in oil and gas over the long haul?"

To this we usually say, "We have no idea. That's what we are hoping to find out." And if that doesn't shut them up, Jeff and I normally feign an illness and excuse ourselves to the nearest restroom to hide.

But after doing a little research, we can now stop hiding and get the Torquemada-wannabes off our backs with this new response: "Well, some oil and gas companies have beaten the S&P 500 index in the past. Who's to say they can't in the future?" (This technique is called turning the tables on the interrogator. Unfortunately, anecdotal evidence from the 15th century suggests this strategy probably didn't work a lot during the Spanish Inquisition.)

Below are the average annual returns for the companies on our Royal Scroll, which are broken out into three time periods: the latest 12 months, the past 5 years, and the past 15 years. All of the results include reinvested dividends, which has helped the long-term performance of several oil and gas companies' shares tremendously.

I've included newcomer Sunoco (NYSE: SUN) on the list. I also have listed the returns of BP merger partner Amoco (NYSE: AN) because I was curious about how it has done in the past, too. The six firms which have either beaten or have come close to beating the S&P 500 index during both the most recent 5 year and 15 year periods are in bold. The returns of the S&P 500 index (including dividends) over the same three spans are listed at the bottom.

no fee DRPs             12-Mon    5-Yr   15-Yr
Apache Corp. (APA)      -30.7%   14.4%   10.5%
Amoco (AN)               30.8%   15.8%   13.8%
Ashland Inc. (ASH)        9.9%   18.4%   13.0%
Baker Hughes (BHI)      -52.5%   19.4%   14.7%(since 1987)
British Petroleum (BP)    9.1%   32.3%   20.6%
Enron (ENE)              46.6%   14.9%   17.2%
Exxon (XON)              15.4%   19.2%   20.8%
Kerr-McGee (KMG)        -37.6%   10.1%    8.7%
Mobil (MOB)               2.9%   22.1%   17.9% 
Pennzoil (PZL)          -47.5%   10.5%    8.9%
Phillips (P)            -11.8%   17.8%   15.4%
Occidental Pet. (OXY)   -29.4%   16.7%   10.4%
Sonat Inc. (SNT)        -31.1%   17.1%   13.8%
Sunoco (SUN)            -18.9%   13.7%   13.4%
Texaco (TX)               4.7%   17.4%   15.6%
Tidewater Inc. (TDW)    -54.9%   26.2%    7.0%
Transocean Off. (RIG)   -38.7%   57.6% (since 1993)
USX/Marathon (MRO)      -15.4%   18.2%    5.5%
Ultramar Diamond (UDS)   -5.9%   15.4% (since 1992)

suggested but have fees
Atlantic Richfield (ARC)-18.8%   11.9%     14.9%
Amerada Hess (AHC)       -3.0%    4.8%      7.3%
Chevron (CHV)            -1.4%   21.5%     16.5%
Coastal Corp. (CGP)      23.2%   22.3%     15.1%
Royal Dutch (RD)        -12.2%   26.4%     23.2%
Southwestern Ener. (SWN)-33.1%    1.5%      9.7%
Unocal (UCL)            -15.5%   11.4%     10.5%

S&P 500                  22.3%   20.2%     17.5%

Courtesy of Bloomberg and Ibbotson's

As Fool Shaman David Gardner pointed out in a recent Fool Port column, investors cannot rely too much on past performance when choosing stocks. Even though none of the 26 companies listed above have beaten the S&P 500 index during all three of the periods we examined, that does not mean that there is not a suitable investment for us among the group. Likewise, we will not limit our study to only the three companies on our list with the best 5-year and 15-year track records (BP, Mobil, and Royal Dutch) and bet that if they beat the S&P 500 in the past, they can do it again in the future.

So, do not read into this list too much. It is for educational and enlightenment purposes only. And for statistic nerds such as myself, it's kind of fun. In my opinion, the 15-year time span is the most useful to look at since it encompasses a decent amount of flux in the international political and economic scenes.

Just think of everything that has happened since 1982 -- communism and the Berlin Wall came tumbling down; the stock market had a crash of its own; the Gulf War played itself out on TV sets across America; Madonna changed her hair color five times and had a baby. All of these political and economic events (and many others) over the past 15 years have affected the oil companies on our list in one way or another. Yet, all of the firms we are looking at (excluding the three firms without 15 year histories) have pulled through and stayed in business, although some have done much better than others.

Over that same 15-year span, oil prices have fluctuated between a snakebelly low of $10.42 per barrel on April 7, 1986 and a stratospheric high of $32.20 per barrel on August 3, 1983. That's a pretty remarkable range. But again, we're talking about the past here. If this trading range provides us with anything, it shows us how widely oil prices have gyrated in the past. It tells us absolutely nothing about what oil prices will do in the future, however.

By the way, it may be worthwhile to keep an eye on what happens to oil prices tomorrow as the eleven OPEC oil ministers meet in Vienna to discuss the possibility of more oil supply cuts. Algeria and Kuwait are reportedly the only OPEC members advocating more cuts on top of those already agreed upon earlier this year, so further pledges to rein in production do not seem likely. But since these folks don't meet every day, a juicy tidbit of news from the meeting may be enough to shake the oil market a bit anyway.

Of course, we don't want you to blow off work or school and keep your eyes glued to the commodity markets all day. That would be an inefficient use of your time, and it would probably be pretty boring as well. However, keeping abreast of late-breaking oil market news may allow you to look smart and worldly during family discussions at the Thanksgiving dinner table. So, if something interesting happens tomorrow, we'll try to mention it either right here or on the Drip Companies message board, where Fools are expressing their views on oil around the clock. Fool on!

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11/24/98 Close

Stock Close Change JNJ 85 3/16 -2 13/16 INTC 110 7/16 -3 1/8 CPB 58 5/8 + 3/16 MEL 62 7/8 -1 1/4
Day Month Year History Drip (2.08%) 12.77% 31.46% 11.95% S&P 500 (0.44%) 7.67% 21.90% 24.35% Nasdaq (0.58%) 10.98% 25.19% 23.34% Last Rec'd Total # Security In At Current 11/02/98 8.055 CPB $52.880 $58.625 09/01/98 9.727 INTC $80.238 $110.438 11/09/98 8.578 JNJ $74.090 $85.188 10/07/98 1.000 MEL $48.560 $62.875 Last Rec'd Total # Security In At Value Change 11/02/98 8.055 CPB $425.95 $472.22 $46.27 09/01/98 9.727 INTC $780.50 $1074.26 $293.76 11/09/98 8.578 JNJ $635.55 $730.74 $95.19 10/07/98 1.000 MEL $48.56 $62.88 $14.32 Base: $2100.00 Cash: $162.88** Total: $2502.98

The Drip Portfolio has been divided into 89.430 shares with an average purchase price of $23.482 per share.

The portfolio began with $500 on July 28, 1997, adds $100 on the 1st of every month, and the goal is to have $150,000 in stock by August of the year 2017.

**Transactions in progress:
10/24/98: Sent $40 to buy more INTC.
10/26/98: Sending $60 to buy more JNJ.