To some, investing in either ExxonMobil (NYSE:XOM) or Chevron (NYSE:CVX) is making pretty much the same bet. Don't tell our analysts that, though. To them, saying these two companies are the same is like saying you can root for the Red Sox and the Yankees at the same time.
So we brought together two of our energy analysts who take opposite sides of the ExxonMobil/Chevron debate and recorded the shouting match that ensued. After some severe editing and censoring, here is what each had to say.
If you were to ask whether I would be willing to pay one more point on a P/E ratio for a company that generates a return on equity close to 6 percentage points higher, I'd say sign me up.
2) Dividends aren't the whole story: While Chevron has done a commendable job of raising its dividend -- although it has needed to either sell assets or issue debt to cover those dividend payments, while ExxonMobil has paid dividends using organic free cash flow -- let's look at the other component of generating shareholder return: share buybacks. On top of keeping pace with Chevron's dividend increases over the past 10 years, ExxonMobil has also reduced its total share count by over one-third while Chevron has only cut its total shares outstanding by a shade over 10%.
3) Growth comes from more than just production: Yes, the production of oil and gas is the earnings powerhouse for pretty much every integrated oil and gas company, but they are called integrated for a reason: they deal with every part of the value chain of these commodities. Over the next several years, ExxonMobil is looking to balance its portfolio of assets by investing more heavily in its refining and chemical manufacturing facilities. One of those projects is the Baytown ethylene plant that will cost upward of $6 billion and should be up and running in 2017. Add this to the massive chemical and lubricant plant expansions in Saudi Arabia and Singapore, and you have a company preparing to take advantage of every part of the oil and gas business to generate profits.
So when making your decision between investing in Chevron or ExxonMobil, keep those things in mind. With better returns, a superior return of cash to shareholders through stock buybacks and dividends (all paid for with organic free cash flow), and a more balanced portfolio that won't be as susceptible to oil price swings, I think ExxonMobil is the clear winner here.