(List compiled by Andrew Dominguez. Data sourced from Finviz and Schaeffer's.)
The bifurcation of two large oil firms, Marathon Oil and ConocoPhillips, earlier this summer has sparked speculation about the future of the largest oil companies.
Marathon Oil, which completed the spinoff of its refining business at the end of June, saw the combined market value of the two new companies increase from $28.9Bn to $37.4Bn, a 30% gain, as a result of the split.
A few weeks after markets rewarded Marathon for its strategic split, ConocoPhillips declared its intention to similarly separate its refining operations from its exploration and extraction business. The split is projected to occur sometime in the first half of 2012.
A successful Conoco spinoff could spur a spate of equivalent maneuvers from its larger rivals, a reversal of the aggressive consolidation in the late 1990s that saw the birth of “Super Major” oil companies like Exxon Mobil, Chevron Texaco, and ConocoPhillips, writes Cyrus Sanati of CNN.
According to Sanati, the conditions that provided incentives for mergers over a decade ago, most notably the collapse of oil prices, no longer exist. Instead, high oil prices have squeezed the profits of oil refiners, mitigating the profits of the Super Majors’ exploration and extraction units.
“… the exploration side and the refining side of the oil business have little to do with one another. Contrary to popular belief, Big Oil has almost no control over the price of oil these days… So even though ExxonMobil pumps oil, it can't guarantee that its refining unit will be able to profitably process a barrel into gasoline or heating oil,” writes Sanati.
In fact, integrated oil companies have “traded at an average discount of between 11% and 12% compared to their smaller pure play competitors,” reports Sanati who cites a study by Citi Investment Research and Analysis.
Because the current climate heavily favors exploration and extraction over refining, integrated oil firms will likely face pressure from its shareholders to either spinoff or sell its refineries.
BP has already begun selling, although the firm is in the unique position of having to pay enormous sums for damages caused by last year’s oil spill in the Gulf of Mexico.
Meanwhile, Royal Dutch Shell has reduced its refining activities by around 40% over the past dozen years. Shell, however, was the notable exception to the big oil M&A binge in the late 1990s.
Still, the winds of change are likely blowing through the big oil industry. To help you make sense of it all, we crunched the numbers and found the big oil companies that options traders are most optimistic about. Might these firms sidestep or benefit from spinoffs in the coming years? We’ll let you decide.
Analyze These Ideas (Tools Will Open In A New Window)
1. Access a thorough description of all companies mentioned
2. Compare analyst ratings for all stocks mentioned below
3. Visualize annual returns for all stocks mentioned
List sorted by put/call ratio. (Note: The lower the ratio, the larger the number of call options relative to put options, i.e. the more bullish the options market sentiment)
1. Total SA (TOT): Market cap of $123.07B. Put/Call ratio at 0.39. It has operations in more than 130 countries. It engages in all aspects of the petroleum industry, including Upstream operations: oil and gas exploration, development and production, liquefied natural gas (LNG) and Downstream operations (refining, marketing and the trading and shipping of crude oil and petroleum products). It also produces base chemicals (petrochemicals and fertilizers) and specialty chemicals for the industrial and consumer markets. In addition, it has interests in the coal mining and power generation sectors, as well as a financial interest in Sanofi-Aventis. It is also active in solar-photovoltaic power, both in Upstream and Downstream activities.
2. BP PLC (BP): Market cap of $136.32B. Put/Call ratio at 0.60. It operates in more than 80 countries, providing its customers with fuel for transportation, energy for heat and light, retail services and petrochemicals products. It operates two segments: Exploration and Production and Refining and Marketing. Exploration and Production’s activities include oil and natural gas exploration, field development and production; midstream transportation, storage and processing; and the marketing and trading of natural gas, including liquefied natural gas (LNG), together with power and natural gas liquids (NGLs). Refining and Marketing’s activities include the supply and trading, refining, manufacturing, marketing and transportation of crude oil, petroleum and petrochemicals products and related services.
3. Petrobras Argentina SA (PZE): Market cap of $2.03B. Put/Call ratio at 0.61. Its activities are structured in four business segments: Oil and Gas Exploration and Production, including the acquisition, exploration, exploitation and maintenance of oil and gas reserves; Refining and Distribution, focusing in the production of fuels and lubricants, asphalts and asphalts specialties; Petrochemicals, comprising the production of styrene, polystyrene, bi-oriented polystyrene (BOPS), synthetic rubber and fertilizers, and Gas and Energy, providing gas distribution and electric energy generation and transmission. It has operations established in Bolivia, Brazil, Colombia, Ecuador, Mexico, Peru, Uruguay, Venezuela, Grand Cayman, Bermuda, Spain and Austria.
4. Sasol Ltd. (SSL): Market cap of $32.41B. Put/Call ratio at 0.61. It is an integrated energy and chemicals company. It mines coal in South Africa and produce gas and condensate in Mozambique and oil in Gabon, and its chemical manufacturing and marketing operations span the globe. In South Africa it refines imported crude oil and retail liquid fuel products through its network of retail convenience centers.
5. Chevron Corp. (CVX): Market cap of $206.57B. Put/Call ratio at 0.80. Its Upstream operations consist of exploring for, developing and producing crude oil and natural gas; processing, liquefaction, transportation and regasification associated with liquefied natural gas; transporting crude oil by international oil export pipelines; transporting, storage and marketing of natural gas, and a gas-to-liquids project. Downstream operations consist of refining of crude oil into petroleum products; marketing of crude oil and refined products; transporting of crude oil and refined products by pipeline, marine vessel, motor equipment and rail car, and manufacturing and marketing of commodity petrochemicals, plastics for industrial uses and fuel and lubricant additives.
6. Occidental Petroleum Corporation (OXY): Market cap of $76.6B. Put/Call ratio at 0.91. It operates in three segments: oil and gas segment, chemical segment, and midstream, marketing and other segment. The oil and gas segment explores for, develops, produces and markets crude oil, including natural gas liquids (NGLs) and condensate (together with NGLs, liquids), as well as natural gas. The chemical segment (OxyChem) manufactures and markets basic chemicals, vinyls and other chemicals. The midstream, marketing and other segment (midstream and marketing) gathers, treats, processes, transports, stores, purchases and markets crude oil, liquids, natural gas, carbon dioxide and power. It also trades around its assets, including pipelines and storage capacity, and trades oil and gas, other commodities and commodity-related securities.
7. Ecopetrol SA (EC): Market cap of $85.44B. Put/Call ratio at 0.95. It divides its operations into four business segments: exploration and production, transportation, refining, and marketing and supply. In January 2011, it announced the acquisition of BP Exploration Company (Colombia) Limited. The Company’s subsidiaries include Hocol S.A, Propilco S.A., Comai Ltd., Bioenergy S.A., Bioenergy Zona Franca S.A.S. and Homcol Cayman Inc.
8. Exxon Mobil Corporation (XOM): Market cap of $382.86B. Put/Call ratio at 0.98. It is a manufacturer and marketer of commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics and a range of specialty products. It also has interests in electric power generation facilities. ITS divisions and affiliates include ExxonMobil, Exxon, Esso and Mobil.