Sunday, January 18, 2015

The Oil Majors

Since I'm looking for a way to place bets on a rising oil price sometime in the future, take a look at the large Integrated Oil Companies.

There have been many articles over the past few years saying that the IOCs are losing out to the National Oil Companies, as cheaply accessible oil is getting harder to find.  To check this, look at these these numbers over the past 10+ years:
  • Volume of oil produced.  Don't look at revenue, which depends on a fluctuating oil prices.  And don't use BOE, which mixes oil and gas but disregards their differing values (similar to comparing a kilo of gold with a kilo of silver).
  • Proven reserves.  Again look for barrels of oil, not BOE.
  • Cash Flow from Investment (CFI).  Capex (cash spent to find/produce future oil), plus anything gained/lost from buying/selling their reserves.
One company at a time.

Exxon Mobil

Hard to tell if its an oil or gas company?  In 2013, 34% of production was oil and liquids, as measured by BOE, and 66% gas.

Oil and Gas production as (measured as BOE) has remained steady:
But after removing gas, liquids production (mostly oil) has fallen in the past 5 years:

Proven oil reserves (again, excluding gas) have fallen.

But CFI has risen steadily.

The end result is steadily increasing capex, for decreasing oil production and reserves.  Jim Chanos gave an interview last month (second video) stating that he is short XOM/long oil, as they cannot keep their dividend up if the price of oil remains low, and their BOE reserves may be overstated by the XTO acquisition (p12).  Chanos has previously been right about China, IBM and Petrobas, I'm not going to bet against him.


They are primarily an oil company - in 2013, 88% of their production (measured by BOE) was oil.

Oil and NGL production is trending down:

Shell restarted their reserves in 2004, so numbers before 2002 are meaningless.  Proven Oil and NGL reserves fell from 2012 to 2007, but have stopped falling since then:

CFI seems to be rising (though not as clearly as XOM):


1/3rd of their 2013 production (measured by BOE) was gas - so its still mostly an oil company.

Oil production may or may not be declining:

Proven Oil reserves are clearly trending down, being replaced by gas.  Could not find figures for developed/undeveloped oil reserves:

Gas is generally cheaper than oil, though it depends on location since transportation is difficult.  For example, it costs around $3 per BTU in the Marcellus, but may be over $10 in Tokyo - after expensive liquefaction, transport and gasification.  So its a lot harder to determine profitability for a gas company than an oil company.

Again, CFI trending up:


39% of their 2013 production was gas, 61% liquids, as measured by BOE.

Oil production has dropped off slightly in the past 5 years:

But Oil reserves are not going down!

CFI may be trending up, but not so clearly:

BP looks the best out of the majors.  Most of this is due to its investment in Russia: originally the joint venture TNK-BP, now converted to a 20% stake in Rosneft.   If we exclude Russia, the numbers look similar to the other companies:

So a bet on BP is a bet on Rosneft.

In terms of long-term value creation, BP is probably the best (or least worst) of the major oil companies.

[Update 30/Jan/2015: Spent three nights working with BP's figures trying to figure out how much it costs them to produce one barrel of oil, and their sensitivity to oil prices.  Couldn't make out anything.  Shit!  May just buy XLE or VDE instead.]

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