The oil and gas industry has made a 180-degree turnaround since turning negative for the first time in April last year. With OPEC and OPEC+ announcing a reduction in crude oil production to boost the prices and the Biden administration placing a temporary moratorium on new oil and gas leases and revoking Keystone XL permit, the global oil supply is expected to shrink this year, thereby driving up energy prices. The US Energy Information Administration (EIA) estimates crude oil production to fall from 0.20 million barrels per day to 11.10 million barrels in 2021. The market for the energy sector (Oil and Gas) is expected to grow at a CAGR of 5.34% between 2021 and 2026.
However, with rising demand for oil and natural gas owing to the gradual resumption in industrial and manufacturing activities, oil prices are bound to rise substantially this year. While the United States is expected to retain the title of the largest oil producer in the world in 2021, the country’s annual production is expected to decline gradually over the next couple of years, as estimated by the Energy Information Administration (EIA) and International Energy Agency (IEA). As a shift to clean energy is expected to be the main focus of the country over the next couple of decades, many oil and gas companies are taking active steps to reduce their carbon footprint.
However, many oil and gas companies are currently soaring based on the projected rise in crude oil prices this year. With declining financials and high carbon footprint, Exxon Mobil Corporation (XOM), Chevron Corporation (CVX) and Phillips 66 Company (PSX) are relatively overvalued, and hence are best avoided amid the clean energy drive.
Exxon Mobil Corporation (XOM)
Based in Irving, Texas XOM is engaged in the energy business. The company is engaged in the exploration, production, transportation, and sale of crude oil and natural gas, and the manufacture, transportation, and sale of petroleum products. XOM primarily operates through four segments — Upstream, Downstream, Chemical, and Corporate and Financing. The company also manufactures and markets petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and a range of specialty products.
As the company is facing increasing pressure to step up its sustainability investments, XOM has announced on February 1, 2021, about forming a business unit with an investment of $3 billion that will be focused exclusively on technologies to lower carbon emissions. On December 11, 2020, the company along with PETRONAS discovered hydrocarbons at the Sloanea-1 exploration well on Block 52 offshore Suriname, adding to the company’s extensive finds in the Guyana-Suriname basin.
However, several law firms have filed a class-action lawsuit against XOM for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by the U.S. Securities and Exchange Commission.
XOM’s revenue was reported to be $46.54 billion for the fourth quarter ended December 31, 2021, which represents a 30.7% year-over-year decline. The company’s production in the Upstream Segment decreased 8.2% year-over-year to 3,689 combed. The company reported a net loss of $20.07 billion for the fourth quarter in comparison to the net income of $5.69 billion reported in the fourth quarter of 2019. EPS also decreased 92.7% year-over-year to $0.03.
The consensus revenue estimate of $55.43 billion for the quarter ending March 31, 2021, represents a decline of 1.30% on a year-over-year basis. Also, the consensus EPS estimate of $0.41 for the quarter ending March 31, 2021, represents a decrease of 22.6% year-over-year. XOM’s non-GAAP forward Price/Earnings of 24.29x is 85.1% higher than the industry average of 13.12x.
XOM has lost 13.21% over the past year and closed yesterday’s trading session at $54.30.
XOM’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of D, which equates to Sell in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors with each factor weighted to an optimal degree.
XOM also has a grade of F for Momentum and a D for Value. The stock is currently ranked #75 out of the 98 stock Energy – Oil and Gas Industry. This industry is rated D.
We have also graded XOM for Growth, Quality, Stability, and Sentiment. Click here to access all of XOM’s ratings.
Chevron Corporation (CVX)
CVX is engaged in integrated energy, chemicals, and petroleum operations worldwide. The company’s business segments include Upstream and Downstream. The Upstream segment is involved in the exploration, development, and production of crude oil and natural gas; processing, liquefaction, transportation, and regasification are associated with liquefied natural gas, among others. The Downstream segment’s operations primarily consist of refining crude oil into petroleum products and marketing crude oil and refined products, among others.
On February 17, 2021 CVX and Brightmark LLC announced the expansion of their previously announced joint venture, Brightmark RNG Holdings LLC, to own projects across the United States to produce and market dairy biomethane, a renewable natural gas (RNG). To acquire Noble Midstream Partners LP (NBLX), CVX submitted a non-binding proposal to NBLX’s Board of Directors on February 5, 2021. However, the company’s financials are not promising.
The company’s total revenues and other income decreased 30.5% year-over-year to $25.25 billion for the fourth quarter ended December 31, 2020. Sales and other operating revenues were reported to be $24.84 billion, down 28.1% year-over-year. CVX reported a net loss of $665 million for the fourth quarter which has widened from the net loss of $207 million reported by the company for the third quarter of 2020 (ended September 30, 2020). Adjusted loss per share was reported to be $0.01.
The consensus revenue estimate of $29.63 billion for the quarter ending March 31, 2021, represents a decline of 6% year-over-year. The consensus EPS estimate of $0.69 for the same quarter represents a decrease of 46.5% year-over-year. Also, the company has missed the consensus EPS estimates in two of the trailing four quarters. CVX’s non-GAAP forward Price/Earnings of 27.08x is 106.4% higher than the industry average of 13.12x.
CVX has lost more than 12% over the past year and closed yesterday’s trading session at $98.39.
CVX’s poor prospects are also apparent in its POWR Ratings. The stock has an overall rating of D, which equates to Sell in our proprietary rating system.
The stock has an F grade for Momentum and D for Value and Sentiment. CVX is currently ranked #71 in the same industry.
We have also graded CVX for Growth, Quality, and Stability. Click here to access all of CVX’s ratings.
Phillips 66 Company (PSX)
Headquartered in Houston, Texas, PSX is an energy manufacturing and logistics company with midstream, chemicals, refining, and marketing and specialties businesses. The company primarily operates through four segments — Midstream, Chemicals, Refining, and Marketing and Specialties (M&S). The Midstream segment gathers, processes, transports, and markets natural gas, and transports, stores, fractionates, and markets natural gas liquids (NGLs) in the United States.
The company declared a quarterly dividend of $0.90 per share payable on March 1, 2021. PSX received a $3 million grant from the U.S. Department of Energy to advance the development of high-performance reversible solid oxide fuel cells. The company is expected to collaborate with the Georgia Institute of Technology to demonstrate the commercial feasibility of a low-cost and highly efficient reversible solid oxide fuel cell (RSOFC) system for hydrogen and electricity generation. However, the company was accused of failing to do the required maintenance meant to prevent toxic gases from escaping. The company settled the lawsuit on February 20, 2021, and is expected to do the necessary work of finding and repairing the leak at its Carson and Wilmington refineries, among others.
PSX’s total revenues and other income for the fourth quarter (ended December 31, 2020) was reported to be $16.77 billion, down 43.4% year-over-year. The company’s sales and other operating revenues also decreased 43.7% year-over-year to $16.41 billion. The company reported a net loss of $539 million for the fourth quarter of 2020 compared with a net income of $736 million for the fourth quarter of 2019. The company also reported an adjusted loss per share of $1.16.
The consensus revenue estimate of $18.01 billion for the quarter ending March 31, 2021, represents a decline of 15.2% year-over-year. Analysts expect the company’s EPS to remain negative in the current quarter ending March 31, 2021. PSX’s non-GAAP forward Price/Earnings of 29.02x is 121.2% higher than the industry average of 13.12x.
PSX has lost 7.8% over the past year and closed yesterday’s trading session at $83.96.
PSX’s poor prospects are also apparent in its POWR Ratings. The stock has an overall rating of D, which equates to Sell in our proprietary rating system.
The stock has a grade of D for Value, Momentum, and Sentiment as well. PSX is currently ranked #89 in the same industry.
We have also graded PSX for Growth, Quality, and Stability. Click here to access all of PSX’s ratings.
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XOM shares were trading at $54.67 per share on Tuesday afternoon, up $0.37 (+0.68%). Year-to-date, XOM has gained 34.88%, versus a 2.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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