It’s been an incredibly rough year for oil stocks, and it’s become impossible to determine what effect geopolitical storms are going to have on oil prices these days.
If a brazen attack on Saudi oil facilities isn’t enough to send oil prices soaring for more than a day, then there’s not much that will go down in the Middle East right now that will.
Iraq is on the brink of war and has become the key flashpoint, along with its border buddy, Syria—but even that is failing to move the needle.
What that means is that shopping around for oil stocks means finding those who are playing the volatility, not just riding it out. Those who are calling their own shots, rather than simply reacting to low oil prices and occasional spikes that don’t seem to have the same staying power they used to.
Earnings season is now upon us, and these three companies are playing their own game.
#1 Phillips 66 (NYSE:PSX)
How, exactly, is Phillips 66 playing its own game?
PSX has turned the low oil price environment to its direct benefit. Yes, that’s right. It’s cashing in on low-priced oil for its refineries. While everyone else was treading water, Phillips 66 was busy building up its North American refineries and pipelines so it could handle greater volumes of much cheaper North American oil.
That’s foresight. And it’s unique.
It’s targeted over $4 billion in pipelines. The next big pipeline in the … pipeline is one that leads from the Permian Basin to the Gulf Coast—meeting a major demand and allowing Phillips 66 to rake in more cash on more cheap North American oil.
This company is a bet on low oil prices—bottom line. Related: Anti-Aging Market To Hit $55 Billion
Fairly confident in the knowledge that nothing short of WWIII will result in a surge in oil prices at this point, this is Phillips 66’s playground through the rest of this year and presumably into 2020.
That’s refining + roaring midstream businesses that are doing much more than thriving in this atmosphere.
#2 ConocoPhillips (NYSE:COP)
COP is an upstream producer, so it can’t be quite as clever as Phillips 66. Nor has its stock looked great. Lots of volatile ups and downs this year. But an oil portfolio isn’t much without a producer, and among the collection of large-cap E&P companies, COP does have a few cards up its sleeve.
When it comes to US shale, all eyes are on the Permian Basin--and if you’re not all over the Permian, then you’re nothing. COP is there, but it’s not all in; however, we believe that’s because it’s biding its time.
Conoco has spent the last year cutting costs and getting slimmer, trimmer and much more focused. On Monday, it also added to its pile of cash with a deal to sell its Australia assets for a whopping $1.4 billion.
So now we know it’s refocusing on American shale, and we know where all that cash is going to end up. Right now, COP has levered free cash flow (LFCF) of $5.6 billion. In this day and age, that’s quite a feat for a giant E&P company.
Some of that cash will go to a large share buyback program. Some will go to dividends, which they just increased by 38%—a rather unconventional move in a depressed oil price environment. The rest is likely to go towards expansion, and we’ll see exactly why COP has been biding its time so patiently.
#3 Chevron Corporation (NYSE:CVX)
Chevron is paying a dividend of 4%, even though its stock has taken a beating since the September 14 attacks on Saudi oil facilities.
Many big E&P companies surely thought this would be a major pay day, and Chevron was one of them. It wasn’t. So what else does Chevron have to offer other than the potential for geopolitical mayhem? Related: Three Stocks To Watch Ahead Of Earnings Season
How about a ton of spending on building up its unconventional upstream assets? This is the opposite of the ConocoPhillips strategy of prudence and patience. Chevron is all-on aggression.
It’s been expanding and expanding its Permian assets. In just over two years, Chevron has added some 7 BBOE to its Permian production—a figure that is almost double. It’s also managed to double its unconventional portfolio in less than two years. It’s hitting advanced tech and optimization as hard as it possibly can.
The caveat is that it’s not flush with cash to the extent that COP is, but it is more flush than, say, Exxon, and it is irrevocably tied to oil prices.
Be sure to stay on top of earnings reports for these three: Phillips66 is up first on October 25th; ConocoPhillips will report on October 29th; and Chevron’s figures are scheduled for November 1st.
By Julianne Geiger for Oilprice.com
