My boss is always whining about his Statoil shares which according to him are just sinking like a rock(not completely true, more like staying the same), even though the price of oil is sky-rocketing from previous unknowns.
So I took a look at the other big oil companies and noticed a similar trend:
Royal Dutch Shell is up like 10% in 2 years, also with major fluctuations.
So from this limited sample, I post the question in the title.
Why hasn´t the stock value in all these companies sky-rocketed along with the price of oil?
Is it the insecurity of the future that keeps them down this much?
I´m not looking for a debate - just a few pointers to be able to impress da man the next time he starts whining
Wouldn’t that depend on how the revenue sharing between companies exploiting oid fields and the country that licenses the exploitation is set up? I.e. how much of an increased crude oil price goes to the company pumping the oil and the country, respectively?
Well, you’re looking at a whole different bunch of companies there.
Statoil - privatized oil and gas company oeprating mainly in relatively high-risk offshore work, with a bunch of expensive liabilities in Norway and no big government to lend them a helping diplomatic hand
Shell - heavily invested in Nigera :eek: lots of troubles relating to over-estimating reserves and ructions in management.
BP - Very heavily invested in a giant joint venture in Russia with a bunch of oligarchs which is turning into a pissing contest, possibly involving the Kremlin
XOM - biggest oil company on the planet. A byword for turning oil into money with ruthless efficiency.
My WAG is that the uptick for ExxonMobil is what you’d expect to see given that oil has hit a big short-term one-off gain. BP and Shell are discounted because it’s an open question as to whether they will be able to keep pumping as much oil as they need due to political issues and demonstrated management ineptitude.
Statoil - chugging along, not good, not bad. Probably not a massively traded stock either, come to that. Aren’t they mainly owned by Norsk Hydro and the Norwegian govt?
That’s the issue in a nutshell, and governments and their own state-run oil companies are grabbing more. You can read a summary of this phenomenon here.
The reason they “cede” control, of course, is that governments make their life miserable if they don’t–for example the Kremlin hit BP with a huge bill for back taxes to encourage its Russian arm to sell its stake in the Kovykta natural gas field, cheap.
Also, realize that the majors are heavily involved in businesses that are not doing very well right now (refining for example). If you want to see better examples of how exploration and production companies are doing, you should check out the super independents like Chesapeake (up 89.5%), Apache (up 64.5%), Anadarko (up 47.6%), Devon (up 44.7%), Occidental (up 45.8%), etc.
I think he was actually referring to non-state owned oil companies, which Exxon would be the largest. Also, not that I think the numbers are completely made up, but I would be highly sceptical about the reporting of reserves by some of the names on that chart. I doubt they are using the World Petroleum Council or Society of Petroleum Engineers definitions.
Would it be cynical of me to suggest that the stock price of company has less to do with it’s actual profits and more to do with the public perception of how much you could trade the stock for?
Sloppy wording on my part. Yes, that excludes the NOCs, on the basis that they either don’t have a share price, or it will have a whole lot of non-business activities (paying for the civil service, keeping surplus graduates off the unemployment lists, etc.) priced into it. Plus which, if you add NOCs into the game, you have to recognise that if the respective government decides it, all oil in Russia belongs to Rosneft, all oil in Iran belongs to NIOC, etc., irrespective of who currently has their name spray-painted on the wellhead.
You can have a record quantity of profits without hitting a record percentage of profits. The quantity is comparatively unimportant. What is important is how much return you get on every dollar invested.
I only recently became aware that when people were saying the oil companies were having record earnings, they meant in actual amounts, rather than percent earned on investment.
And, of course, as has been pointed out, there often is not too much correlation between profits and stock price.
Thank you all for chiming in! Gives me a big potential for sounding smart the next time the boss starts whining
I I really want to smack my head ( :smack: ) for not realising that the profits made are records in actual amount and not percentage-wise. I kinda assumed that was the case (serves me right)…
And since we’re in this ballgame. How far is the oil price today from it’s record high in the 70.s, if we adjust for inflation? I just know there has to be a chart somewhere which shows that.
off to find that special table
Edited to say: Crap! I found that special chart and we’re actually ABOVE the price hikes of the 70.s
Part of the problem with oil company stocks is that the companies are also dependent upon people buying what they sell. When the economy slows, their sales slow, so their profits don’t go up as much as you might think. They can sell their oil for more when oil prices increase, and as noted, their profits go way up. But they also have to buy at higher prices and they have to maintain their sales volume. Their costs go up and sales go down, so even though it’s still pretty lucrative, it’s not a 1-to-1 increase in profits with oil prices. All in all, though, they’re not sitting around the boardroom weeping as they count the cash.
The other aspect of stocks is that when the market drops, all stocks tend to drop, and investors tend to pull out of stocks altogether. Investors may have less money to buy stock with as well, so the stock price can only go up so much. Some of the better investments may be oil service companies, whose business always takes off during high oil prices.
The refining and distribution piece of the chain (downstream?) is where consumers see the price hit the most, but it’s the least profitable bit of the supply chain. As noted by LonghornDave, its in exploration and pumping (upstream) that the real profits are made.
