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Major Components of the Oil Industry
Posted by: Muhammad Bazil (IP Logged)
Date: December 5, 2012 09:09AM

The major components of the oil industry are: Exxon Mobile Corp. (XOM), PetroChina Company Ltd. (PTR), and Chevron Corp. (CVX). These companies carry a significant proportion of the industry’s burden of demand with them and they are ranked as some of the largest companies in terms of market capitalization. Exxon Mobile Corp. is the largest oil company with regard to market capital. Its market capital stands at $400.9 billion.

Exxon’s Operations and Market Performance

Exxon Mobile Corporation is engaged in the business of exploration and production of crude oil and natural gas and manufacture of petroleum products, along with distribution and sale of crude oil, natural gas and petroleum products. Exxon’s operations are spread on a global scale and the company holds some of the major operations that are vital to the oil industry as a whole. Exxon’s market performance has been fairly stable in the recent past. The share price of the company is currently within the range of $87.65 and $88.68 which is relatively stable and provides a positive representation of Exxon’s market performance. The 52-week range of Exxon’s share price has been between $77.13 and $93.67. The target price of the company’s shares is estimated at $93 for the next financial period. This indicates that the prospective financial performance of the company is expected to be healthy. The major competitors of the company are: Chevron Corp. (CVX) and Royal Dutch Shell Plc (RDSA). Royal Dutch Shell Plc has smaller operations compared to Exxon but it has wider operations when compared to Chevron. Royal Dutch Shell Plc is also engaged in the business of production and distribution of crude oil and natural gas. The company also earns high revenues due to its widespread operations.

The prospective financial performance can be evidenced by the fact that Exxon has been generating high revenues from its worldwide operations. The company holds a significant number of projects that are still in the pipeline and they will be operational by 2014. This indicates that the company still holds a significant surge in its yearly revenue in the prospective financial periods. The projects of the company that are still in the pipeline will expand the company’s scope of operations once they are fully operational.

Exxon’s biggest competitive advantage is its ability to expand its operations due to availability of high capital, high revenue and plausible profit margins.

Chevron’s Contingent Liability

Chevron, the fourth-largest oil company, is facing a significant contingent liability after a group of Ecuadoreans have asked Ontario’s Superior Court of Justice to seize the company’s assets in Canada. The company currently holds a market capital of $207.42 billion and the share price of the company is being traded within the range of $105.38 and $106.69. The 52-week range of its share price has been between $95.73 and $118.53. The company’s market performance has been very good in the recent past and there is positive expectation regarding its prospective financial performance. The target price for the company’s shares is around $123 for the next financial period.

The reason behind the filing of the request to seize Chevron’s assets is the alleged environmental impact created by the company. The arbitration is still pending. Since the outcome of the arbitration cannot be predicted and a reasonable estimate of the resultant damages cannot be made, the company is not required to record a provision against the arbitration. The overall amount of the damages has been estimated to be $19 billion. This amount is significant enough to shake the financial structure of the company. The company has been operating in Canada since the 1930s and it holds many valuable assets within Canada. The seizure could have a very negative influence on the market performance of the company.

After the analysis of the major components of the oil industry, in my opinion, investors should buy Exxon’s shares as there is significant indication regarding positive market performance of the company in the future. The same opinion can be held for Chevron; however, the company could face a major hit if the mentioned arbitration does not go in its favor. Therefore, investors who seek long-term profits can buy Exxon’s shares as it can be classified as a safe investment.


Stocks Discussed: CVX, XOM, RDSA,
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