GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

Pullback in Two Well-Managed Super Oils Offers Investors Attractive Entry Point

April 25, 2012 | About:
In 1998 oil prices sank under $10 per barrel and conventional wisdom held that cheap oil was permanent.

However, super oil Chevron Corp (CVX) never missed a beat, raising its dividend by 5.2% that year and 6.6% the next. Since then, the company has raised its payout at least once every year, including twice in the past 12 months for a total of 12.5%. Dividends are now 165.6% higher than in 1998.

The tenfold increase in oil prices over that time has been a huge plus for Chevron. Nonetheless, the company also has faced challenges, including the crash in North American natural gas prices, which I discuss in Natural Gas: The Race to $1, and rising resource nationalism.

Chevron was forced to exit Venezuela by the socialist regime of Hugo Chavez and is locked in litigation in both Ecuador and Brazil. In the latter country, a federal prosecutor is suing the company for USD22 billion for an oil spill that’s already been cleaned up with no loss of marine life. Tightening environmental regulations and sluggish demand also put pressure on marketing and refining margins.

Chevron has surmounted its challenges, thanks to superior engineering and financial resources, strengths shared by all super oils.

Despite a 30% drop in North American natural gas prices this year, the first quarter results beat fourth quarter numbers, on higher oil prices, steady production levels and improved downstream margins.

Eni (Milan: ENI)(E), one of my favorite oil and gas investments in Europe, has rallied well off its lows last year, when Libyan unrest forced the shutdown of its operations in the country. But over the past several weeks, shares have fallen back on renewed worries over Europe’s sovereign-debt crisis and the global economy, as well as concerns about the company’s production in Libya and Iran. Turmoil in the Middle East continues to fuel investors’ fears.

However, Eni’s debt maturing October 2040 trades with a yield-to-maturity of just over 5% — a superior rate to what the Italian government has been able to get and clear evidence the cash-rich company faces little if any credit pressure.

The company plans to ramp up capital spending to USD77.8 billion through 2015, 12% higher than the previous four-year plan.

Management aims for 3% annual output growth, focusing on massive projects from the Barents Sea to Africa and Latin America.

As with Chevron, Eni is growing its dividend and management has targeted increases in line with inflation. Dividend investors should note that the May 24 payment (ex-dividend on May 21) is a 4% bump from the previous year’s final dividend.

About the author:

Roger Conrad
Investing Daily provides stock market advice and investment newsletters to help independent investors achieve a secure and rewarding financial future. The site’s coverage focuses on finding the most profitable emerging trends in the investment universe to bring investors pragmatic and in-depth coverage of the names that are taking advantage of these opportunities.

Visit Roger Conrad's Website


Rating: 5.0/5 (3 votes)

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK