Research on Energy Sector Syncs

Since oil price drop, some oil reserves are not economic, thus affect companies valuation. Also since deep water offshore projects are more expensive, it will be hit harder. Find out which company rely on offshore deep water more!
*** good pair
** OK
* not so good
XOM-CVX***
Watch out!!! CVX in trouble with Ecuador case. Possible liability of 27B, the case is pending in the Lago Agrio region of Ecuador and decision is expected in early 2009. Avoid buying CVX before the case is settle!!! More detail on the case at:
http://thechevronpit.blogspot.com/
(12/18/08)XOM is considered as over bought during last couple of months, outperform peers by over 10% in the period. May have some depress on price. Be careful with trading and tighten trading conditions.

Why XOM has PEpremium over CVX? XOM has PE 8.7 and FPE 12.8, CVX has PE 6.9 and FPE10.4. CVX also has higer payout at 3.24% comparing to XOM's 2%.

XOM profile: http://www.reuters.com/finance/stocks/companyProfile?symbol=XOM.N&rpc=66
XOM analyst report: http://businessbrowser.onesource.com/SharedScripts/Reports/FetchAR.asp?Process=CP&DocID=14139681&file=file.pdf
CVX profile: http://www.reuters.com/finance/stocks/companyProfile?symbol=CVX.N&rpc=66
CVX analyst report: http://businessbrowser.onesource.com/SharedScripts/Reports/FetchAR.asp?Process=CP&DocID=13971575&file=file.pdf

           Mkt cap   PE     FPE     Yield    inst own  beta
XOM    406b      8.6    12.8     2%       50%       0.6
CVX      158b     6.74  10.4     3.34%  64%       0.75

Total revenues:(2007)
XOM 390b
CVX 214b

Revenues by division(FY2007)
              upstream   downstream   chemical   other
XOM     7.3%        83.2%            9.4%       0.1%
CVX      26.3%      72.2%            0.8%       0.7%

CVX has more revenue from upstream (explores for and produce crude oil and natural gas). XOM has much more revenue from downstream(refine, fuel, marketing, transportation) and chemical.

Revenues by Geography
                      US          Japan&EU        Others    
XOM             31%        38%                 31%
CVX              43.9%

CVX depends on US market more than XOM. XOM's operation is more diversified.

Both companies have similar SWOT.
The biggest problem for CVX is crude oil and gas reserves. While XOM has 13billion barrels of oil equivalent reserve, CVX only has 3 billion. Both produce about 2.6 million barrel of crude oil per day, thus decrease of CVX's reserve is more severe.

Since crude oil price is so depressed now and may remain low for next year, CVX will face more difficulties since it relies on upstream operation more than XOM. Downstream operation will have to face the economic downturn, I feel that it's less affected than upstream operation.

Above may be 2 reasons why XOM enjoys higher PE and FPE.

Overall, XOM and CVX should be good sync trading candidate. Need to track CVX's reserve more closely. News in this aspect may cause drastic stock price change. Also need to closely track foreign orperations. When there's such news as Nigeria trouble in Sep for CVX, halt trading.

Trading Strategy:
One day gap 1-1.5%, 5 day gap 2-3%, 1 mo gap 5%.


TOT-BP**
TOT profile: http://businessbrowser.onesource.com/SharedScripts/Reports/FetchAR.asp?Process=CP&DocID=13972282&file=file.pdf
BP profile: http://businessbrowser.onesource.com/SharedScripts/Reports/FetchAR.asp?Process=CP&DocID=13966509&file=file.pdf

           Mkt cap   PE    FPE     Yield    inst own   beta
TOT    120b       6.08  11.63   5.2%    8%          0.93
BP       149b       6.22  13.05   7.04%  12%        0.7

Total revenues:(2007)
TOT 217b
BP    289b

Revenues by division(FY2007)
              upstream   downstream   chemical   other
TOT       12.4%        75.1%            12.5% 
BP         6.6%           86.4%

BP has much more revenue from downstream(refine, fuel, marketing, transportation)

Revenues by Geography
                      EU          US        Africa    Far East & Others     
TOT              70.4%      7.8%     6.6%    15.3%
BP                44.2%       35.5%

BP depends on US market more than TOT. TOT is more diversified. TOT(France) has 24% revenue from France. BP(UK) has 21% revenue from UK. BP's alternertive energy division spun off as a seperate company.  Both has strong balance sheet.

Overall,TOT and BP are OK but not very good sync trading pair. Their performance are lack of cross overs like XOM-CVX. Need to put more tough trading conditions.
 
Trading strategy
One day gap 1.5%, 5 day gap 3%, 1 mo gap 8%.

COP-MRO ***
COP profile: http://businessbrowser.onesource.com/SharedScripts/Reports/FetchAR.asp?Process=CP&DocID=14139936&file=file.pdf
MRO profile: 

           Mkt cap   PE     FPE     Yield    inst own   beta
COP    77b         4.25   8.7       3.6%     78%      1.2
MRO    17.4b     4.16  12.1     3.89%   79%       1.47

Total revenues:(2007)
COP  194.5b
MRO 64.5b

Revenues by division(FY2007)
              upstream   downstream   midstream 
COP      25.7%        71.6%            2.6%       
MRO??     

Both COP and MRO are in Houston. MRO is involved in some litigations accross the state. Need to follow it closely. MRO plans to split upstream and downstream operation, expected to be done early next year. Need to check out impact on stock price. I like this pair. More research tomorrow.

Revenues by Geography
                      US          UK        Others    
COP              70%        11%       19%
MRO??             


Both companies have similar SWOT.
The biggest problem for COP is crude oil and gas reserves and its crude oil production.
MRO seems depends on upstream more, over 50% income from E&P. Depressed crude oil price should have more impact on MRO than COP. However, stock price are highly correlated.

Trading Strategy:
One day gap 1-1.5%, 5 day gap 2-3%, 1 mo gap 5%.



Drilling company: onshore, offshore
PTEN-NBR

Highly correlated. 2% daily gap should trigger trade. The problem is that stock price is too low, thus transaction cost is high. May need to lift trading condition and reduce transaction.


Offshore deep water drilling
RIG-DO-NE, when RIG is over DO, +DO-RIG
           Mkt cap   PE     FPE     Yield    inst own   beta
DO     9.37b      7.93   7.23     0.74%   95%       1.25
RIG    17.57b    3.73    8.97                 84%        1.47
NE     6.7b        4.55    7.2       0.6%     78%       1.5

DO is better positioned than RIG or NE, has more cash on hand and 11b contracted backlog. Incline to long DO if drop below RIG or NE.
Highly correlated, last 3 months(9-12) DO out perform RIG by 20%. Check out why and determine whether it will continue the trend.

Answer:
http://businessbrowser.onesource.com/SharedScripts/Reports/FetchAR.asp?Process=CP&DocID=14223997&file=file.pdf

Basically, RIG annouced it will move to Switzland from Cayman island for tax purpose, this will remove RIG from S&P500 and Russell200, which implies about 45.1M shares to be sold(14.2% of float and 5-7 days of recent trading volum). This will put near term selling pressure on the stock. This might be the reason that RIG underperform its peers after Oct. 8, 08 annoucement. The reincorporation was approved by shareholders on 12/8/08. Last year ACE did same thing and underperfrom peer by 3% after a month of approval on 5/20/08. S&P removed RIG on 12/12/08, RIG stock did under perform peer on the day. I think the impact will be there for next 1-2 months based on ACE case. NE also moves headquater to Switzerland. Maybe RIG and NE are better pair. DO should be on long side when trade with RIG and NE.