Free Annual Reports
Black Gold Still Has Some Luster Left (COP)
One particular government report got lost in the panic of the markets over the last few weeks -- the U.S. Energy Information Agency (EIA) released is Annual Energy Outlook 2007.
In its outlook, the EIA is forecasting a long-term price of oil at $60/barrel. What is interesting about this report is that not only has the EIA increased its forecasted oil price, but the assumptions it states that will keep it around $60 instead of higher levels.
The EIA is relying on an assumption that the growth in the use of coal will be unfettered by any new environmental restrictions. This seems to fly in the face of the "Al Gore mania" that is weeping the land.
Additionally, the EIA is estimating that new supplies of oil and gas will be coming on stream.
Again this flies in the face of the current industry environment, where project costs are escalating, taking much longer to complete and, in the face of certain political risks, being canceled outright.
Assuming $60/barrel for the price of oil, several oil companies are trading at attractive prices. One of the large cap oil companies that is selling at a cheap valuation is ConocoPhillips (COP). According to Street consensus estimates, COP will earn $8.92/share this fiscal year.
The stock is trading at 7.3 times that level, with a dividend yield of 2.50%. If the above forecast is correct, investors can expect positive earnings surprise as the consensus forecast is based on oil prices approximating $50/bbl. On an EV/EBITDA basis, COP sells at one of the lowest multiples of any of the U.S. integrated oil companies, at 3.8x.
COP has disclosed its year-end reserves at 11.1 billion barrells of oil equivalent (BBOE) (excluding about 300 million from syncrude). COP has the lowest percentage of proven undeveloped reserves among the major integrated companies, at approximately 26%. COP has actively added to its reserves with its acquisition of Burlington Resources (which has large natural gas reserves) and its growing stake in Lukoil which owns huge oil and gas reserves in Russia.
However, the real story besides its attractive valuations, dividend yield and growing energy reserves is the bulging cash flow that the company's operations are delivering.
The company, as part of its large term strategy has been to reduce its debt and deliver shareholder value through higher dividend payouts and stock repurchases. Adjusting for its current capex levels for 2007 of $12.3 billion, dividends payments based on $1.24/share and the announced $1 billion in stock buyback, COP will still produce over $6 billion in free cash flow. This will be available for additional debt reduction, higher or special dividends or additional share repurchases.
Other oil companies that are attractively priced based on EV/EBITDA are Encana (ECA) at 5.9x, Devon Energy (DVN) at 4.9x and for those with higher risk tolerances, Lukoil (LUKOY) at 5.4x.
Exxon Mobil (XOM), the largest of the large, is only trading at 6.1x. These levels are quite attractive especially in light of the consensus that oil should be priced below current levels.
Most of the oil companies have been aggressively finding avenues to return value to their shareholders. In the current market's uncertainty, buying well-priced assets with possible upside earnings surprises and above market dividend yields may be a great defensive place to hide while investors sort out this sell-off.
In its outlook, the EIA is forecasting a long-term price of oil at $60/barrel. What is interesting about this report is that not only has the EIA increased its forecasted oil price, but the assumptions it states that will keep it around $60 instead of higher levels.
The EIA is relying on an assumption that the growth in the use of coal will be unfettered by any new environmental restrictions. This seems to fly in the face of the "Al Gore mania" that is weeping the land.
Additionally, the EIA is estimating that new supplies of oil and gas will be coming on stream.
Again this flies in the face of the current industry environment, where project costs are escalating, taking much longer to complete and, in the face of certain political risks, being canceled outright.
Assuming $60/barrel for the price of oil, several oil companies are trading at attractive prices. One of the large cap oil companies that is selling at a cheap valuation is ConocoPhillips (COP). According to Street consensus estimates, COP will earn $8.92/share this fiscal year.
COP has disclosed its year-end reserves at 11.1 billion barrells of oil equivalent (BBOE) (excluding about 300 million from syncrude). COP has the lowest percentage of proven undeveloped reserves among the major integrated companies, at approximately 26%. COP has actively added to its reserves with its acquisition of Burlington Resources (which has large natural gas reserves) and its growing stake in Lukoil which owns huge oil and gas reserves in Russia.
However, the real story besides its attractive valuations, dividend yield and growing energy reserves is the bulging cash flow that the company's operations are delivering.
The company, as part of its large term strategy has been to reduce its debt and deliver shareholder value through higher dividend payouts and stock repurchases. Adjusting for its current capex levels for 2007 of $12.3 billion, dividends payments based on $1.24/share and the announced $1 billion in stock buyback, COP will still produce over $6 billion in free cash flow. This will be available for additional debt reduction, higher or special dividends or additional share repurchases.
 |
Other oil companies that are attractively priced based on EV/EBITDA are Encana (ECA) at 5.9x, Devon Energy (DVN) at 4.9x and for those with higher risk tolerances, Lukoil (LUKOY) at 5.4x.
Exxon Mobil (XOM), the largest of the large, is only trading at 6.1x. These levels are quite attractive especially in light of the consensus that oil should be priced below current levels.
Most of the oil companies have been aggressively finding avenues to return value to their shareholders. In the current market's uncertainty, buying well-priced assets with possible upside earnings surprises and above market dividend yields may be a great defensive place to hide while investors sort out this sell-off.
Free Annual Reports
