Is Big Oil About To Play Catch Up?

Since its dizzying fall from $145 a barrel to roughly a quarter of that value, crude oil has stabilized in 2009 and even recovered in price. The plight of individual oil companies, however, has been too varied during that time to generalize the sector. Too many factors have to be counted to understand the path of any particular oil company's price trajectory. What is certain, though, is the relative underperformance of the oil sector vis-à-vis the broader market since lows were set back in March. (For related redaing, see Unearth Profits In Oil Exploration And Production.)

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This is especially true of the large-cap, integrated oil outfits, whose shares have appreciated roughly 15% as a group, against a broader market rise in the S&P of 36% during the same time frame. For those who believe big oil still has some catching up to do, here are a few names to consider. (For more, see A Guide To Investing In Oil Markets.)

A Slick Performer
Hess Corporation (NYSE:HES) is a global, integrated energy company with shares that have performed exceptionally since bottoming in December – up over 75% in that period, from $35.50 to $62.40. The company devotes 80% of capital spending to exploration, and last year counted worthwhile discoveries in Australia, Egypt and Libya, among others. Most analysts agree that a continued rise in the price of oil could benefit Hess more than its competitors, due to management's ongoing effort to strengthen the balance sheet.

Surging Shares
Another integrated oil company which has outperformed its peers is Marathon Oil Corp. (NYSE:MRO), with shares that have surged over 30% in the last two months, and sell at a very reasonable P/E of only 6.9. Throw in a dividend yield of 3.22% annually and it's hard to find much wrong with this issue. On the exploration front, Marathon has scaled back its drill program in Alaska's Cook InletBasin, where it's spent about $450 million over the last six years. Although Marathon is a key player in the area, taking part in three quarters of all new wells that are drilled there, the company's returns for those efforts have been diminishing. Marathon is now reassessing its drill and exploration program.

And a Household Name
Chevron Corporation (NYSE:CVX) is a recognized oil giant with a market cap of $132 billion. Few companies in the investment universe are bigger. Chevron pays a 3.94% dividend and trades at a very low multiple of just 6.54, and the shares are up about 20% from last year's lows. Currently, Chevron is developing important new projects in China and the Far East, most notably with its multibillion-dollar investment at Chuandongbei, China, which will serve the domestic Chinese market. This facility will add to Chevron's already commanding position in the region, where the company's assets account for a full 48% of Asian oil and gas production. (For more, see our Oil And Gas Industry Primer.)

The Wrap
At the moment, integrated oil companies are flashing signs of opportunity. With respect to the rest of the market they have simply not performed, yet their fundamentals are objectively sound. Whether they outperform the broader market in the weeks and months to come will depend as much on those fundamentals as it does on continued stability in the price of crude. (For more on the oil industry, see our Industry Handbook: The Oil Services Industry.)