by Aaron Levitt | December 11, 2013 11:55 am
There are plenty of top oil stocks out there, from Range Resources (RRC) to EOG (EOG). However, when it comes to America’s largest and best oil stocks, venerable Exxon Mobil (XOM) and its chief rival Chevron (CVX) are the duo to beat.
Among the world’s largest corporations, XOM and CVX hold huge oil and natural gas reserves and are responsible for the bulk of the planet’s energy production. The huge scale of these top oil stocks provides cost savings and other advantages many smaller firms could only dream of — great news for holders of Exxon stock and Chevron stock.
But while that’s all well and good when comparing these two to smaller independent oil stocks, what about when we put XOM stock face-to-face with CVX stock? Which of the two largest oil stocks will be the best bets for investors in the upcoming year?
Will, each of the two oil stocks offers plenty of pros and cons, but only one will reign supreme. With that in mind, we offer our look at XOM stock and CVX stock to help you choose which is your best bet in 2014.
Over the last few years, Exxon stock hasn’t exactly acted like the oil stocks leader it once was. The old Standard Oil relic struggled with some serious issues, with production at XOM failing to “Keep up with the Joneses.”
But after eight consecutive quarters of year-over-year production drops, XOM stock investors will be happy to know that the oil giant may have gotten the tiger back in its tank. For the latest quarter, Exxon managed to increase its output of oil and natural gas by 1.5% and push output back over the 4 million barrels per day mark.
The key for Exxon was a slate of new projects finally hitting the commercial production stages. From increased natural gas output in Australia to oil from Nigeria and Canada, XOM stock saw some pretty nice gains from these new endeavors.
Even more promising for fans of XOM stock? The gains should continue into 2014.
The New Year should be this oil stock’s first year of production growth since 2011 as XOM starts up some of its most ambitious projects of this decade. These include its massive Kearl oil sands project with Imperial Oil (IMO), deepwater drilling in the Caspian Sea as well as finally tapping its Papua New Guinea natural gas assets. All in all, Exxon should see production growth of about 4% in 2014.
That production growth — in the face of higher oil and natural gas prices — should help drive cash flows, dividends and buybacks at Exxon. That will push XOM stock to new highs.
Besting XOM in the return department over the last three years, Chevron stock could have plenty of upside into 2014. Like XOM, Chevron is spending some big bucks to increase production. Overall, CVX will spend a massive $36 billion in total — with nearly $33 billion of that going to finding new sources of oil and natural gas throughout 2014.
Ultimately, CVX will use those billions in projects ranging from developments in Australia and Nigeria to the deepwater of the Gulf of Mexico. In fact, potential Chevron stock investors should know that the company currently has around 50 projects in its pipeline. The key for those projects is that most are tied to higher-priced oil and not domestic natural gas production. Even better, the bulk are international projects tied to the higher-priced Brent benchmark.
That means that, despite the higher CAPEX spending, CVX should be able to command a higher price per barrel for what it produces … unlike XOM which, through its purchase of XTO, is still very much a domestic natural gas producer.
However, even on the natural gas front, CVX stock is making hay. That’s because 2014 will finally see its massive Gorgon LNG project in Australia begin to produce gas for shipment. The facility should start up in late 2014, with the first LNG cargo being delivered in the first quarter 2015. Global prices for LNG and natural gas are higher than here at home, meaning CVX should be still make more per Bcf of natural gas than XOM.
Given the positives for XOM stock and CVX stock, choosing between the two comes down what you’re looking for. Both oil stocks should produce positive returns in the New Year, the question is just how.
To me, XOM stock is more like a bond than a quick-moving energy producer. Its huge cash flows — to the tune of a staggering $7.87 billion in profits for the last quarter — are the attraction. Those hefty cash flows have continuously made their way back to Exxon stock shareholders via dividends and share buybacks. Exxon managed to hand out roughly $5.8 billion of that cash back to XOM stock holders in the third quarter alone. In the long run, those dividends and buybacks will help its overall total return.
That’s good considering most analyst prices targets are only slightly the current trading price of Exxon. For XOM stock, the name of the game is consistency and it should perform as such — steadily rising and churning out dividends.
One the flipside, CVX stock is about growth. Don’t get me wrong, Chevron still mints cash flows and pays a hefty dividend. However, shares of the oil stock hasve performed and had better returns than its chief rival. That should continue into 2014 as many Chebvron projects are focused on higher oil production and in more “exciting” parts of the world.
In the end, that should help CVX stock outperform XOM stock in the total return department.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.
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