Putting a price on Big Oil – how to value oil stocks

The future of oil is uncertain, but some of the major oil companies are not being given the benefit of the doubt, says Cris Sholto Heaton.

Shares in Big Oil – BP, Chevron, ConocoPhillips, Eni, Exxon Mobil, Royal Dutch Shell and Total – collapsed at the start of the pandemic and have remained out of favour even as the market recovers. BP and Shell (both down 35% since the beginning of 2020) are especially weak, but Eni, Exxon, Chevron, Conoco and Total (down 15%-25%) are also lagging, despite oil rebounding to where it was three years ago.

The evident fear among many investors is that these firms operate in a dying industry. The world will move away from oil and they will be out of a job. This is a very real uncertainty – but as profits rebound, it’s worth recalling how much cash these firms can generate and what their options are.

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The seven oil majors
Row 1 - Cell 0 Market cap.Net debtR/P 2019Free cash flow avg. 2018/19
BP$62bn$33bn14$8.3bn
Chevron$199bn$35bn10$15bn
Conoco$76bn$11bn11$5.3bn
Eni$44bn$12bn11$4.5bn
Exxon$244bn$57bn16$10.9bn
Shell$115bn$66bn8$24.6bn
Total$100bn$25bn12$10.3bn
Sources: Bloomberg, Morningstar
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Cris Sholto Heaton

Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.

Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.

He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.