Right now, one sector offers some of the greatest values in the market. These stocks are trading at a 36% discount to the S&P 500's 2009 P/E ratio. And one stock in this sub-niche is poised to outdo all others. Here's why...
Oil and Gas Stocks: Who Really Controls the Oil?
By Dr. Steve Sjuggerud, Chairman, Investment U
Monday, August 8, 2005: Issue #459
Earlier this year, after announcing record revenues of $25 billion for 2004, ExxonMobil became the world’s largest company
The record revenues come on the heels of a “perfect storm” in the oil and gas markets tight supply, high demand, fear and financial speculation have all come together to drive oil prices higher.
Wait, I’ve got to clarify something.
Yes, Exxon had record profits and hit $400 billion in stock market value, making it a champ among oil and gas stocksand also making it larger than Microsoft, Wal-Mart, GE, or any other company in the world.
However, Saudi Arabia’s Aramco has over 20 times the reserves of ExxonMobil, any way you size it up. So ExxonMobil can’t possibly be the world’s largest company. With over 260 billion barrels in reserves in the ground, and at an oil price of $60, Aramco has over $15 trillion worth of oil in the ground today. Comparing apples to apples (oil, without natural gas factored in), ExxonMobil doesn’t even have a trillion dollars worth of oil.
So, Who’s Got the Oil?
Saudi Arabia’s national oil company, Aramco (which is 100% government-owned, of course), has the world’s largest pile of oil reserves, by far. But who’s next? And where does the U.S. stand? What about China? And how about Canada’s oil sands where do they fit in?
I was curious. So I asked geologist and friend Matt Badiali to give me the details. Take a look:
Countries with Largest Oil Reserves (in Billions of Barrels), Year-end 2004:
1. Saudi Arabia: 263
2. Canada*: 17*
3. Iran: 132
4. Iraq: 115
5. Kuwait: 99
6. UAE: 98
7. Venezuela: 77
8. Russia: 72
9. Libya: 39
10. Nigeria: 35
11. US: 29
12. China: 17
Source: EIA, BP Statistical Review
*Canada’s oil sands not counted in this total
The picture is fairly clear Two-thirds of the world’s oil reserves are in the Persian Gulf, where foreign firms aren’t particularly welcome. Making matters worse, we’ve seen a rise of what’s called “resource nationalism,” which is choking off access to new reserves. With the exception of Canada and the potential offered by its oil sands, there’s not a developed country in the Top 10.
The Biggest Oil and Gas Stocks
ExxonMobil is the world’s biggest oil and gas stock. I find it interesting that Russia’s Lukoil has almost as much in reserves (specifically, MBOE, millions of barrels of oil-equivalent units) as Exxon, yet it trades in the stock market at just 1/10th the value.
Below is a table of the world’s largest publicly traded oil companies in the stock market. Please note that I mentally separate them into developed country stocks and emerging market stocks, and then mentally give a “discount” to the emerging market stocks.
| Oil/Gas Company | Reserves | * Stock Market Value (in US$bn) |
| Exxon Mobil | 21.2 | 377.0 |
| BP | 14.6 | 249.8 |
| Total | 11.1 | 152.6 |
| PetroChina | 11 | 161.8 |
| Royal Dutch | 14.4 | 133.5 |
| Chevron | 8.5 | 129.9 |
| Lukoil | 20.0 | 35.6 |
*Source: Hoovers. Reserves data in MBOE (millions of barrels of oil equivalent units, so it includes all hydrocarbon reserves)
Thoughts and Conclusions on these Oil and Gas Stocks
When you think about them like this, PetroChina looks expensive, trading at the same market value-to-reserves as the developed country stocks. And Royal Dutch Shell looks like the least expensive developed-country major (where you get the most reserves per dollar invested). This is nothing scientific, of coursewe’re just sizing up the world.
So who controls the oil? Exxon is the giant among publicly traded oil and gas companies. But Exxon pales in comparison to Saudi Arabia, and its state-owned oil company, Aramco.
Geologist Matt Badiali believes that oil prices won’t be able to fall significantly until large investments are made in infrastructure worldwide. So the price of oil can stay high. Exxon, BP, and Royal Dutch will of course be beneficiaries. But the biggest beneficiary will likely be Saudi Arabia.
So when someone asks, who controls the oil? The answer is no surprise it’s not Exxon it’s Saudi Arabia.
Good investing,
Steve
Today’s Investment U Cribsheet
- You can learn more about Aramco, Saudi Arabia’s state-run oil company, at their official website: http://www.saudiaramco.com
- We recently interviewed investment legend Jim Rogers, who gave us his exclusive take on the Saudi oil situation and commodities in general. Read the Investment U interview with Jim Rogers, and find out where he’s putting his own money these days.
- The New Crude Oil Benchmark That Could Change the Oil Market’s Price Dynamics
- Crude Oil: Mega Profits from the Oil Reserve 8 Times Bigger Than Saudi Arabia’s
- This Small Oil Producer is Ripe for a Takeover… Here’s How to Profit
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