In this article we will look at companies in the broadly understood energy sector in the United States, more specifically the mining and refining industry. This sector is heavily dependent on the prices of crude oil and natural gas, which is next to coal, the main energy raw materials used around the world. Potential players in the extraction of energy resources are countries such as Saudi Arabia, Russia and recently the United States. In the latter country, for over a decade there has been a revolution in the extraction of energy resources, which has led the US to jump to the top of the oil and natural gas production.


US energy sector

Oil production in the United States began in the 19th century, but it started well in the 1920s. During this period, the oil industry in Texas was thriving. At the beginning of the operation, the oil was under high pressure, which facilitated its extraction. It was enough to make a well and replace the tankers.

Until the 1950s, there was practically no worry about oil reserves in the United States. Oil extraction in this period was growing drastically. Raw material was cheap and no one cared about saving it. The 50s are famous for their fuel-efficient cars and fashion for homes in the suburbs. The average American has crossed a tens of kilometers to get to work. However, at that time, skeptical voices emerged that the raw material might someday run out. One of the first to warn of a possible runoff was geophysicist Marion King Hubbert. He predicted that the peak would be in the 70s of last century. Unfortunately, at that time his predictions were neglected.

In the 1960s there was a real oil boom, and mining companies believed that oil would last for centuries. Oil was mined so much that the Railroad Commission of Texas, the state’s regulator for the extraction of this commodity, had to set limits so that prices would not fall.

As Hubbert predicted, in the 1970s oil was missing. It was necessary to import this raw material. The Railroad Commission of Texas abolished mining limits, and Hubbert again warned that the peak was reached. However, once again it was ignored and the industry explained the current situation of underfinancing. Industry experts have argued that once the new shafts are launched, mining will begin to grow again. Indeed, new oil panes are emerging. Over the past decade, their numbers have increased four to five times, but in that period the output has dropped by 30%.

In the end, experts are beginning to admit that raw materials may run shorter than they did before. By 2005, the United States imported 70% of its oil consumption. Along the way, there were several oil crises, due to the use of raw materials for political purposes, including those of the OPEC countries (the 1973 oil crisis).

The development of technology has made it possible to combine horizontal drilling with hydraulic fracturing, which began in 2005 with the so-called shale revolution. The United States has become more self-sufficient, and output in 2007 – 2014 increased by 50% year on year. Not only did the states increase their energy security, they also began exporting crude oil and natural gas to other countries. In 2015, net imports (exports – imports) dropped to 24%. A total ban on oil exports was lifted at the end of 2015, after 40 years, to make the US a powerful power in the field.

The United States was at the forefront of oil-producing countries alongside Saudi Arabia and Russia. However, in the US, the highest costs of extracting this material, at least from shale. The average cost of shale mining oscillates around $ 70. In Russia it is about 40 USD, and in Saudi Arabia even around 20 USD.

The energy sector can be divided into the extractive and petrochemical industries. Two corporations are leading this industry in the US. This is Chevron Corporation and Exxon Mobil Corporation. Let’s take a closer look at them.

ExxonMobil Corporation

Source: Thompson Reuters

John Davison Rockefeller founded Standard Oil in 1870. The company was based in Cleveland, Ohio. The company’s activities included the extraction, processing, distribution of gas and oil and the production of chemical products.

At that time it was the largest petrochemical company and one of the first multinational corporations in the world. However, in 1911, the company had to divide into smaller units due to the United States Supreme Court’s ruling on contradictory company actions against the antitrust laws in force. The company was considered a monopoly and was forced to split. Several smaller companies were established, including:

  • Standard Oil of New Jersey, which was later changed to Exxon,
  • Standard Oil of New York, which was renamed Mobil.

As a result of the merger of two companies Exxon and Mobil, ExxonMobil was founded at the end of 1999. The company is one of the largest companies in terms of market capitalization. He is looking for new deposits of energy resources, extraction, processing and sale of petroleum products.

Some relevant market data (as of March 2017)

  • President of the company (from January 2017) – Darren W. Woods
  • Number of employees – 73 500
  • Headquarters – Irving, Texas
  • Shares Outstanding – 4,15 billion
  • Float Current – 4,13 billion
  • Held by Insiders – 0,28%
  • Held by Institutions – 53,5%
  • Market Cap – 336,82 billion USD
  • Price/Earnings – 43,39
  • Price/Earnings for the whole industry – 35,81
  • P/E CAPE Shiller – 11,61
  • Over the past 13 years, P/E CAPE Shillera ratio was the highest at 25,68; the lowest at 9,33; and the median at 13,13
  • P/E CAPE Shiller for the whole industry – 11,78
  • Revenue for the last year – 197,50 billion USD
  • Increase/decrease revenue for the last year – (-16,59%)
  • EBITDA for the last year – 23,24 billion USD
  • Net Income for the last year – 7,84 billion USD
  • Earnings Per Share for the last year – 1,87 USD
  • Increase/decrease earnings for the last year – (-51,16%)
  • Dividend for the last year – 0,75 USD
  • Dividend Yield – 3,69%
  • 4 Year Average Yield – 3,09%

Chevron Corporation

Source: Coolcaesar, on license CC

The origins of the company go back to the nineteenth century when oil fields in California were discovered, which contributed to the founding of Pacific Coast Oil Company in 1879, which is believed to be Chevron’s mother. In 1900, Pacific Oil was purchased for $ 761,000 by Standard Oil, owned by John D. Rockefeller.

In 1984, Standard Oil Corp. of California, in short SoCal acquired Gulf Oil and changed its name to Chevron Corporation. In January 1996, Chevron and NGC Corporation announced plans to merge parts of Chevron’s natural gas NGC. Another merger took place in 2001 with Texaco for $ 45 billion. Chevron changed its name to Chevron Texaco to return to Chevron Corporation in 2005. In August 2005, Chevron purchased Unocal Corporation for $ 18 billion, increasing its fuel and gas reserves by about 15 percent. In 2010, Chevron acquired Atlas Energy for $ 4.3 billion.

The company is the second largest US energy company in the US alongside ExxonMobil and is among the six largest companies in the world. It deals with practically everything related to energy resources, including the extraction, production, refining, production and sale of chemicals.

Some relevant market data (as of March 2017)

  • President of the company (from January 2017) – John S. Watson
  • Number of employees – 55 200
  • Headquarters – San Ramon, California
  • Shares Outstanding – 1,89 billion
  • Float Current – 1,89 billion
  • Held by Insiders – 0,04%
  • Held by Institutions – 65,54%
  • Market Cap – 336,82 billion USD
  • Price/Earnings – 107,99
  • Price/Earnings for the whole industry – 35,81
  • P/E CAPE Shiller – 11,65
  • Over the past 13 years, P/E CAPE Shillera ratio was the highest at 21,91; the lowest at 7,28; and the median at 12,33
  • P/E CAPE Shiller for the whole industry – 11,78
  • Revenue for the last year – 110,48 billion USD
  • Increase/decrease revenue for the last year – (-14,92%)
  • EBITDA for the last year – 14,12 billion USD
  • Net Income for the last year – (-497) million USD
  • Earnings Per Share for the last year – (-0,27) USD
  • Increase/decrease earnings for the last year – (-111,19%)
  • Dividend for the last year – 1,08 USD
  • Dividend Yield – 4%
  • 4 Year Average Yield – 3,82%

Summary

Energy companies depend primarily on the situation in the energy commodity market, mainly crude oil and natural gas. Companies such as ExxonMobil and Chevron are also dependent on the US dollar as part of the output is for export.

The company’s hard times lasted between 2014 and 2016. In that period, WTI oil prices fell from around $ 100 per barrel to near $ 30 per barrel. Of course, the sharp fall in oil prices was accompanied by a strong appreciation of the US dollar, with the dollar index rising from around 80 to 100, and in the main currency pair, EUR/USD, at the beginning of 2015 there was little shortage in parity.

By investing in this type of company you always have to take into account the situation on the raw materials market. Nowadays, due to the highly developed market, the timely monitoring of the market situation of raw materials should not cause many problems. On the commodity market, as in the capital market, we have many indexes that allow us to get an idea of the general situation. One of the main commodity commodity indices is the Commodity Research Bureau (CRB), which depicts the situation in the energy, precious metals, industrial metals and agricultural commodities. Of course, the situation on the capital market is also important for the valuation of individual shares. Bearer shares have fallen, while those with good fundamentals fall.

The partner of the cycle is TMS Brokers 

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