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How Some Small Oil Drillers Are Outperforming Exxon and Chevron


Aug. 7 2015, Updated 9:06 a.m. ET

Certain small oil drillers are surpassing larger integrated oil firms

According to a Wall Street Journal article dated July 29, 2015, integrated oil firms are coping better with the slump in oil prices than average drilling firms. Interestingly, some smaller firms are exhibiting stability that’s on par or greater than that of integrated giants.

For instance, the above table shows that Cimarex Energy (XEC) has fared better than Chevron (CVX) in terms of share price returns over the past year. Diamondback Energy’s (FANG) returns are more or less on par with those of Exxon Mobil (XOM) over the same period.

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Lower debt levels

Cimarex, Cabot Oil & Gas (COG), and Diamondback carry lower levels of debt than their peers in the exploration and production subsector of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). As seen in the above table, while the average debt-to-equity ratio of the exploration and production subsector within XOP is 136.9x, Cabot’s, Cimarex’s, and Diamondback Energy’s ratios are much lower. Having said that, these firms do carry more debt than their integrated peers.

Possibility of a buyout

The stock buoyancy of shale oil drillers such as EOG Resources (EOG) suggests investors are betting on an oil and gas rebound. Alternatively, it implies a bet on the probability that larger firms will acquire smaller more efficient firms at a premium.

In the next part of this series, we’ll use the RSI (relative strength index) to gauge whether or not the exploration and production firms on the XLE are oversold.


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