Integrated energy companies
In this series, we will analyze the key drivers and indicators of integrated energy companies’ performance. Before we begin drilling the surface, let’s understand what integrated energy companies are.
Integrated energy companies are involved in all stages of the energy value chain, from oil exploration, development, and production to the refining and marketing of petroleum products. Upstream companies are involved in oil and gas exploration and production. Downstream comprises of refining, petrochemicals, and marketing activities. Integrated energy companies are less affected by oil price volatility. This is because losses from one segment are often offset by gains from another segment to a certain extent.
In the United States, Exxon Mobil (XOM) is the largest integrated oil company in terms of market cap at $331 billion. It is followed by Chevron (CVX) at $170 billion. These firms are part of the SPDR S&P 500 ETF (SPY), which has ~7% exposure to energy sector stocks.
Comparing the returns of integrated energy companies
The above chart shows the total returns of Exxon Mobil (XOM), Chevron (CVX), Royal Dutch Shell (RDS.A), and BP (BP) for the past ten years. The chart compares these returns with returns on crude oil, namely WTI (West Texas Intermediate). The integrated energy stocks moved in line with the S&P 500 (SPY) until the end of 2012. But after that, the decline in crude oil prices took its toll on the integrated energy stocks. The returns on integrated energy companies moved in line with the crude oil returns from 2013. We will discuss crude oil prices in the next few parts of the series.
Global events have a significant impact on energy stocks. For example, the global recession of 2008-09 that resulted from the subprime mortgage and financial crisis led to a meltdown in global equity markets and share prices.
In the next part, we will look at how the dynamics within the energy sector segments affect integrated energy companies’ performance.