Integrated Energy Stocks’ Price-To-Earnings-To-Growth Ratios



Price-to-earnings-to-growth ratios

Previously, we observed integrated energy stocks’ short interest movements. In this part, we’ll compare their PEG (price-to-earnings-to-growth) ratios, which examine a stock’s valuation after factoring in its expected future growth rate. Usually, everything else being equal, a PEG ratio lower than one suggests that a stock is undervalued.

ExxonMobil (XOM) has the highest PEG ratio among the four integrated energy stocks we’re looking at. Whereas it has a PEG ratio of 0.76, the peer average is 0.40. Chevron’s (CVX), Royal Dutch Shell’s (RDS.A), and BP’s (BP) ratios are below the peer average, at 0.21, 0.34, and 0.28, respectively.

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Integrated energy stocks’ capex

The PEG ratio considers two-year earnings growth rates and long-term growth rates. To grow their earnings, integrated energy companies have been taking strict measures in the past few years. XOM, CVX, Shell, and BP have been squeezing their cost models to create leaner structures with a focus on core assets, and cutting capital expenditure to focus on low-cost, high-return, and shorter projects.

Shell’s capex in 3Q17

In 3Q17, Royal Dutch Shell’s capital expenditure was $5.8 billion, compared with $7.7 billion in 3Q16. Shell is restructuring its upstream portfolio to retain only competitive assets. Shell expects its new projects, which began in 2014, to contribute ~1 MMboepd (million barrels of oil equivalent per day) by 2018 and ~$10 billion in cash flow.

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Chevron’s capex also stands tall

In 3Q17, Chevron incurred capital expenditure of $4.5 billion, ~88% of which went towards its upstream segment. Gorgon’s 3Q17 production surpassed 400 Mboepd (thousand barrels of oil equivalent per day), and the Wheatstone LNG (liquefied natural gas) project announced its first production on October 9. The project’s Train 2 is expected to start up in 2Q18. For 2017, Chevron foresees 6%–8% growth in its net hydrocarbon production, boosted by new field start-ups and existing field ramp-ups, and partially offset by maturing field declines.

XOM and BP’s capex in 3Q17

In 3Q17, ExxonMobil incurred capex of $6.0 billion, compared with $4.2 billion in 3Q16. Of the 3Q17 capex, $3.2 billion went towards the upstream segment, and $0.61 billion and $2.2 billion went towards the downstream and chemical segments, respectively. The downstream and chemical segments’ high capex was related to the completion of ExxonMobil’s Jurong Aromatics plant acquisition.

BP’s organic capex stood at $4.0 billion in 3Q17, compared with $3.5 billion in 3Q16. Between 2018 and 2021, BP expects organic capex of $15 billion–$17 billion per year. It plans to add ~1MMboepd of new production by 2021, of which ~800 Mboepd is expected to be added by key projects and ~200 Mboepd is expected from new portfolio additions.


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