Expected Upside Gains for Big Oil Companies (XOM, CVX, COP, BP, OXY, PBR)

Large US oil companies have had a good year. Not the best ever, but good nonetheless on high prices for crude oil. The big reason for solid profits has been the differential between the prices for WTI and Brent crudes. The difference has been running at about $25/barrel in favor of Brent. That has allowed the oil companies with refining assets in the central part of the country to buy oil at the lower WTI price and sell their refined products at a price that matches the higher price for products refined from Brent crude. Today’s differential values Brent at a premium of $22/barrel.

Chevron Corp. (NYSE: CVX) has a median target price of $120.00 from 19 brokers. Shares are trading today at $100.74, for an implied gain of $19.26, or 19%.Chevron’s forward P/E is 7.69 and the company pays a dividend yield of 3.1%. The stock’s 52-week trading range is $80.41-$109.94, and at today’s price that’s about 25% above its 52-week low and 8% below the 52-week high. Chevron put out a preliminary estimate on third quarter earnings last week and noted that production would be lower than the second quarter but that profits should be flat at about $3.55/share. The company sees fourth quarter profits going higher. The stock is poised to push past its 52-week high, but the target price does not to be in danger yet.

ConocoPhillips Corp. (NYSE: COP) has a median target price of $80.00 from 17 brokers. Shares are trading today at $69.11, for an implied gain of $10.89, or 16%. Conoco’s forward P/E is 8.33 and the company pays a dividend yield of 3.8%. The stock’s 52-week trading range is $58.37-$81.80, and at today’s price that’s about 18% above its 52-week low and 16% below the 52-week high. Conoco continues to struggle with a leaking well in China’s Bohai Bay that could end up costing the company millions in fines. The company is also spinning off its refining operations, which will not help either its revenue or profits if the refining spreads remain high. Warren Buffett still maintains a hefty position in Conoco shares.

BP plc (NYSE: BP) has a median target price of $54.69 from 12 brokers. Shares are trading today at $40.85, for an implied gain of $13.84, or 34%. BP’s forward P/E is 6.08 and the company pays a dividend yield of 4.2%. The stock’s 52-week trading range is $33.62-$49.50, and at today’s price that’s about 22% above its 52-week low and 17% below the 52-week high. Following last year’s disaster in the Gulf of Mexico, BP’s shares fell below $30 before rising to their current 52-week high. Earlier this week the company agreed to accept $4 billion from Anadarko Petroleum Corp. (NYSE: APC) as that company’s share of the clean-up bill. Payouts have been smaller and have happened more quickly than expected. BP’s biggest problem is that the company sold off so many assets to raise cash, which it might turn out the company won’t need after all.

Occidental Petroleum Corp. (NYSE: OXY) has a median target price of $115.00 from 19 brokers. Shares are trading today at $84.18, for an implied gain of $30.82, or 37%. Oxy’s forward P/E is 10.18 and the company pays a dividend yield of 2.2%. The stock’s 52-week trading range is $66.36-$117.89, and at today’s price that’s about 27% above its 52-week low and 29% below the 52-week high. Oxy’s lack of refining assets doesn’t make it an exact fit with the other companies in this list, but the company’s market cap of around $68 billion pulls is a better fit here. The company has sold off its Argentine assets and is investing in oil and gas exploration in the US, primarily in the Bakken field of North Dakota. The company also does a lot of secondary and tertiary recovery in the Permian Basin, and it recently purchased a controlling interest in a large natural gas play in California.

Petroleo Brasileiro SA (NYSE:PBR) has a median target price of $36.97 from 20 brokers. Shares are trading today at $23.97, for an implied gain of $13.00, or 54%. Petrobras’s forward P/E is 5.92 and the company pays a dividend yield of 0.7%. The stock’s 52-week trading range is $20.76-$42.75, and at today’s price that’s about 15% above its 52-week low and 44% below the 52-week high. Petrobras shares have been hit by the almost unbelievable amounts of money the company will have to spend to develop the massive Brazilian offshore fields. The company has committed to spending $225 billion by 2015, and about a quarter of it this year. That’s a ton of money, but the really bad news is that it could cost even more if the exploration wells don’t live up to expectations.

Paul Ausick