Is Oil's Down Escalator Finally Heading Up? (XOM, COP, CEO, PBR, REP, PTR)

Oil company share prices have been in near free fall for the past six months. Exxon Mobil (NYSE:XOM) is off about 20% from its 52-week highs and ConocoPhillips (NYSE: COP) is off about 50%, but both are doing better than a basket of emerging economy stocks. CNOOC Ltd (NYSE:CEO) is down 68% for the past 52-weeks, PetroBras (NYSE:PBR) is off 77%, Repsol YPF (NYSE:REP) is down 57%, and PetroChina (NYSE:PTR) is off 64%. The drop in crude prices, down more than 65% since the July peak, is the main culprit.  But even as crude prices continue to slide, share prices for these companies are beginning to make a comeback.

Since posting 52-week lows about a month ago, Exxon has gained back36%, Conoco 15%, CNOOC has retrieved 20%, PetroBras 23%, Repsol 20%,and PTR 30%. That’s a start, but there’s only one case where thereseems to be any explanation for the gains.

Conoco and Repsol are getting some good news from Russia. Russian oilgiant Lukoil is set to pick up about 30% of Repsol from a couple ofdesperate investors in the Spanish/Argentine oil giant. (Conoco owns a20% stake in Lukoil.) Ten days ago there were rumors that Russia’sGazprom would buy a 20% stake in Repsol from Spanish constructioncompany Sacyr.

The deal apparently won’t cost Lukoil anything because two of Sacyr’screditors are putting up the money for the Russians if Lukoil agrees toa premium of of about 2 euros above the price Sacyr paid for its Repsolstake 2 years ago. Lukoil wants an additional 10% of Repsol, andapparently there are willing sellers among the company’s shareholders.

Before everyone gets carried away though, the Spanish government vetoeda 10% sale of Repsol to Lukoil just two years ago, arguing that such asale was not in the country’s best interest. No such veto is likelythis time, however, unless the government wants to bail out Sacyr.

Aside from that little wrinkle, there’s no particular reason that theoil company stocks should be gaining. Except that the oil that they arenot pumping now is becoming more valuable as each day passes.

Paul Ausick
November 24, 2008