With crude oil prices trending generally downward and projected to continue that trend at least into the first half of next year, the country’s largest oil and gas companies have got to be concerned with the costs of exploring for and developing new sources of crude. Expenses are rising, and third-quarter production at the two largest U.S. oil companies, Exxon Mobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX) was lower. That combination is not a winner for either company.

Over the past three years, Chevron stock has gained nearly 47%, compared with a 34% share price gain for Exxon, which has trailed both the Dow Jones Industrial Average and the S&P 500 indexes over the same period. The S&P even outperformed Chevron with a gain of almost 50% over the past three years.

Exxon has seen its shares rise about 9% so far in 2013. Warren Buffett’s recent purchase of $3.5 billion worth of Exxon stock got a lot of ink and pixels, but aside from an initial jump of more than 2%, the effect on Exxon’s shares is unlikely to be lasting. About half the gain is gone already. The stock closed at $94.69 on Thursday, and the consensus analyst price target of around $95.60 indicates a potential upside of about 1%. Shares have traded in a range of $84.70 to $96.00 over the past year. With a fiscal year 2014 earnings per share estimate of $7.95, it is valued at nearly 12 times next year’s expected earnings.

Chevron shares are up more than 13% so far in 2013. The stock closed at $123.46 Thursday, and the consensus analyst price target is around $133.30 and indicates a potential upside of about 8%. Shares have traded in a range of $102.76 to $127.83 over the past year. With a fiscal year 2014 earnings per share estimate of $12.02, it is valued at just over 10 times next year’s expected earnings. Friday the company said it will review its North Sea Rosebank project because it “does not currently offer an economic value proposition that justifies proceeding with an investment of this magnitude.”

Chevron’s cautious approach to a field that is estimated to hold 240 million barrels of recoverable oil is instructive. At $100 a barrel, the company could expect to earn $24 billion from Rosebank, but the development costs for the extremely harsh environment could skyrocket.

Based on the numbers, Chevron looks to be a better choice for 2014. The stock still has some headroom to its price target, and its forward P/E ratio also indicates that more share price growth is in the cards.

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