ExxonMobil (XOM -1.61%) and Occidental Petroleum (OXY -2.49%) are among the many top-performing oil shares of 2022 thus far. It isn’t stunning to see why: Crude oil costs shot as much as 15-year highs this yr, raking in copious quantities of cash for oil exploration and manufacturing firms. Each ExxonMobil and Occidental Petroleum have cashed in on excessive oil costs this yr and aggressively pared debt, invested in progress, and boosted their dividend payouts.
But, for those who have been to choose just one oil inventory proper now, which one ought to it’s and why? Here is the bull case for ExxonMobil and Occidental Petroleum shares that will help you determine.
ExxonMobil stands out for its monetary fortitude and plans
Neha Chamaria (ExxonMobil): ExxonMobil is without doubt one of the largest oil and fuel firms on the planet, however that is not why it is best to take into account the inventory. Exxon can be one of many world’s largest built-in oil and fuel firms. To make certain, Occidental is an built-in oil firm as nicely, but it surely nonetheless derived nearly three-quarters of its gross sales final yr from upstream operations. Whereas that may make Occidental inventory extra alluring in a rising oil-price setting, a extra diversified oil inventory ought to show you how to experience out the long-term volatility in oil and fuel higher.
Extra importantly, Exxon’s monetary standing proper now could be as stable as it might get. Exxon held solely round $39.5Â billion in long-term debt as of June 30. To place that into perspective, the oil large earned $23 billion in web earnings and generated almost $35 billion in money from operations in simply the primary half of 2022.
The very best half is that Exxon’s ongoing efforts to chop prices ought to assist it earn sturdy margins even when oil costs fall additional. Exxon’s world value of manufacturing allowed it to interrupt even at a crude oil worth of solely $41 per barrel final yr. If issues go as deliberate, its break-even oil worth might come right down to solely round $30 per barrel by 2027. By then, Exxon might accumulate billions of {dollars} in incremental money flows, a very good portion of which can probably find yourself in shareholders’ pockets as greater dividends. Exxon is already one of many high dividend-paying oil shares with an unbeatable 39-year streak of consecutive annual dividend will increase.
Occidental Petroleum is benefiting from the Warren Buffett impact
Matt DiLallo (Occidental Petroleum): Whereas the fortunes of ExxonMobil and Occidental Petroleum rise and fall with oil costs, Occidental has one extra catalyst that offers it the sting over Exxon in my guide. That is the truth that Warren Buffett’s firm, Berkshire Hathaway (BRK.A -2.84%) (BRK.B -2.31%), has been gobbling up shares of Occidental and Exxon’s chief rival Chevron however hasn’t bought one share of Exxon.
Berkshire at the moment owns 188.5 million shares of Occidental Petroleum, which is 20.2% of its updating inventory. That stake is value about $12 billion. As well as, Berkshire has inventory warrants to purchase one other $5 billion in Occidental shares and a $10 billion preferred-stock funding. Moreover, Buffett has obtained regulatory approval to purchase as much as 50% of the oil firm’s excellent shares. Berkshire has additionally constructed up a more-than $25 billion stake in Chevron.
Many have speculated Buffett would possibly ultimately make a suggestion to amass Occidental since his purchases appear to observe an identical sample to his funding in railway large BNSF in 2010. Berkshire amassed a more-than 20% stake in that firm earlier than shopping for the whole enterprise.
That risk of a Berkshire buyout ought to put a flooring beneath Occidental Petroleum’s inventory worth if oil costs proceed cooling off. Likewise, Chevron’s inventory ought to maintain up comparatively nicely if crude retains slumping since Berkshire will probably purchase extra shares. Nonetheless, Exxon would not benefit from a Buffett flooring. That provides it extra draw back danger, whereas Occidental has the potential for extra upside if Buffett does make a bid sooner or later since he would probably must pay a premium to amass the remaining shares.
Whereas I believe Exxon is a stable oil firm, Buffett’s funding skews the risk-reward in Occidental’s favor, making it a greater purchase between the 2.
The higher oil inventory
Occidental Petroleum and ExxonMobil are each stable oil shares, having minimize debt drastically in latest quarters to reward their shareholders much more richly. But, Occidental Petroleum shares have already doubled this yr and greater than doubled Exxon’s returns, because of Buffett. So although Occidental inventory might proceed to experience the Buffett wave within the close to future, ExxonMobil would possibly enchantment extra to the cautious investor seeking to guess on oil costs for the long run.Â
Matthew DiLallo has positions in Berkshire Hathaway (B shares). Neha Chamaria has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Berkshire Hathaway (B shares). The Motley Idiot recommends the next choices: lengthy January 2023 $200 calls on Berkshire Hathaway (B shares), quick January 2023 $200 places on Berkshire Hathaway (B shares), and quick January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Idiot has a disclosure coverage.
