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(B)(N) Big Oil

November 1, 2013

Drama. Institutional investors are trying to get “Big Oil” to produce more money for them by raising dividends, buying back shares, and cutting operations expenses and capital and exploration expenditures (Reuters, October 31, 2013, Big Oil faces pressure from shareholders over costs). Some of the oil companies are responding with a nod and others are giving it the “Rhett Butler Response” that begins with “Frankly, my dear”.

What good is it, after all, to cater to the needs of the paid professional investment community which has never found any oil outside of their garage and driveway, and is rewarded just the same even though they bought the wrong “big oil” for their clients?

Deepwater Horizon 2010 Courtesy: BP British Petroleum PLC

Deepwater Horizon 2010
Courtesy: BP British Petroleum PLC

As investors, we don’t know anything about “big oil” and we need to be careful of what we wish for.

But we can own “big oil” and work it just like any other portfolio. They will do their job and we will do ours.

Moreover, based on the numbers in Exhibit 1 below, they’ve done a spectacular job this year.

For example, the stock market value of the six companies in “big oil” (we’ve included ConocoPhillips) is $1.2 trillion and up $81 billion this year for an average gain of +7%. They also earned $93 billion and paid $47 billion in dividends to their shareholders for a return on earnings of 50% and an average yield of 4.2%.

How many of the analysts are going to give us 50% of their earnings as a return on the assets (AUM) that they manage for us and what’s their alpha by the way? And who among them is going to write us a cheque for $11 billion like Exxon did?

Exhibit 1: Big Oil Fundamentals – November 2013

Big Oil Fundamentals

Big Oil Fundamentals

The analysts are also complaining that the stock prices are not up enough and lag the MSCI World Index of exchange traded funds on indices which also didn’t find or produce any oil but is up +20% anyway (ibid, Reuters).

Portfolio Management

“Big Oil”
Portfolio Management

To which we can only say that if instead of looking for oil in the stock market, they spent their time “investing” then their portfolio could also be up +40% like ours. Please see Exhibit 2 and 3 below.

Desert Oil

Desert Oil

And it’s also said that “big oil” controls only 6% of the known global oil and gas reserves and that 88% of global oil and gas reserves are controlled by the OPEC cartel and state-owned oil companies such as CNPC (China), Gazprom (Russia), National Iranian Oil Company (Iran), Petrobras (Brazil), PDVSA (Venezuela), Petronas (Malaysia) and Saudi Aramco (Saudi Arabia). They ought to be able to write a very big cheque, one would think?

Exhibit 2: (B)(N) Big Oil – Prices & Portfolio – November 2013

Big Oil - Prices & Portfolio - November 2013

Big Oil – Prices & Portfolio – November 2013

(Please Click on the Chart to make it larger if required.)

Exhibit 3: (B)(N) Big Oil – Portfolio & Cash Flow – November 2013

Big Oil - Portfolio & Cash Flow - November 2013

Big Oil – Portfolio & Cash Flow – November 2013

(Please Click on the Chart to make it larger and again if required.)

For more information on the Chart Elements, please see our recent Post, The RiskWerk Company Glossary.

For more on what risk averse investing has done for us this year, please see our recent Posts on The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class actionLa Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond
Alpha-smart with 100% Capital Safety and 100% Liquidity
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.

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