Energy Sector Commodities: An Introduction to Big Oil - dummies

Energy Sector Commodities: An Introduction to Big Oil

By Amine Bouchentouf

Oil companies get a bad rap. Whatever you may think of them, they make for a great investment in commodities. Oil companies are responsible for bringing precious energy products to consumers, and for this service they’re compensated — handsomely. Oil companies are for-profit companies that are run for the benefit of their shareholders. Instead of complaining about oil companies, why not become a shareholder of one (or more)?

The integrated oil companies, sometimes known as “big oil,” “the majors,” or “integrated oil companies” are the oil companies that are involved in all the phases of the oil-production process, from exploring for oil to refining it and then transporting it to consumers. ExxonMobil, Chevron Texaco, and BP are all “big oil” companies.

Big oil companies aren’t the only players in the oil business. Many other companies are involved in specific aspects of the transformational process of crude oil. For example, some companies, like Valero, are primarily involved in refining; others, such as General Maritime, own fleets of tankers that transport crude oil and products.

The major oil companies have been posting record profits in recent years. In 2005, ExxonMobil announced the largest annual corporate profit in history as it earned a staggering $36.1 billion on revenues of $371 billion!

To put it in perspective, Saudi Arabia’s 2005 GDP was $338 billion. Exxon continued its record string of earnings, posting net income of $40.1 billion in 2007 and $45 billion in 2008. It went through a rough patch in 2009 with the Global Financial Crisis but still managed to earn more than $19 billion for the year.

Another big oil company, ConocoPhillips (NYSE: COP), raked in $13.53 billion in profits for 2005, up 66 percent from the previous year. In 2009, ConocoPhillips posted net income of $4.8 billion. Meanwhile, Chevron Corp. posted $10.4 billion in net income for 2009.

These announcements are a result of the increased global demand for crude oil and its products, as well as the technological and managerial efficiency practiced by the majors. As global demand continues and supplies remain limited, it’s likely that big oil companies will keep generating solid revenues and profits.

As the Global Financial Crisis amply demonstrated, earnings and revenues don’t move in a straight line; you need to be able to tactically position your portfolio to profit from short-term market disruptions.

Oil Company Ticker Revenues Earnings
ExxonMobil XOM $301 billion $19 billion
BP BP $239 billion $16 billion
PetroChina PTR $70 billion $18 billion
Chevron CVX $167 billion $10 billion
ConocoPhillips COP $152 billion $5 billion
Eni E $95 billion $5 billion
Petrobras PBR $91 billion $15 billion
Repsol REP $55 billion $1.5 billion

This table is only a brief snapshot of some of the major integrated oil companies you can choose to add to your portfolio. For a more comprehensive list, check out Yahoo! Finance’s section on integrated oil companies.