3 reasons small-cap oil should outperform Big Oil

The price of oil is expected to fall over the next 2 years and Big Oil is likely to bear the brunt of the downturn.

By Benzinga Feb 21, 2014 12:36PM

An oil field near Bakersfield, Calif. © Keith Wood/Getty ImagesBy Jonathan Yates


As detailed in many previous articles on Benzinga, investing for the long-term in oil and natural gas stocks is a wise move.


But Big Oil firms like ExxonMobil (XOM) and Chevron (CVX) are down for 2014. Benzinga on MSN Money


In addition, the price of a barrel of oil is expected to fall about 10 percent in 2014 and then more in 2015, according to the Energy Information Agency. Here are three reasons why small cap oil firms such as Mondial Ventures (MNVND) and Clayton Williams Energy (CWEI) could outperform the much larger companies in the sector.


A recent article in The Wall Street Journal reported on how Chevron, ExxonMobil, and Royal-Dutch Shell (RDS-B) had spent $120 billion in 2013 for exploration and production activities. Despite that massive outlay, production had not increased. Due the size of Big Oil firms, large amounts of money are required to find oil and natural fields that sustain the share price. That is not the case with Mondial Ventures, which operates in the oil rich areas of Texas. It is the same for Clayton Williams Energy, which also operates in Texas, in addition to Louisiana and New Mexico. Operations are much cheaper for Clayton Williams Energy, Mondial Ventures, and other small caps.



Even if a huge field is hit, it is probably not going to move the share price much of an ExxonMobil or a Royal Dutch Shell, the world's two largest oil and natural gas concerns. 


But a find could send the share price of Clayton Williams Energy or Mondial Ventures much higher. As small caps, it is simply a matter of size in that not nearly as much is required to send the stock price higher and higher.


That is the same with growth. ExxonMobil, Chevron, Royal Dutch Shell and others are looking at slow, steady growth. That is great for producing the cash to finance exploration, production and dividends. But it will not move the stock price higher, as the shares are fully priced. Small caps traditionally deliver much higher growth rates than larger publicly traded companies. Again, that is simply a matter of scale.


Oil companies are great investments. Due to the range of companies, an investor can load up their holdings with global concerns like ExxonMobil and Royal Dutch Shell along with entities operating primarily in Texas, such as Mondial Ventures and Clayton William Energy. The most upside certainly appears to be with small-cap firms, though.


More from Benzinga:

2Comments
Feb 21, 2014 4:12PM
avatar

Even if a huge field is hit, it is probably not going to move the share price much of an ExxonMobil or a Royal Dutch Shell, the world's two largest oil and natural gas concerns. 


But a find could send the share price of Clayton Williams Energy or Mondial Ventures much higher.

THINK about those statements.

If a huge field is NOT hit, it could send the price of the little guys MUCH lower where it won't do much to move the share price of Big Oil.

Personally, I own both Exxon Mobil and Conoco Phillips, the first having a big edge in refinery efficiency and the second being primarily an exploration company now with four recent significant deepwater finds in the Gulf of Mexico.
Feb 21, 2014 4:08PM
avatar
"Chevron, ExxonMobil, and Royal-Dutch Shell () had spent $120 billion in 2013 for exploration and production activities. Despite that massive outlay, production had not increased."

Isn't that because demand didn't increase?  It's like saying mom bought more frozen food this week but we didn't consume any more than usual.  Of course, there's now more food in the freezer than the week before.  Likewise, Big Oil has more in reserves than it had in 2012.  Exxon has gone from having a majority of low-priced gaseous reserves to a majority of higher-priced liquid reserves.
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