For its efforts, Exxon hasn’t gotten much. Natural gas prices have tanked, making the gas focused XTO assets more of a weight than anything else. While the company still expects gas to be increasingly important over the coming years, that over $30 billion deal currently looks like a mistake.
This is notable for a company that is almost always afforded a premium price by the market. Still, Exxon is among the strongest companies in the industry and remains appropriate for conservative accounts, but it has a relatively low yield. Royal Dutch Shell plc (ADR) (NYSE:RDS.A), however, is very similar to Exxon Mobil Corporation (NYSE:XOM) but has a yield about twice as high, and, thus, remains a better option for income seekers.
A better deal
China Petroleum & Chemical Corp (ADR) (NYSE:SNP) & Chemical, meanwhile, has taken advantage of a weakened Chesapeake Energy Corporation (NYSE:CHK). The U.S. natural gas company used debt to fuel its expansion while gas prices were rising. Falling prices left it with too much debt and too little revenue. An ugly battle with a dissident shareholder resulted in the ouster of the company co-founder and CEO.
It didn’t, however, solve Chesapeake’s problems. So more such deals, or outright sales, are likely. Only some industry watchers suggest the sale price was too low. As the old saying goes, beggars can’t be choosers.
China Petroleum & Chemical, then, would be a better option than Chesapeake. It also looks to have a higher growth profile than Exxon, for those seeking exposure to China’s growing demand for oil and gas.
The search for new reserves is going to be increasingly important. Investors need to watch this issue closely and stick to the company’s best positioned to replace and grow their reserve base.
The article Oil Risks Writ Large originally appeared on Fool.com and is written by Reuben Brewer.
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