Exxon Mobil Corporation (XOM), Chesapeake Energy Corporation (CHK): Bruce Berkowitz Likes This Large Natural Gas Player

Investors would have expected cash return from both dividends and share buybacks from the company. However, investors should become more cautious as ExxonMobil reduced its share repurchase to $3 billion in the third quarter this year. Of course, over the long run, ExxonMobil could still be considered a good stock due to its large proved reserve base and the potential for more reserves. Its Kearl oil sands, with 4.6 billion BOE (barrels of oil equivalent) in proved reserves, was the first oil sands operation without an upgrader. ExxonMobil thinks that Kearl’s reserves “will meet energy needs for the next 40 years.”

ConocoPhillips is the cheapest among the three. The market values ConocoPhillips (NYSE:COP) at 3.7 times its trailing EBITDA. ConocoPhillips is also one of the largest global oil/gas players, with around 8.6 billion BOE in its proved reserves. The company has re-positioned itself to focus on the core exploration and production business by divesting its lower margin downstream business. The company expects to generate as much as $8.5 billion in cash by selling its offshore operations in Kazakhstan, Algeria, and Nigeria.

In the period of 2013-2017, its capital expenditure is estimated to be around $16 billion. Around 45% of the total capex would be used on development programs to mitigate base decline, while the major projects would consume 30% of the total capex for production growth.

ConocoPhillips is the right choice for income investors with the highest dividend yield of 4.10%. ExxonMobil ranks second with a 2.70% dividend yield, while Chesapeake yields only 1.80%.

My Foolish take

What I like about Chesapeake is its ongoing business restructure, to divest as much as $5 billion-$7 billion in assets this year and to focus on the “core of the core” drilling area. The divestment would help strengthen its balance sheet, deliver higher profitability and cash flow, and unlock potential shareholder value. As mentioned above, ConocoPhillips is also a good pick for income investors, due to its juiciest dividend yield, low valuation, and potential asset divestment.

Anh HOANG owns shares of Chesapeake Energy. The Motley Fool has the following options: long January 2014 $30 calls on Chesapeake Energy.

The article Bruce Berkowitz Likes This Large Natural Gas Player originally appeared on Fool.com and is written by Anh HOANG.

Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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