Exxon Mobil Corporation (XOM): Time to Buy Statoil ASA (ADR) (STO)?

That’s what Linn Energy LLC (NASDAQ:LINE) wants to do with Berry Petroleum Company (NYSE:BRY), but the SEC has launched an investigation of the deal, and investors holding the company’s notes are concerned.  It’s rare to see bonds yielding half what the same company’s stock yields, but that’s the way it is with Linn. If its accountants come out of this clean, you’re in for a gusher here.

Berry Petroleum Company (NYSE:BRY), meanwhile, shows what investors get when a company is in growth mode, with operating margins passing 25% in the last quarter, but a balance sheet that shows nearly half as much debt as equity. This is the way managers, and investors, prefer to play the game – get the money to get the oil, then plow those assets into an instrument that extracts the assets.

Both of these methods seem superior, on the surface, to the way Exxon Mobil Corporation (NYSE:XOM) plays it. ExxonMobil is no longer a growth stock. Quite the contrary. Quarterly revenues have been declining slowly for over a year, from over $123 billion in the June quarter of 2012 to $103.7 billion in the most recent quarter. Margins have also been declining. The balance sheet, on the other hand, appears pristine, and until this last quarter it showed more cash than long-term debt. ExxonMobil is also a cash flow machine, averaging over $30 billion in free cash flow each quarter over the last year.

Exxon Mobil Corporation (NYSE:XOM), in other words, is financially stronger than Statoil ASA (ADR) (NYSE:STO), and it’s much, much bigger, but it doesn’t offer anything like the growth that Statoil does, or the potential for gains down the road. It is, simply, a tired stock with a tired business model.

The Bottom Line
Statoil ASA (ADR) (NYSE:STO) has done none of the financial engineering you’ll find in most American exploration plays, it has better prospects than America’s biggest integrated oil company, and you’re currently getting a yield of over 5% on what is, in effect, a growth stock.

If you like oil plays this is a bargain.

The article Time to Buy Statoil? originally appeared on Fool.com and is written by Dana Blankenhorn.

Dana Blankenhorn has no position in any stocks mentioned. The Motley Fool recommends Statoil (ADR).

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