January 8, 2015 (Chinavestor) Now that Brent oil looks settled for $50/barrel, investors have to reassess the situation regarding the energy sector. We are going to see how did four different energy plays fare in the last five days and why. The best energy option for January has been BP Prudhoe Bay Royalty Trust (NYSE:BPT). Second best is Petrochina CO. Ltd. (NYSE:PTR), China's premier oil producer. Exxon Mobile (NYSE:XOM) is third in terms of relative performance. Finally, low oil price is hitting shale oil producers the hardest. Whiting Petroleum (NYSE:WLL) remains hammered as the oil price plunge continues.
Investors may wonder why such a discrepancy between oil producers? One answer may be dividend versus growth. Investors have to remember that BP Prudhoe Bay Royalty Trust (NYSE:BPT) has been paying $3 or more dividend a quarter when oil price was above $100/barrel. This quarterly dividend payed out a 10% plus return given that BPT stock price was in the $80-$100 range. Now that oil price is just 50% of what it used to be in six month, BPT is expected to pay a quarterly dividend of $1.2-$1.5. This would be an approximately $5/share dividend payment. Now that BPT is selling for $70, $5/share payment is still in the 8% yield range. Imagine that oil will eventually go back to the $100 range, may be in two years, and BP Prudhoe Bay Royalty Trust will increase dividend back to the $3/quarter range. Under such scenario a BPT bought at $70 now will yield $12/year in dividend a year. That's more than 15% return each year! This explains why BPT is now collapsing parallel to crude prices.
Another interesting stock is Petrochina Co. Ltd. (NYSE:PTR). China's largest oil producer and the second largest such company in the world after Exxon Mobile (NYSE:XOM) in terms of market cap, has been trading higher in 2015 despite falling oil prices. Again, investors are looking at value in my opinion. Petrochina (NYSE:PTR) has a higher dividend payout ratio of 4.75% than Exxon Mobile (NYSE:XOM) or Chevron (NYSE:CVX). These American oil producers pay out 2.99% and 3.82% in dividends, respectively. Value investors also like the fact that Petrochina (NYSE:PTR) is trading at 9.92 times earnings right now, lower than Exxon Mobile (NYSE:XOM) and Chevron (NYSE:CVX). These American oil plays command a P/E of 11.63 and 10.93, respectively. Another boost for PTR in the last few days is coming from the risk factor. Emerging market stocks tend to fall hard when risk increases and similarly, they recover very fast when risk subdues. Now that the market is in bullish mode for the last two days and risk has subdued, PTR made a remarkable comeback.
Whiting Petroleum (NYSE:WLL) is the largest shale oil play in the northern Bakken field. The stock has been on a free fall since last October. Based on various calculations, shale oil operations are not profitable under $60/barrel. We also know from WLL's September quarterly report that Whiting Petroleum (NYSE:WLL) covered 50% of total production against oil price drops via hedging till the end of 2014. Now that grace period is over, WLL is expected to report a significant loss in 2015 Q1. That news will hit the wires in the spring of 2015. So investors are looking at WLL as a pure growth play, a company that is not only EXTREMELY vulnerable to low oil prices but is also not a value play. WLL pays no dividend at trading at 10.2 times earnings right now, higher than Petrochina (NYSE:PTR), makes no sense. This explains why WLL has a lot more downside potential than PTR or XOM.
See chart below to see how PTR (green), BPT (yellow), XOM (red), and WLL (blue) performed over the lasts five trading days.
Source: Google Finance