You’d be hard-pressed to find names with more resilience and long-term staying power than the world’s major publicly traded oil companies.
At the same time, unfavorable comparisons to the rapid production growth posted by the independent operators spearheading the US shale oil and gas revolution have become more common in the financial media.
The Super Oils’ huge production bases make it difficult to drive output growth in an era when major finds occur primarily in expensive-to-produce regions such as Canada’s oil sands or ultra-deepwater fields. The environmental and operational risks in these complex fields are also considerably higher.
Over the past 12 months, nine of the world’s largest oil and gas companies by market capitalization have averaged a production decline of 1.6 percent, despite gargantuan capital expenditures in recent years.
Political risk has emerged as a critical issue for the world’s largest oil companies. Resource nationalism is on the rise, with governments demanding greater concessions from Big Oil. Meanwhile, the growing dominance of national oil companies has limited the majors’ opportunity sets relative to decades earlier.
Security-related disruptions are part and parcel of operating in the politically unstable regions such as Iraq, Libya and Nigeria, while potential economic sanctions against Russia could also hurt business.
Don’t be taken in by these arguments. The major oil companies still have a number of levers they can pull to drive upside, not to mention the resilience and financial firepower to survive the most challenging market conditions.
Our favorite Super Oils are foundational portfolio holdings for building wealth over the long term, though investors must remain patient and avoid overpaying for these names.