The oil & gas business has been in the news of late, thanks to legal developments concerning BP (LSE: BP) (NYSE: BP.US) and the Gulf of Mexico, so it seems like a good time to take a look at the sector.
Heres how the four oil & gas producers in the FTSE 100 are looking right now:
|EPS change 2013||+114%||-39%||0%||-73%|
|EPS change 2014*||-37%||+40%||-14%||+26%|
|EPS change 2015*||+8%||+2%||+13%||+91%|
Tullow Oil (LSE: TLW) is by far the smallest of the four, but as a dedicated explorer its a different kind of company and it doesnt make much sense to try to value it on the usual short-term metrics like P/E and dividend. The share price has not done well this year, losing more than 30% over six months to 708p while the FTSE has gained a few percent.
But the chart has been a spiky one, and over 10 years Tullow shares have more then five-bagged even if theyre down over the past five years. If you know how to value oil explorers you might find value in Tullow. But I dont, so Im out.
BG Group (LSE: BG) is an interesting proposition, as it also operates as liquified natural gas (LNG) shipping and marketing division and is, in fact, the largest supplier of LNG in the USA. Im impressed by BG, and with its undemanding P/E and growth potential I think the shares are reasonable value after dropping a couple of percent to 1,181p over 12 months.
The big two
But from a mature sector like this, I want to see dividends, and so for me the choice is between BP or Royal Dutch Shell (LSE: RDSB). And that comes down to how badly the oil spill developments are going to go.
BP has been judged to have been grossly negligent, which could lift its fine from $1,100 per barrel spilled had it been merely negligent to $4,300. There are disagreements over the size of the spillage too, but the maximum fine could be as high as $18bn where BP had only set aside $3.5bn.
The company will appeal the ruling, but the fear is that if extra cash is needed then the recovering dividend could be cut. I think thats unlikely, as the legal process will surely drag on for a years yet and therell be plenty of time to find the cash.
A tough choice
But Im not sure if theres enough safety margin in BPs better dividend prospects and lower P/E to compensate for the extra risk, even though the share price has only gained 5% over the past 12 months to 470p Shell is up 15% to 2,479p.
Between BP and Shell then, I honestly cant choose its up to you.
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended shares in Tullow Oil. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.