The Rising Influence of Rising Affluence

[DewDiligence]

A few performance metrics for CVX vs XOM (from Apr 2012):

http://online.wsj.com/article/SB10001424052702303624004577341973345446982.html

Exxon has long led in every way… It also earned more profit per barrel of oil equivalent produced than Chevron in eight of the past 12 years, according to consultancy IHS Herold. Its annual return on capital was on average 4.7 percentage points higher than Chevron's, according to Standard & Poor's Capital IQ. Consequently, Exxon's stock trades at 9.8 times future earnings, compared with Chevron's 7.7 times.

But the performance gap is closing or, in some cases, has closed. Since late 2009, Chevron has earned higher net income per barrel. It has also discovered more oil and gas as a share of output, excluding purchases and estimate revisions, on a one- and three-year view. And it is fast closing the gap on return on capital.

Total shareholder return, incorporating dividends, over the past 10 years tells the story: Chevron's is 237%; Exxon's is 153%. Exxon's fell behind in late 2009, coinciding with the announcement of its $41 billion purchase of U.S. natural-gas producer XTO Energy. Since then, gas prices have slumped, diluting Exxon's profits.

Exxon says that on a long-term view, it has staked out an enviable position in unconventional resources like shale oil and gas. Perhaps, but profitability will likely suffer for some time. By 2015, about 18% of Exxon's output will come from unconventional resources in North America, compared with less than 4% at Chevron, according to Goldman Sachs.

Chevron's relatively greater leverage to global oil prices, rather than U.S. gas, bolstered the company's quarterly update last week. It could also help Chevron finally close the return-on-capital gap altogether.