One on One with Fadel Gheit, Oil Analyst at Oppenheimer and Co.
Thursday, February 01, 2007
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SUSIE GHARIB: ExxonMobil posted today the largest annual profit ever by an American company, despite a 4 percent drop in fourth quarter profits. The oil giant earned $39.5 billion in 2006 on sales of $377 billion. In the fourth quarter, ExxonMobil earned $10.2 billion. That's $500 million less than the same period a year ago, but the company's per share earnings of $1.69 were $0.18 higher than analyst estimates. Quarterly earnings reported today at several other energy companies were also all down, including Royal Dutch Shell, Valero, Marathon Oil, Murphy Oil and Apache. Joining us now with analysis of the numbers, Fadel Gheit, oil analyst at Oppenheimer and Company. Hi, Fadel.
FADEL GHEIT, ENERGY ANALYST, OPPENHEIMER & CO.: How are you doing?
GHARIB: Good, thank you. So was there any surprises about today's oil earnings in your view?
GHEIT: Not really because we knew where oil prices were at the end of last year. We knew that they were more than they were in the first quarter. But we also knew that the year as a whole was a record year for the whole industry and Exxon obviously lead the chart with almost $40 billion in income which was the third record earning over the last three years.
GHARIB: As you listen to the CEOs speaking to analysts on the conference calls today, was there any unifying theme between all of these energy companies about what they said about the future, whether it is the first quarter or the rest of 2007?
GHEIT: Basically, the industry fundamentals are very strong. Nobody is betting on $80 oil, but nobody is also betting on $50 oil. So if we had $50 to $60 oil, that is more than double where oil prices were only five years ago. And these companies were managing their business very well, especially our oil and I think they could do a lot better with $50 or even $60.
GHARIB: So is that $50 the level that they are basing all of their economic projections on?
GHEIT: Not at all. Actually the largest oil companies, Exxon, BP and Royal Dutch/Shell have been on the record saying that oil prices are likely to come down and may come down even sharply. But the question is when and by how much. That again is outside of the pay grade because they really have no influence on oil prices, the supply/demand. It's weather. It's politics. It's all of that. But they are planning on $30 oil, but obviously they will like $50 or even $60 a lot better.
GHARIB: So what does it mean at $50 or less for the future of drilling or for profits or other operations?
GHEIT: A couple of things will happen. Lower oil prices or moderating oil prices will bring down some of the cost inflation that they have experienced was over the last three years, was almost double over the last three years. So we are going to see some rebalancing, if you will. And that might open opportunities for companies like Exxon because their focus is basically on cost, not on prices.
GHARIB: Fadel, you've been recently turned very bullish on energy stocks. And it's interesting because you downgraded the whole sector back in August. Looking at the chart for ExxonMobil, does it make sense to buy this company at $75 a share?
GHEIT: Absolutely, ExxonMobil has outperformed the market in general over the last 10 years. We're still (INAUDIBLE) shareholder return in the 16, 17 percent annually. Obviously you can't complain owning this stock. Exxon will do a lot better than the market going forward, but any particular year you could lag or lead or whatever, but at the end of the day, it a very well-managed company, very well balanced company, highly integrated company and it is very focused company and very efficient company.
GHARIB: Let's talk about another one of your recommendations, Valero. That is your top pick. Tell us why.
GHEIT: This is the largest refining company in the U.S. The U.S. market is the most lucrative in the world. -- Refining margins in this country are on average double the global average. This is a large company. It's very well-run company. It's very efficient company and it's very well balanced geographically. They have presence on the west coast and the east coast, the Midwest, the Gulf. So they are basically the best in the whole lot.
GHARIB: All right, Fadel, do you own ExxonMobil or Valero?
GHEIT: I have owned ExxonMobil for 20 years. I do not own any other company, no Valero, no, I don't own this one.
GHARIB: You really stand by your stock. Thank you so much Fadel. Great having you on the program. We've been speaking with Fadel Gheit, oil analyst at Oppenheimer Company.
