John S. Herold: Oil shares beat general equities market again

Markets worldwide were lower in 2002, but the oil industry saw more of its stock rise than fall, consulting company John S. Herold Inc., Norwalk Conn., said in a recent report.

Jan. 29, 2003

2 min read

By OGJ editors
HOUSTON, Jan. 29 -- Markets worldwide were lower in 2002, but the oil industry saw more of its stock rise than fall, consulting company John S. Herold Inc., Norwalk Conn., said in a recent report.

The Herold Energy Investment Outlook—Year End Review 2002 showed the median total return from Herold's survey of 304 oils and oil service companies was 4%, which compared with declines in the Dow Jones Industrial Average (down 16.8%), the S&P 500 (down 23.4%), and the NASDAQ (down 31.5%).

Herold said that all 15 oil industry peer groups it follows outperformed the broad market.

Although oil shares in general provided a relatively safe haven from the bear market, the large integrated oils fell for the third straight year, a 9.2% drop that translated into a $110 billion loss in market value in 2002 and a $200 billion decline over the last 2 years, Herold said.

Mergers, and the resultant cost-cutting and size-based economies of scale, have not paid off in the last 3 years, as evidenced by the sub-par returns of ConocoPhillips (down 19.7%) and ChevronTexaco Corp. (down 25.8%), the survey said.

Herold Senior Vice-Pres. Bob Gillon said, "The market is also becoming much more skeptical of the value added by above-average production growth, but will still punish companies that fail to meet volume targets, such as BP PLC (down 12.8%)."

Exploration and production companies gained but only by the amount that they gave up during 2001. Large US E&Ps managed a 5.4% gain, but mid-size US E&Ps were down 7.1% and small US E&Ps tumbled 10.1%.

Outside the US
In contrast, Canadian companies and companies outside the US and Canada prospered again in 2002.

Mid-size Canadian E&Ps led all peer groups with a 29.2% gain, followed by large Canadian E&Ps (up 21.2%). Integrated oil companies were up 19.6% and international E&Ps were up 11.8%.

"Refiners and marketers fell 8.5% in 2002 on weak refining margins after record gains in 2001. Drillers eked out a 3.3% gain, with land drillers generally advancing while offshore drillers took it on the chin. Oil service shares fell 5%, recovering from a nearly 20% drop in 2001," Herold said.

Continuing fallout from the Enron Corp. collapse drove pipelines and diversified shares down 10.9%.