By Philip van Doorn, MarketWatch
Bloomberg
Updated with Wednesday’s oil-price action.
As oil prices slumped to less than $30 a barrel in January 2016, many U.S. producers with heavy debt burdens suddenly found themselves in serious trouble.
The result: Earnings turned to losses, and stock prices cratered. And then came the cost cuts, as companies struggled to dig out from potentially crippling debt.
But now, a new set of data shows which U.S.-traded energy companies have deployed capital most efficiently. (Please see the table below.) The top companies include Valero Energy Corp. /zigman2/quotes/200735463/composite VLO +1.60% , Phillips 66 /zigman2/quotes/207448059/composite PSX +2.90% and Marathon Petroleum Corp. /zigman2/quotes/205031829/composite MRO +0.31% among refiners, and also Core Laboratories /zigman2/quotes/207238091/composite CLB +0.10% and Oceaneering International /zigman2/quotes/207545163/composite OII +0.84% among oil-services companies.
Some companies with high return on corporate capital (ROCC) have seen their share prices rise more than that of their rivals as well as the S&P 500 Index over the past five years. But the link sometimes isn’t so clear. (Again, see the table below.) ROCC, incidentally, means net income plus interest expense and income taxes, divided by the ending balance of total assets less total liabilities other than interest-bearing debt.
Even as West Texas intermediate crude (WTI) has more than doubled to about $67 a barrel since reaching a low two and a half years ago, conditions seem ripe for the more efficient oil players. Oil producers have learned their lesson and worked on cost controls. Credit Suisse analyst William Featherston said in a report this month that the average break-even price for the oil exploration and production companies he covers was $43 a barrel in the fourth quarter, below the $56 average in early 2015.
WTI was up more than 2% on Wednesday, breaking a five-session streak of declines.
Here’s a one-year chart showing the percentage increase in West Texas crude prices against the S&P Composite 1500 energy sector’s total return:
A review of the S&P 500 Index energy sector shed light on oil refiners — the best-performing industry group through the oil bust and (partial) recovery.
FactSet
We then revisited energy companies with low leverage (debt), which have for the most part fared well during the recovery.
Now that the Shareholder Forum has updated its annual return on corporate capital (ROCC) data, we can look at a large number of energy companies and compare performance within their reported industry groups.
Return on corporate capital
Each company’s ROCC is compared to its industry competitors, based on the company’s Standard Industrial Classification (SIC), which also comes from Securities and Exchange Commission annual reports. You can access ROCC comparisons for U.S.-traded companies here .
ROCC is meant to help investors understand how well a company’s management has used the capital it has raised through selling shares or borrowing money to produce goods and services for a profit.
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VLO
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PSX
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MRO
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CLB
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OII
