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ExxonMobil (XOM) vs BP (BP): Which Is A Better Oil Stock To Buy Right Now?

As these oil majors continue to reel from the pandemic, which is the better buy amid the oil recovery?

2 Top Oil Stocks To Watch As Oil Prices Continue To Rise

During the onset of the coronavirus pandemic, oil stocks were one of the sectors that investors were fleeing from. Perhaps, it could be because the price of crude oil fell below zero, an unprecedented phenomenon. But more simply, with fewer people on the road as a result of lockdown measures, the demand for oil declined. While the oil industry is finally recovering from COVID-19, oil prices are holding steady at over $50 per barrel. But it’s still not enough to entice investors back into the space. 

Like it or not, the world still needs a lot of oil. The demand for oil products from construction and medical devices to solar panels is continuing to increase. We have headlines telling us renewables are on track to replace fossil fuels and move toward a low carbon future. Such remarks appear to give the notion that the best days of the oil and gas industry are behind us. But what they didn’t know is, the next big energy transition can’t happen without fossil fuels. Even the electric vehicle boom we see in the stock market today is dependent on fossil fuels. Why? Because nearly half of the materials are made up of plastics from the petrochemicals industry.

These oil companies may have fallen to the wayside today, but investors should note that millions of products that are manufactured with oil and gas derivatives today certainly cannot be replaced with renewables. Even though top oil stocks like Exxon Mobil Corp. (NYSE: XOM) and BP PLC (NYSE: BP) have reported unsatisfactory results, there’s a great chance oil demand could rebound in 2021 and benefit from higher oil prices in the future. Having said that, which is a better oil stock for investors in the face of serious industry headwinds? Here are some facts to consider before you make the final call. 

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ExxonMobil Corporation

The coronavirus pandemic hasn’t been kind to many in the sector, and Exxon is no exception. The oil giant is posting its first annual loss in at least 40 years. The company said it lost $20.1 billion during the most recent quarter, its fourth straight quarter of losses as the company muddles through the pandemic. The company reported 3 cents of earnings per share during the fourth quarter. That was better than analysts’ estimate of 1 cent. Revenue, however, came up short of expectations at $46.54 billion compared to Wall Street’s estimates of $48.76 billion.

The focus will remain on cash-flow generation and while it wasn’t great in the quarter, Exxon did provide guidance on covering the dividend with oil at $50 a barrel,” Giacomo Romeo, a London-based analyst at Jefferies International Ltd. 

The company is also reportedly moving toward a cleaner future. Just yesterday, the company unveiled plans to create a new business to commercialize its low-carbon technology portfolio, including hydrogen. This shows that this oil giant has more than a few tricks up its sleeves. And that is more crucial than ever to prevent the company from falling behind its rivals.

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Exxon (XOM) Stock Is Sitting On A Gold Mine In Guyana

For the uninitiated, Exxon’s first discovery in the Guyana-Suriname Basin came in 2015. By December 2019, the company had begun production at the Liza oilfield in the Stabroek Block. Exxon had gotten to its 18th major discovery in this block as of September 2020. By 2026, Exxon plans to be producing more than 750,000 barrels per day from this block.

The selling point here is the cheaply extracted oil. The breakeven costs on Stabroek are low. In fact, it can sustain a low oil price as the breakeven is just $35 per barrel. Meaning, Exxon is looking at a nice profit margin even if the oil price takes a light punch from any other macro events that materially affect the oil prices. 

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BP Plc

Energy giant BP also reported a weaker than expected full-year net loss. The company reported a full-year loss of $5.7 billion, down from a profit of $10 billion in 2019. This was simply due to lower oil prices, exploration write-offs, and depressed demand during the coronavirus pandemic.

But it wasn’t all bad news. The group actually returned to profitability during the final quarter of the year, albeit a tiny of $115 million. The company’s net debt also fell from $45.5 billion to $39 billion last year. While the earnings numbers may not be pretty in the past year, we are seeing a gradual recovery from the company.

We have had the worst recession, I guess, in the world since the ’40s. It was a brutal year, I think, for the oil business — negative prices, fuel demand down 14%, aviation down 50%, and of course we had adjustments to our planning prices which resulted in impairments and write-offs.”- Bernard Looney, CEO of BP

Shifting Toward Clean Energy

The company is in the midst of restructuring amid the turmoil from the pandemic. From there, you could expect to witness one of the fastest corporate transitions in the industry as it moves toward a heavily renewable asset base. BP plans to raise its developed renewables by 20 times. It is also looking to double its traded electricity.

The company plans to grow its bioenergy and hydrogen operations rapidly. That’s besides increasing EV touchpoints significantly. Certainly, the company is using its resources carefully to overhaul its portfolio. With that, it might just be able to keep up with the times. 

Bottom Line

All in all, neither Exxon nor BP is a particularly great option for more conservative investors right now. The world is struggling to curb the spread of the novel coronavirus. Besides, mutations of the coronavirus strain pose a great threat to a speedy rebound in oil demand. 

What Exxon is trying to accomplish today may be less drastic than what BP is currently doing. With lower debt, however, the chances of Exxon muddling through the pandemic could be higher. Sure, there’s a chance of a dividend cut. But Exxon might be better than BP, which has already done so. Indeed, in the midst of a deep downturn in the industry, BP’s attempt to radically remake its business is bold. But it is not without risk. That’s considering the company’s high leverage and lackluster history with its previous clean energy initiatives.

By Brett David

Brett David is a digital marketing and finance professional for nearly 10 years now and a contributing author for StockMarket.com. His passion for digital marketing and the stock market began after graduating with a B.S.B.A in business administration and finance. After completing college, he went on to becoming an entrepreneur in the marketing and finance space, which led to becoming a contributor to outlets such as ThriveGlobal.com, MarijuanaStocks.com, MarketingAgency.com and SearchEngineWatch.com.

Brett loves the ability to deliver to his readers engaging and educational content that can be easily consumed by the reader. He enjoys writing about a wide variety of companies ranging from blue-chip stocks to the undervalued small and micro cap stocks. His favorite stock market sectors today to write about are: Tech, Cannabis, Mining, Biotech, and TMT.

Brett has worked with hundreds of publicly traded companies on increasing their digital footprint and corporate outreach since 2013.

You can find Brett most of time digging through corporate filings conducting fundamental analysis or at an industry conference looking for the next big trend or company to hit the street. His digital marketing experience gives a competitive edge over other contributing authors by allowing him to see and analyze trends faster than the next person.

Brett, a South Florida native, enjoys spending time with his wife and son outdoors, and is an avid basketball and MMA fan.

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