2010 was a “wonderful year” for energy investors, as more than 65 percent of oil and gas stocks delivered positive returns over the year, IHS Global Insight has said in a report released on Thursday.
Crude prices, which hit bottom in late May 2010 at around $65 per barrel, rose steadily and consistently through the second half of the year on the back of economic recovery, and took oil company shares with them, the IHS Herold 2010 Energy Peer Group Stock Market Performance Report says.
The report says the median gain for the 503 stocks covered in the report was 21 percent. While it was lower than the 59 percent gain posted in the 2009, the sector did outperform the market indices of nearly all Organization for Economic Cooperation and Development (OECD) countries, according to the report.
Total capitalization jumped by more than $300 billion, further reducing the severe losses the sector incurred in 2008 the report said.
“Sometime in the first quarter of 2009, equity markets began to move upward in response to the economic growth that was becoming apparent in OECD countries,” said Robert Gillon, senior vice president and co-director of energy equity research at IHS. “It seemed as though every statistic that confirmed expansion was under way was reflected in a rise in the price of crude, which boded well for oil stocks. That pattern continued throughout the year, with oil prices and oil shares at a recovery high at the closing bell of 2010. In particular, North American oil stocks delivered the most returns to their investors.”
“The vast amount of liquidity being injected into the economic system, particularly in the U.S. has resulted in a strong correlation between equity prices and oil prices,” Gillon noted. “By contrast, for many years prior to 2009, there was a reverse relationship, with higher crude prices perceived to cause a reduction in disposable income, lower consumer spending, and declining domestic product and stock prices. To our mind, this is the normal state of affairs, but to predict we will be back to normal in short order would be unwise.”
Mid-sized U.S. E&Ps, led by McMoRan Exploration Company, generated a segment return of nearly 42 percent, outperforming every other group of oil and gas producers globally. McMoRan delivered a total return in 2010 of nearly 114 percent.
Among companies, Master Limited Partnerships — mostly pipeline and storage companies — enjoyed a hearty gain of nearly 35 percent, while the peer group of Integrated Oil Stocks with U.S. Downstream returned 22 percent.
Canadian Integrated Oil Stocks and Integrated Oil Stocks without U.S. Downstream Operations gained less than half that amount, at 10 percent and nine percent, respectively.
EnCore Oil plc of the U.K., whose shares rocketed by 773 percent following the discovery of the Catcher field in the U.K. sector of the North Sea, was the runaway leader of the Smaller E&P Companies Outside North America.
Pacific Rubiales Energy enjoyed splendid results with its heavy oil development program in Colombia, and the sizzling gain of 131 percent placed the company at the top of the list of Largest Oil and Gas Producers for a second year in a row.
CNOOC Ltd. maintained the title of largest capitalization amongst the Largest Oil and Gas Producers by a very wide margin. The Chinese producer, which had a steaming 56 percent total return, is the first in this sector to have its market valued exceed $100 billion.
Amongst the Largest Integrated and Diversified Oils, top-ranked Ecopetrol’s 84 percent gain reflected rapidly growing oil production, and it also got an updraft from the soaring Bogota market. Sunoco Inc. and Valero Energy, last year’s bottom two performers in the Largest Integrated and Diversified Oils group, moved into the top 10 due to a dramatic turnaround in refining margins. BHP Billiton is the only member of the 2009 crop to repeat in the top 10 this year.
In a stunning turnaround, nine of last year’s top 10 finishers fell to the bottom half of the table in 2010, with Petroleo Brasileiro and Rosneft Oil, numbers one and two in the previous ranking, being hit particularly hard.