Were it not for Covid-19 and and the precipitous market drop, I would expect we'd have an lively thread on this oil war. This is crazy, with the gigantic drop in demand at the same time of ratcheting up supply. I understand storage capacity is almost consumed. I read that oil industry analysts expect the Russians and the Saudis to keep at it for most of 2020. Brent headed to $17/brl?
Will the ratings of the bonds of these Petro giants go down? Will any structural changes happen in the industry?
I don't think there are any bargains in the sector yet.(?)
There are some incredible buys in the oil sector if you are willing to risk some money.
I have made a full purchase of Marathon Petroleum Corporation (MPC) and have been nibbling on Kinder Morgan (KMI).
MPC is the largest independent refiner in the world. Largest in the US, around number four for the world. The also own the GP for MPLX which is the fourth largest MLP in the US, and lastly they own Speedway which is the largest gas station chain in the US.
They have had some activism going on before the crash by Elliot Management (imho corporate raiders only interested in the short term). I think they helped drive down the price. Anyway because of them Speedway is going to be spun off to shareholders this year (I'm agnostic about this, pros & cons either way). They also looked into spinning off the MLP but decided it was better to keep it, which I agree with. Also FYI the MLP gets a lot of its money from natural gas, not oil.
Like two years ago MPC acquired Andeavor, which merged a MPC on the east coast with Andeavor on the west coast. Now the have refineries and MLP stretching the entire US. Also the gas station chain now stretches the entire US.
So right now MPC is selling for IMHO around four times lower than its real value. Its a steal. MPC makes its money off the "crack spread" not the "spot price" of oil. Also the MLP and gas station chain are independent of the price of oil.
MPC looks like it has a lot of debt, but actually it doesn't. Leverage on MPC itself is under 2x and the MLP is under 4x. Most of the debt is on MLPX which MPC is *not* liable for.
MPC is setup to profit a great deal off a change that takes place in the fuel standards for shipping. In 2020 the International Maritime Corporation is enforcing new emission standards on the world's ships. MPC is setup as the best refiner to take advantage of this change.
https://www.cnbc.com/2019/03/01/big...-leaded-gas-went-away-could-raise-prices.html
Right now MPC has a dividend yield of 12.24% with a payout of 70.15%. The payout is higher than I like, but its a lot better than most of the oil plays out there which now have payouts over 100%...
If you look at MPC track record they have a great history of returning capital to shareholders. IMHO, if they end up cutting the div in the short term, they will make up for it once the craziness in the world dies down. I would not hold a div cut against them. Its not their fault a global plague has descended on the world at the same time SA and Russia start an oil price war.
Anyway, I repeat. MPC is not int he upstream oil business. They are in the midstream and downstream only. I think they are in a good spot financially. I think they might even make it through this without a dividend cut.
P.S. The P/E on MPC is 5.73 and it is going for .48 P/B.