World's Top 10 Oil Companies

Even in the age of cheap solar panels, most of the world’s energy is still being produced from the remains of Jurassic forests, and there are many companies making billions of dollars from petroleum. We will take a look at the world's top ten companies in the oil sector. 

The Financial Times 500 (FT 500) is an annual ranking of the largest companies in the world by key criteria. We will use three of these to compare the world’s biggest oil companies: turnover (revenue), market value (market cap), and net income. The ultimate factor in ranking will be net income because, in the end, it is profit that matters to an investor. 

Source: Financial Times 500 2014

The big takeaway from this table would seem to be that Gazprom is hugely undervalued, and that is definitely true. While leading the way in both total assets and net income, the market cap for Gazprom is only $91 billion, compared to $422 billion for Exxon Mobil, the number two on the list. If there was ever a case for eventual price convergence, surely similar companies pulling out the same commodities should eventually end up at similar prices. Of course, there are quite a few reasons for the difference in market cap, and they apply to all the non-U.S. companies on the list to some extent.

The U.S. companies are not that far out of alignment when you look at the total assets and the market cap. However, among the non-U.S. companies, there are more significant gaps between the total assets and the market cap, with Gazprom and Petrobras on the extreme end. The gap represents concerns about the political and economic stability of the company’s nation. Gazprom is undervalued because it works in rubles and is heavily tied to the Russian economy, which is a nice way of saying Gazprom is tied to the Russian government.

In cases wherein the gap is largest, it is because investors are not comfortable having their investment under the legal and financial jurisdiction of the political party in power. With others, the market cap discount speaks to specific weaknesses, such as having a lower return on assets or holding assets in troubled areas. For example, BP’s share price took a hit when the 2014 sanctions against Russia affected its 20% stake in Rosneft, an oil company that is majority-owned by the Government of Russia.

While it is interesting to see where companies line up against one another globally (for example, there are only three U.S. companies in the top 10 and China now has two companies in there), the most important takeaway is that oil is a truly global industry that is not going away anytime soon. If you are looking to invest in this industry, there are some strong companies – big and small – outside the U.S. worth considering.