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BP, Oil Stocks May Need ‘Mega Mergers’ to Advance: Chart of Day

By David Wilson

April 14 (Bloomberg) — “Only mergers between peers” may lift shares of the world’s largest oil companies any time soon, according to Fadel Gheit, Oppenheimer & Co.’s managing director of oil and gas research.

As the CHART OF THE DAY shows, the stocks failed to benefit from an oil-price rebound during the past five months. The Amex Oil Index fell 5.8 percent from Dec. 19, when crude oil reached last year’s low of $32.40 a barrel in New York trading, through yesterday. Crude jumped 48 percent in the same period.

Gheit cut ratings on five of the index’s 13 stocks — BP PlcChevron Corp.,ConocoPhillipsExxon Mobil Corp. and Royal Dutch Shell Plc — to “perform” from “outperform” today. He also withdrew estimates for gains of as much as 60 percent from yesterday’s closing prices.

Investors are no longer taking the “flight to safety” that cushioned the stocks’ decline in the second half of last year, he wrote in a report. The Amex index lost 36 percent in the period, beating a 68 percent plunge in oil, as the shares’ relatively high dividend payments bolstered demand.

First-quarter earnings reports may prompt analysts to reduce estimates, hurting stock valuations, according to Gheit. The five shares change hands at an average of 11.7 times profit estimates for this year, well above their five-year average ratio of 6.7 times, his data showed.

“Mega mergers” would allow companies to reduce capital spending and operating costs, paving the way for higher ratios, he wrote. “Regulatory obstacles make such mergers less likely, although we cannot rule them out entirely.”

(To save a copy of the chart, click here.)

To contact the reporter on this story: David Wilson in New York at[email protected]

Last Updated: April 14, 2009 11:07 EDT 


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