BP (BP), Chevron (CVX), Exxon Mobil (XOM), ConocoPhillips (COP) and Total S.A. (TOT) are some of the largest names in the vertically integrated oil industry. And all of them have faced criticism from environmental watchdogs at some point over the impact of their operations. However, the oil industry is taking note and embracing alternative technologies -- including biofuels, geothermal, wind and solar -- and hopes to make them an integral part of its future. While green technologies currently contribute only a small fraction of the revenues of these multibillion dollar energy businesses, they are expected to be major sources of growth over the future.
We have a $55.30 price estimate for BP, about 25% higher than its market value. Our target price for Chevron is at $104, roughly in line with the market price, and we have a $93 target price for Exxon Mobil, which implies a 12% premium over the current market price.
Placing Big Bets on Biofuels
According to BP, renewable sources will constitute the fastest growing sources of primary energy through 2030. It forecasts that renewables will contribute to 18% of the growth in the overall energy supply, and predicts biofuels will make a sizable contribution towards this growth. Biofuels' contribution to the world's oil supply is expected to increase from the present 3% (on an energy basis) to 9% by 2030.
In March, BP acquired a majority stake in Brazilian ethanol producer Companhia Nacional de Açúcar e Álcool, boosting its ethanol production in the country to 9 million barrels of ethanol equivalent production per annum. Exxon Mobil announced a collaboration with Synthetic Genomics to invest up to $600 million in research on algae-based biofuels. ConocoPhillips and Total also have similar research partnerships with industry and academic institutions to develop technology in the field.
Geothermal, Wind and Solar
With large projects in the Philippines and Indonesia, Chevron is currently the world's largest producer of geothermal energy, generating more than 1,200 megawatts. The company is also actively scouting for new projects in Indonesia to expand in the segment. BP arguably has the most extensive portfolio in renewables and is making sizable forays into solar, wind and hydrogen power, and aims to invest around $8 billion in alternative energy ventures by 2015.
Total, Europe's third largest oil producer announced in April that it would purchase a 60% stake in SunPower (SPWRA) to ramp up its efforts to gain traction in the solar industry. It's also looking to expand in nuclear energy to diversify its portfolio.
We expect renewable sources -- especially biofuels -- to become important sources of value for these companies in the long term.
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