What could lead to hedge funds and Warren Buffett seeing these two groups differently? Let's take a look at why someone would short Conocophillips and Exxonmobil, and why someone else would pick up these stocks.
Why short big oil?
Over the past several years, the members of big oil have been under-performing the broader S&P index on a total return basis (stock appreciation and dividend returns). A large reason this has happened is because of the amount of money that big oil players have had to spend on growing their oil and gas production. Even though there has been a boom in oil and gas in the U.S. recently, the larger players like Exxonmobil and Chevron (NYSE: CVX ) have mostly been left out of that movement. Instead, big oil players have been focusing on mega projects overseas.
A prime example of this was the Kashagan project in Kazakhstan. The Kashagan oilfield in the Kazakh portion of the Caspian Sea was the largest oil find of this millennium -- we have to go back all the way to the 1970's for a larger find. Both Exxon and Conocophillips were a major part of this project until recently, when Conoco sold its 5% stake in the field, and both of them spent billions of dollars over almost a decade to get this project flowing. Having that much money tied up in an asset that was not producing oil means lots of unproductive capital
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| Warren Buffett |
