(by Julia Jenson)

The oil industry is definitely on the rise as analysts predict a bull market for several years ahead. Here are major companies with their market capitalization figures:

1 ExxonMobil $318.9 billion
2 British Petroleum $217.5 billion
3 Total SA $127.7 billion
4 ChevronTexaco $113.75 billion
5 Royal Dutch Shell $110.09 billion
6 ConocoPhilips $57.99 billion
7 Lukoil $26.26 billion
8 YUKOS $11.31 billion

The attempt to rank the companies from the viewpoint of oil reserve size results however in a different order putting YUKOS and Lukoil on top of the list. Troubled by political turmoils in Russia and a crippling tax bill, YUKOS recently announced a sensational rise in the oil reserve estimates at its core unit in Yugansk from 19.4 billion barrels in the previous reports up to an optimistic 93.7 billion. The new estimate would exceed the figure of 69.1 billion barrels quoted in the BP’s Statistical Review of World Energy as the total volume of Russia’ reserves. Lukoil is reported to possess approximately 20 billion barrrels and is viewed as the second largest energy company in the world in terms of reserves. According to the President of Lukoil, Vagit Alekperov, market cap lags behind since it is affected by other factors such as politics.

Many would agree that political factors underlie the tax fraud charge that put YUKOS chief Mikhail Khodorkovsky in prison and left the corporation with a devastating $8 billion tax debt bill. The company now faces the auction of its largest oil production unit in Yugansk whose expected priced fluctuates between $4 and $15 billion. Unexpected charge against Khodorkovsky left the Western investors edgy about investing in a country with unpredictable regulators. This caution did not nevertheless prevent ConocoPhilips from winning a 7.6% stake in Lukoil for $2 billion in a government auction. While many Western investors view Lukoil with its return on equity of 26.44 and profit margin of 16.73 as a safe bet, Standard&Poor downgraded ConocoPhilips for exposing itself to Russian risk after it invested in the Russian oil giant. This deal could give ConocoPhilips access to Russian oil exploration. In terms of oil reserves, Lukoil by far outstrips the American company with only 7.8 billion barrels. ConocoPhilips ranks as the 11th in the list of world oil companies having a relatively low return on equity of 18.31 and profit margin of 7.59.

This deal reminds of another major Western player British Petroleum investing last year in TNK to form the TNK-BP. BP, having the lowest return on equity (14.83) and profit margin (4.41) among the major players in the industry, apart from developing its oil reserves of 8,376 barrels is now moving aggressively into using alternative fuels where it is seen by many as a reliable investment opportunity compared to the younger start-ups in the solar and wind energy production. With global warming becoming reality and the price of oil expected to hit $100 by the end of the decade, the socially conscious position of the company may be well justified.

The world’s second-largest oil integrated company ExxonMobil on the other hand denies the very fact of the global warming. Exxon that has proved oil reserves of 21,2 million barrels may not be asked to develop new crude output capacity in Saudi Arabia in view of the record oil prices as the kingdom does not need their capital. Despite the earnings growth conditioned by the price surge and a healthy return on equity of 26.07, next quarter’s earnings will be affected by the settlement of the class-action lawsuit of the gas dealers claiming they had been overcharged for gas for years. Exxon has already agreed to take the charge of $550 million. Still, well-established Exxon looks a sound investment which is proved by the price-earnings ratio of 15.00 second in the industry only to BP (15.96).

The force driving the oil industry to the top of the market is the price of the crude oil, and since its decline seems unlikely in the nearest future, energy industry will probably continue to attract investors willing to take a bit of the “oil pie”.