Forget Exxon- it’s all about the Explorers

Everyone goes on and on about Exxon and its profits. It’s understandable given that people pull up to the gas station underneath signs that says “Exxon” or “Mobil” or “Marathon” etc. The consumer equates high gas prices with those names.

But as an investor- it pays to look away from those big names. Sure, Big Oil is making a lot of money. But it’s the smaller explorers that are making even more.

The exploration and production companies are in business to simply find oil and natural gas and get it out of the ground. The companies then sell it to other companies who refine it etc.

For these companies, their main product, crude, has doubled in price over the last year.

What happens to any company whose product doubles in a year? Their profits soar.

Devon Energy (DVN) reported today and saw record cash flow of $2.6 billion. The company easily beat the Street’s estimates by 41 cents a share.

Mariner Energy (ME) had the same story in the first quarter. Revenues up 49% over a year ago. Earnings per share rose 82%.

Stone Energy (SGY) saw $2.22 a share compared with 38 cents a share a year ago.

These are stunning gains.

For many of these companies, the average price per barrel was around $95 in the first quarter. Average natural gas prices were around $8.25 per million British thermal units. For the second quarter, crude is averaging over $100 a barrel. Natural gas is averaging over $9. Right now, natural gas is over $11 and could head higher.

What will these companies do in the second quarter?

They are cash cows. Money is flowing like there is no tomorrow.

Of course, the party will end at some point for these companies. Crude and natural gas prices WILL decline. But for right now- it’s not ExxonMobil that is making all the profits. It’s the explorers.

The next time you pull up to an Exxon station and curse, maybe you should be cursing Anadarko Petroleum or Apache instead.

Nah…not as fun.