NEW YORK (TheStreet) -- I was talking to Stephanie Link today about the supermajor oil companies and their prospects for the next several years. I tend to like the independent E+P oil companies more than any of the supers, but out of all of these megacaps, I tend to like Royal Dutch Shell (RDS.A) and Total (TOT) the best.
Oil production increases have been the best indicator of rising stock prices with oil companies. Finding great production increases with reasonable cost increases has been much easier with the smaller independent oil companies than with the majors. Those monster integrated companies have been better used as 'bond-like' equity holdings, delivering a steady dividend to investors that will grow consistently if slowly.
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But not all dividends are created equal. Shell, for example, has spent quite a lot of capital searching for new barrels of production in the last several years, but with relatively less success than other super majors. Consequently, they have lagged behind some of the others in share price while still delivering a healthy dividend.
But that is changing: Stephanie points out to me the changed focus of Royal Dutch Shell, in a similar move to those made by Conoco Philips (COP) and Occidental Petroleum (OXY) . She calls it "shrink to grow," where capital expenditures are scaled back, allowing the producing assets to 'catch up' to the money being spent. With Shell, this new attitude has been expressed by new CEO Ben van Beurden, where even a small $2 billion or $3 billion decrease in capital expenditures over 2015 will greatly enhance the bottom line.