While many
articles on this site have endorsed the virtues of investing in major
oil companies, such as Chevron (NYSE: CVX), Exxon
Mobil (NYSE: XOM) and Royal
Dutch Shell (NYSE: RDS-A), a recent piece
in The Wall Street Journal by
Daniel Gilbert and Justin Scheck revealed why small cap firms such
as Octagon 88 Resources (OTC: OCTX) and Americas
Petrogas (OTC: APEOF) can be so alluring.
In
their excellent article, “Big Oil Companies
Struggle to Justify Project Costs,” Sheck and Gilbert reported Chevron,
ExxonMobil and Royal Dutch Shell had “spent more than $120 billion in 2013
to boost their oil and gas output — about the same cost in today’s dollars as
putting a man on the moon. But the three oil giants have little to show for all
their big spending. Oil and gas production are down despite combined capital
expenses of a half-trillion dollars in the past five years. Each company is
expected to report later this week a profit decline for 2013 compared with
2012, even though oil prices are high.”
The
reason for the high spending and the low rewards was that oil companies of that
size need mammoth finds to provide the scale of production necessary for the
company.
But
that’s not the case with Octagon 88, Americas Petrogas and other small cap oil
and natural gas concerns. Smaller holdings can be very rewarding. That is a
huge advantage for investors.
Related: China
Continues Acquiring Foreign Energy Firms
Another
feature: small cap oil and natural gas firms are more attractive takeover
targets.
Due
to political concerns, it is difficult to acquire a major energy company in
another country. That happened to the Chinese with Unocal. But for smaller
firms, there is not the national security concerns. As a result, there
are reports that Chinese interests are checking out Octagon 88.
There
should be room in all portfolios for big and small cap oil concerns.
The dividend income
from an ExxonMobil or Royal Dutch Shell cannot be topped by a smaller firm. But
the potential growth of an Octagon 88 or Americas Petrogas is far greater than
that for a Chevron.
Moreover,
that growth comes as a much reduced cost.
Read more
Benzinga.com small-cap articles: http://www.benzinga.com/news/small-cap
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