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Chevron stands to keep gaining on Exxon Mobil. Over the last five years, shares of the second-largest U.S. oil company have vastly outperformed its larger rival's, yet Chevron's valuation still lags. As chief executive officer John Watson wooed investors in New York at its annual investor day on Tuesday, there was a good case to be made that output growth and a focus on oil favour the gap closing even more.

At 66 per cent, Chevron's total shareholder return since 2008 triples that of Exxon. The outperformance has continued over the past year, too. Even so, investors still consider Exxon's future brighter. The $400-billion (U.S.) Texas-based company trades at 11.3 times expected 2013 earnings while Chevron fetches just 9.6 times.

Much of that is down to Exxon's record of ruthless cost controls and efficiency in drilling. It is still superb at squeezing cash from capital expenditures. Last year, Exxon spent 60 cents on exploration and production for each $1 of operating cash flow against 80 cents at Chevron.

Increasingly, however, Chevron's productivity looks more tempting. Unlike Exxon, which went headlong into U.S. gas by acquiring XTO for $31-billion in 2010 just as prices nosedived to record lows, its rival pursued other initiatives. Chevron now generates about 70 per cent of its production from precious liquids, compared with about 50 per cent for Exxon. That helps explain why the California-based company has achieved a higher profit per barrel than Exxon for each of the past nine quarters, according to Argus Research.

More promising still, Chevron's production growth, though flat in recent years, is set to surge. By 2017, the company says it is on target to produce 3.3 million barrels of oil, a quarter more than it does now. That would be about twice the pace of growth expected by Exxon. Much of it also comes from liquefied natural gas, which can be exported to Asia at a fixed price at least four times higher than it sells for in the United States. Everything may be bigger in Texas, but it probably shouldn't be the case when it comes to large oil company valuations.

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Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 18/03/24 7:00pm EDT.

SymbolName% changeLast
XOM-N
Exxon Mobil Corp
+0.93%112.3

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