Better Buy: ExxonMobil vs. BP

In late October, energy giants ExxonMobil (NYSE: XOM) and BP (NYSE: BP) delivered their third-quarter 2019 earnings reports, which looked pretty bad compared to the year-ago quarter. For Exxon, earnings per share declined nearly 50% from $1.46 to $0.75. BP's result wasn't much better, with EPS declining 42% from $0.192 to $0.11.

Like other integrated oil and gas companies, ExxonMobil and BP are coming to terms with the new reality of $50 to $70 oil. Unlike in past cycles, oil prices are likely to remain somewhat low as a result of the U.S. shale revolution, which has sparked a supply increase more than capable of keeping up with global demand.  ExxonMobil and BP are similar in some respects, but one has superior upside for 2020 and beyond.

Over 80% of Exxon's Q3 2019 revenue came from its downstream (refining) business, yet upstream (exploration, drilling, completions, and production) made up nearly 70% of earnings. That's because Exxon's upstream business has higher margins than its downstream business, which historically has razor-thin margins.

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