1 Oil & Gas Stock to Buy, 1 to Sell
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Recently I wrote an article on three different energy companies that presented in Summit Ski Conference, a platform where different energy companies gather annually to share their future prospects with investors. The conference was certainly an eye opener and gave a clear view of whether the management is bullish on the future of their companies or not. I have pulled out another group of three Integrated Oil & Gas players that presented their case in the conference. Let’s see whether their managements are bullish or not:
Marathon Oil Corp. (NYSE: MRO)
It will not be wrong if I say that this earnings release was a nightmare for the company’s investors given that the company reported a 41% decline in net income. The only good news that investors got was that the company announced that it projected 2013 production level to be 6-8 percent higher on a YoY basis. Recently, the company presented its future plans in the Summit Ski Conference. Following were the key takeaways:
- The management was more confident about its operations in Bakken (1,000-1,500+ wells given Threeforks bench).
- Moreover, the downspacing (a common term used by MLPs to refer to an increase in the number of available drilling locations as a result of regulatory commission order) potential at Eagle Ford (2,000-3,000 wells inventory and more potential in the Austin Chalk) plus offshore exploration (Gabon, Gulf) should allow growth targets of 5 -7% through 2017 and possibly through 2022 with higher cash margins than current production.
To the relief of investors, Janet Clark, the CFO of the company, sounded bullish and carried a positive sentiment for the company’s future. The bottom line is that disciplined investment and solid base assets will continue to provide cash flows. Moreover, the inventory of high impact exploration suggests that the stock will go up in the future.
Husky Energy (NASDAQOTH:HUSKF)
Husky energy, represented by its Senior Vice President, Rob Symonds, was another energy company that presented its case on the third day of the conference. Following were the key takeaways:
- Reiterated 2012-2017 target of 5-8% production CAGR
- Current thermal heavy oil production is 35 kbd. Given that this was the targeted volume for 2015, it is apparent that the thermal segment is progressing ahead of expectations.
- Husky is in the process of transforming their foundation in Western Canada. New Resources plays (Bakken, Viking, Cardium, Rainbow, Slater River, Ansell, Duvernay, Montney, etc) are designed to replace declines in the conventional gas business.
- Liquid-rich Ansell production is currently 14 kbd. Husky is using propane fracs, which are producing better results than slick water fracs.
- Current production from these areas is 20,000 boe per day. The company plans to grow it to 50,000 boe/day.
- Rainbow and Slater River have higher PIIP (Petroleum-in-place) mmboe/section but they are still in very early days.
- Indonesia: Plans to delineate new discoveries for possibility of 2016/2017 commercial production.
- Sunrise: All wells are drilled and have confirmed the reservoir is as good/better than expected. 85% of the $2.7 billion project costs have now either been spent or fixed.
- Atlantic Region: The plan is to sustain the production through tieback opportunities: South White Rose Extension Project is aiming to produce 20 mmbbls (million barrels) of 3P reserves by Q4 2014. Moreover, the first production of West White Rose Extension Project is expected in 2016-2017 (targeting 80 mmbbbls of 3P reserves).
Recently, Macquierie Research said that the Canadian independent oil producers will suffer in the near-term due to heavy cuts in Canadian oil prices. This analysis sent share prices of many Canadian Oil & Gas players tumbling down. Imperial Oil (NYSEMKT: IMO) is one good example of such a case. Though the Integrated Oil & Gas players weren't hit as hard by the news, IMO still saw a decline of 7% in its stock price the same day of the announcement. Perhaps it got hit by the fact that it plans to raise its production level in the near future given that it is soon going to open its 110,000 barrel per day Kearl oil sand mine.
I seem to smell this news in Husky’s outlook. Rob Symonds sounded bullish, but there are definitely some potential challenges in the future that the company will have to fight.
Foolish Bottom Line
This conference was an eye opener for investors in the energy sector. The presentations given by the reps of the respective companies compel me to recommend investors to buy Marathon Oil and hold Husky Energy.
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