A Good Play for Investors Eyeing Oil & Gas
cris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The biggest recent news about Noble Energy (NYSE: NBL) is that it will soon sell its North Sea assets to Maersk. Reports say that Maersk will purchase "a 30% stake in two British oil fields and a production unit from Noble Energy" for a total of $127 million. The sale should be complete well before the end of the year, assuming the current reports are accurate. The purchase means that Maersk will own 100% of the stake in the Dumbarton and Lochranza fields.
This clearly benefits Maersk. The company will be one step closer to realizing its goals for expansion in the United Kingdom. In addition, these assets have a high rate of production, so this purchase should positively affect the company's immediate revenue. It now has a controlling interest in the area, and this could make a significant influence on its long-term success. The company will also have wide control over any future development areas that may be discovered in the North Sea.
Noble has also hinted that it may sell its other North Sea assets in the near future as well. There are a number of U.S. onshore properties that it is also in the process of selling. To me, it always looks suspicious when a company starts shedding so many of its assets, but there may be a method to Noble's madness. These are all assets that the company considers non-core assets. By getting rid of them, the company will be able to focus its time and resources on its five core business units. The company also believes this will help strengthen its balance sheet. These are both things that will benefit the company, therefore, so a closer examination of the situation reveals that this sale is one that works in the best interests of the oil-and-gas company.
In other news, Noble is investing $8 billion into drilling operations in Colorado shale fields. Again, I believe this is a good move for the company. Shale fields are the main thing that gives the U.S. an edge over European and Asian markets, so pursuing projects in this arena is one of the best things the company could choose to do. The project will take the next five years to complete, and it will involve creating "horizontal wells that stretch nearly two miles through the oil-rich Niobrara formation, which lies beneath a big swath of eastern Colorado."
Other players in Colorado are Andarko Petroleum (APC) and EOG Resources (EOG). It must be noted that Noble has admitted to its uncertainty over how to get the oil out in this area, as the complexity of the systems has made normal techniques unavailable. The yield is expected to be great, however, even if it may take a long time before investors see clear results. I think Noble has the right idea by focusing more on shale fields, and I look forward to seeing the future results from this decision. At the very least, Noble has a cohesive plan and is not currently involved in any lawsuits, which leads me to believe it is one of the best oil-and-gas stocks to back at the moment.
Exxon Mobil (NYSE: XOM) has decided to build a new and rather expensive chemical plant in Texas, despite its previous assertions that it would not expand its chemical operations. The all-time low prices of natural gas, however, have presented the company with an opportunity that it simply could not resist. Exxon Mobil's competitors are showing interest in this as well. Dow Chemical (DOW), Royal Dutch Shell (RDS.A), and LyondellBasell (LYB) also announced intentions to expand their chemical operations, and Exxon Mobil does not want to fall behind. This new plant will allow Exxon Mobil to compete with Dow, the leader in chemical production, at a much higher level. As a result, I believe this decision will bring about positive results in Exxon Mobil stock.
In contrast to this, Chevron (NYSE: CVX) is in a lot of trouble. When it bought Texaco a few years ago, it inherited a lawsuit that just will not go away. The company is still fighting the Ecuadorean government over the environmental damage that it supposedly caused in Ecuador eighteen years ago. The trial has been recently moved to a Canadian court, where Chevron will not be able to make convincing claims that the legal process is fraudulent. Stockholders need to watch developments in this lawsuit closely. Regardless of how events play out, I think the case will bring bad press and negatively affect Chevron stock.
In other news, fracking is an environmental concern that many oil and gas companies are currently dealing with. Noble competitor Cabot Oil & Gas (NYSE: COG) is one of the few companies out there that is addressing the problems of fracking. Together with Comtech, Cabot has found a way to recycle 100% of the water that comes back to the surface during the fracking process. This means that the water can be used again in the next round of fracking, and this attempt to deal with the issue will lead to a good public perception of the company. As a result, it will have a positive influence on the stock as well.
Oil and gas companies are frequently in the news due to lawsuits. One competitor, Occidental Petroleum (NYSE: OXY), has been cleared of charges related to damage in the Peruvian rain forest. Furthermore, the decision will not be reconsidered. The judge claimed that it would have been better for the case to be addressed in Peru. Occidental is not out of trouble yet, however, as the case may have long-lasting ramifications. The bad press, furthermore, may significantly affect public perception about this company, which will have a negative effect on the stock.
Noble seems to be a good option for investors looking into oil and gas companies. Its focus on core assets and its shale field project work together to make this company appear strong, even if it is selling many of its assets. It is certainly in a stronger position than some of its competitors, as many of them are dealing with messy legal situations. Cabot and Exxon Mobil both seem like strong stocks at the time. As I have mentioned, Noble seems like a stronger stock as well, and I anticipate Noble stock to be increasing slightly in the near future.
jewishitalian31 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.