3 Energy Companies Offer Promising Returns
Madhukar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
According to the Energy Information Administration estimates, the demand for oil will grow by 0.9 million barrels per day, or bpd, in 2013 and 1.2 million bpd in 2014. To meet this demand, the production of oil will rise by 0.6 million bpd in 2013 and 1.8 million bpd in 2014. With this production increase, it's anticipated the oil industry will increase revenue by 3% in 2013.
Looking at the growth of this sector, there are three companies that have sustainable growth opportunities in the upcoming years. In order to keep market share, these companies are planning to expand either through acquisitions or by increasing drilling activities.
Kinder Morgan Energy Partners (NYSE: KMP) acquired Copano Energy in March 2013 for $5 billion. The acquired company has a large amount of gas accumulation, sequencing, and transmission set up at key shale gas basins located in Texas, Oklahoma, and Wyoming. Copano operates almost 6900 miles of pipeline, with efficient natural gas transportation of approximately 2.7 billion cubic feet, or bcf, per day. It has nine processing plants with more than one bcf per day processing capacity of natural gas.
Additionally, Kinder Morgan plans to spend $11 billion total on expansion. $5.4 billion is projected for the Trans Mountain project pipeline and $2 billion for the Freedom Pipeline. The Trans Mountain pipeline, with a length of 1.15 kilometers from Edmonton to the Westridge Terminal, is located in Burnaby Canada.
The company plans to almost triple its capacity from 300,000 bpd to 890,000 bpd by 2017 in the Trans Mountain pipeline. Kinder is expecting to generate revenue of more than $1 billion per year from this plan, as it will receive almost $5 per barrel as the ''toll.''
It has also scheduled the construction of the Freedom pipeline in June 2015, which will be supplying crude oil to the western part of the U.S. This pipeline will start operating late in 2016 with a capacity of 200 million bpd.
Calumet Specialty Products Partners (NASDAQ: CLMT) announced a joint venture with MDU Resources Group (NYSE: MDU) to construct and run a diesel refinery in February 2013. This venture will be known as Dakota Prairie Refining. The refinery will be spread throughout 318 acres in the southwest region of North Dakota with a cost of around $300 million.
Construction is scheduled for the second quarter of 2013, and its operation will start in the fourth quarter of 2014. MDU will invest $150 million in this venture, Calumet plans to contribute $75 million, and another $75 million will be from an unsecured, syndicated term loan. The companies will share profits equally. The process capacity of this refinery will be 20,000 bpd of Bakken crude oil.
Calumet completed the acquisition of the San Antonio refinery of NuStar Energy (NYSE: NS) for $115 million on Jan. 2, 2013. With this acquisition it will add finished gasoline in its product range and refinery to explore crude oil. The San Antonio refinery is located in San Antonio near the Eagle Ford Shale and will add 14,500 bpd to the production capacity of Calumet.
The refinery extracts products like ultra-low sulfur diesel, jet fuel, specialty solvents, reformates, naphtha, and vacuum gas oil. Under this deal Calumet has also received rights of NuStar's terminal located in Elmendorf and a 12-mile long pipeline connecting to the terminal. It's expected that after the acquisition the company plans to increase capacity by 10%, to 159,500 bpd.
With the expansion plans, the company expects to increase its total earning to $210.2 million in 2013 from $205.7 million in 2012. After initiating the operations of Dakota Prairie Refining, the expected total earnings are $302.6 million in 2015.
Monetizing the growth
EV Energy Partners (NASDAQ: EVEP) is planning to spend $340 million to increase the production of oil and gas by the end of 2013. $100 million will be spent on increasing drilling activity and $240 million is an upfront investment of its partnership in UEO midstream interests. From the $100 million, 66% of the investment will be made on the Barnett drilling region, where 70 wells will be drilled. The total production from these investment avenues is estimated to be approximately 162 million cubic feet per day in the year 2013, which is comprised of 68% natural gas. With the rise in the drilling activity, it is estimated that revenue of the company will increase from $400 million in 2012 to $570 million by the end of 2015.
EV Energy has planned to market its acreage in the Utica shale. EV Energy has 100,000 acres, which it wants to market in counties like Carroll, Harrison, Guernsey, and Noble. The company expects to generate almost $420 million, or $4000 per acre, by marketing this acreage. Currently the market is discounting the price by almost $2000 per acre. The company estimates that from the third quarter of 2013 to the fourth quarter of 2014 it will generate $779 million by selling its acreage.
Kinder's acquisition of Copano, will generate higher revenue. New projects like the Trans Mountain and the Freedom pipelines, will help meet an increasing demand for fuel. Calumet has entered into a joint venture with MDU Resources and it has acquired a refinery to improve production capacity. EV Energy plans to generate extra revenue by marketing its acreage. It also plans to drill its way to more production. All three of these energy players appear to be solid bets going forward.
The Motley Fool's chief investment officer has selected his No. 1 stock for the next year. Find out which stock it is in the brand-new free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.
Madhu Dube has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!