American Oil Companies Fueling Future Growth Opportunities
Madhukar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The global oil and gas volume is expected to grow from 73.8 billion barrels of oil equivalent, or Boe, in 2010 to 91.8 billion Boe by 2015 with the market value of around $3.7 trillion from $2.64 trillion in 2010. Currently, the Americas account for nearly 34.9% of the global oil and gas market. This article analyzes three American oil and gas companies that have small market capitalization, but, with their strategic moves, will place themselves to gain higher market share. These companies are looking to enhance their businesses by expanding their drilling activities and oil reserve through acquisitions. How will the initiatives of these companies gain investor interest?
Acquisition supported with strong dividend yield
Breitburn Energy Partners (NASDAQ: BBEP) recently acquired oil properties and associated midstream assets from White Oil Gas, a wholly owned subsidiary of Whiting Petroleum (NYSE: WLL) in the Oklahoma Panhandle for $860 million. It also agreed to purchase the additional interest of the properties from other sellers for $30 million.
Oil reserves in this region are unexplored, and Breitburn, with these midstream assets, can explore by expanding oil recovery projects, which will improve its production capabilities. These properties have proven reserves of 35 million barrels of oil equivalent, or MMBoe, and net production of 7,400 barrels of oil equivalent per day, or Boepd, with estimated reserve life of around 13 years. With this acquisition, Breitburn will generate higher distributable cash flow and expects the adjusted EBITDA of more than $235 million in second half of 2013 and around $504.8 million in fiscal year 2014.
Whiting Petroleum will receive $850 million after offsetting expenses related to this divestiture. The company will use these proceeds to enhance its oil and gas properties by developing, acquiring, and producing crude oil, natural gas, and natural gas liquid in its core developing areas like the Northern Rockies, Central Rockies, and Permian Basin region. By developing the properties in these regions, the production in the second quarter of 2013 will report a year-over-year growth of 15.7% to 8.5 MMBoe and a full-year production will exceed 31.2 MMBoe. Additionally, it will use the remaining proceeds to repay its outstanding debts.
The company is continuously increasing its dividend with a yield of around 10%. In April, it increased quarter-over-quarter dividend by 1% to $0.475 or $1.90 on an annualized basis, generating an annualized yield of nearly 10.5%. With its strong organic and inorganic growth, the company expects year-over-year cash flow growth of around 29% to $218.3 million this year. Therefore, the company will increase the payout by 5% a year. The strong dividend payout and yield will establish the company's position in the industry and enhance investor growth.
Looking for long-term growth opportunities
In December 2012, Legacy Reserves (NASDAQ: LGCY) acquired interest in Permian Basin oil and natural gas properties from Concho Resources for $520 million. These properties have the proven reserves of 25.6 MMBoe, which are operating at 90.5%. Through this acquisition, Legacy added 1,584 wells producing 5,238 Boepd with the reserve life of 13.4 years.
In the first quarter, the company reported year-over-year growth of 37% in oil production to 19,711 Boepd, primarily driven by the acquisition. The company plans to continue integrating Permian assets into its portfolio, which will help it gain continuous long-term growth in its 236 current identified development locations. To enhance production and revenue, Legacy declared a $90 million development budget in this region and will generate revenue of around $484 million this year from $352.3 million last year.
In order to enhance its presence and to support its existing assets, the company recently acquired 95% interest in Permian Basin oil properties of Resaca Exploitation for $67.9 million. The industry partner purchased the remaining 5%. Currently, these properties have a net production of nearly 668 Boepd, and the proven reserve is around 3.8 MMBoe with 88% of oil reserve remaining with the reserve life of 15.6 years.
The company previously projected a production level around 19.1 MBoepd-19.8 Mboepd for this year; however, the company will raise the production level to 20.01 MBoepd this year and 22.3 Mboepd next year from 14.81 Mboepd last year due to this acquisition. Therefore, Legacy will generate revenue of around $479 million this year and $509 million next year up from $352 million last year.
The companies in this industry are aiming to enhance production capacities by focusing on their core drilling activities as well as expanding oil reserves through acquisitions. Breitburn acquired Oklahoma Panhandle properties from Whiting petroleum, and its strong dividend yield will continue into the future. Whiting Petroleum will use the proceeds to enhance its core regions and raise its production level.
Legacy Reserve is enhancing its foothold by acquiring oil and gas properties in the Permian Basin region, helping the company explore long-term growth opportunities.
Looking at this, I recommend a buy on all three stocks.
Madhukar Dubey has no position in any stocks mentioned. The Motley Fool recommends BreitBurn Energy Partners L.P.. 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!