Don’t Miss Out on These Three Oil Exploration and Production Companies
Madhukar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Currently, oil exploration and production companies are looking to restructure their assets. This restructuring is happening through sales of existing assets to improve cash positions. The companies are allocating the cash to assets in the U.S. that are more productive, enhancing their growth. The advancement of economical technology to extract shale gas is attracting these companies to the U.S. mainland. How will these growth strategies translate into revenue for three major oil exploration and production companies?
Sailing out of Gulf of Mexico and anchoring in the U.S.
Apache’s (NYSE: APA) decision to sell its Gulf of Mexico (GoM) assets for $3.75 billion is a part of $4 billion divestiture plan. This transaction should close by September 2013. In the first quarter, GoM shelf production was 92 million barrels of oil equivalent (MBOE) per day which consists of 47% oil, 7% NGL, and 46% gas. The reserves in the shelf dropped from 293 MBOE in 2010 to 237 MBOE in 2012, however.
The abandonment process will cost the company $424 million this year. Abandonment is the process of plugging of wells after their productive life. The proceeds from this divestment will help the company increase its financial flexibility by retiring debts and investing in assets with more potential like the Permian Basin. This is going to improve the company's cash flow per share from around $24 this year to $28 next year.
The company's U.S. onshore assets have vast potential for growth, and these assets will be the main production driver for the company. It’s U.S. onshore assets primarily consist of the Permian and Central regions. These regions accounted for 26% of the company's overall production in the first quarter of 2013, a figure that should grow to 28% by the end of this year. Apache currently operates 60 rigs and plans to drill around 1,000 wells in this region by the end of this year, allotting 55% of this year’s spending to these projects. Overall production in this region will rise by 20% year-over-year in 2013.
Selling stake and the growth story
Andarko (NYSE: APC) is selling 10% out of its 36.5% stake in the offshore gas fields of Mozambique. The sale could fetch the company a minimum of $2.5 billion, which it will use for two purposes. First, it can retire some of its $13.6 billion debt. Second, it can fund the construction and development of a liquefied natural gas (LNG) terminal for receipt, storage, and supply of LNG; this terminal will cost an estimated $15 billion. Mozambique has an estimated reserve of 150 trillion cubic feet of gas. India and China currently have high energy demands due to the growth of their economies, and gas from this region will find quick buyers as a result. The production of the LNG facility will not finish until 2018, however; as a result, this asset sale will reduce its cash requirement burden.
The company’s U.S. onshore assets in the Wattenberg field will propel future production growth. Production in the first quarter was around 113,000 barrels of oil equivalent (BOE) per day, showing growth of around 39% year over year. Production from these assets will continue to grow rate of around 30% in the coming year. Technology like horizontal drilling contributes to this growth. Horizontal drilling is used to drill sideways rather than conventional vertical drilling into the ground. This helps the company to reach oil deposits by drilling a shorter distance as compared to vertical drilling.
Reshuffling the operations for good
The California operation of Occidental Petroleum (NYSE: OXY) is a growth driver for the company. This operation will generate a free cash flow of $1 billion this year which the company will use to drill new wells. The company plans to drill around 125 wells next year and around 250 wells in 2015. The increasing production of oil is important for the U.S. as it helps to control the price of its oil imports from the OPEC nations. Occidental has the benefit of increasing its oil production using the vast reserves of its California operations. With the help of rising California production, its total U.S. production will rise from 496 MBOE per day this year to 549 MBOE per day next year.
The company plans to separate its operation in the Middle East and North Africa (MENA) region from its U.S. operation. This plan for separation is due to the U.S. assets of the company being more productive and carrying less political risk than the assets in the MENA. The more productive U.S. assets require for more spending to increase productivity. This will enable it to increase production volume and maximize its assets. According to analysts, this separation could increase the company’s market value by $47 billion.
All three companies are reviewing their existing assets and restructuring them according to their growth potential. Apache is selling GoM assets, which will improve its free cash flow. It is focusing on increasing production from U.S. onshore assets. Anadarko is selling its stake in the Mozambique fields to fund the development of a LNG terminal. Occidental Petroleum is organizing its business geographically to unlock the true value of its assets.
I recommend a buy on all the three stocks.
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Madhukar Dubey has no position in any stocks mentioned. The Motley Fool owns shares of Apache. 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!