Anadarko Gearing Up for the Big Leap
Satarupa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
After finding one of the biggest natural-gas discoveries in the Rovuma Basin on the east coast of Africa, Anadarko Petroleum (NYSE: APC) made a wise decision to take advantage of the strategic location of its findings. The company is planning to build the second-largest LNG export terminal in the world to serve the energy-hungry Asian countries.
The discovery made
Anadarko has discovered more than 100 trillion cubic feet of natural gas in the Rovuma Basin area, offshore Mozambique. The area is touted to contain around 250 trillion cubic feet of natural gas, a volume sufficient enough to meet global natural-gas demand for two years.
Anadarko is not the only company to have struck gold in the area. Statoil (ADR) (NYSE: STO) has made significant discoveries in the area as well. It was also able to find a stakeholder for the resources in Japan by the name of Inpex. Statoil is exploring the possibility of drilling for oil and is on the verge of completing drilling a well by the end of the month. Statoil registered a 58% decline in its net profit at $1.1 billion, blaming lower production and low prices.
The fuss has brought the African country in the limelight as a potential source of natural gas for countries worldwide, especially for the energy-hungry Asian countries. This huge deposition and the geographical location of the reserves have made it more than feasible to build an LNG export terminal.
The opportunity provided
Mozambique is strategically located to catch the eye of any oil and natural-gas company that wants to satisfy the ever-growing demands of the Asian countries. In a drive to satisfy their energy needs along with safeguarding the environment, the Asian countries are looking for greener sources of energy. This has set huge demand for natural gas in countries like Japan, China and India. In fact, Japan is the biggest importer of LNG in the whole world.
Oil biggies like Chevron (NYSE: CVX), Shell, and ConocoPhillips have rushed to grasp the opportunity by building export terminals from nearby Australia. Chevron’s Gorgon and Wheatstone LNG projects in Australia are some of the biggest LNG projects and are touted to deliver first loads by 2015 and 2016, respectively.
Chevron is pushing to increase the capacity of these projects, injecting a lot of capital behind these projects to reap the benefits of the Asian market’s price premium. Chevron also reported a 6.4% drop in revenue in the first quarter this year to $56.8 billion on the backdrop of decreasing oil prices, though it posted higher production output.
Additionally, the nuclear disaster faced by Japan at Fukushima Daiichi has made these countries aware of the hazards of using nuclear energy, and in turn has boosted the sale of natural gas as the best available alternative.
This provides an enormous opportunity for Anadarko to tap this energy-hungry market where natural gas is trading at price premium, four times higher than the price in the US, by building the world’s second-biggest LNG export terminal offshore Mozambique.
The mountain to be climbed
The LNG export plant will have a capacity of 50 million tons a year when fully functional. The huge capacity of the plant demands huge set-up costs. But for a debt-ridden company such as Anadarko, to set up an export facility costing a whopping $15 billion is quite an uphill task. This is where Anadarko has decided to scale down its stake in the play and attract other oil and gas companies with big pockets to fund the investment.
Recently ONGC of India announced a deal to buy stake in the field, but later it was declared to be a premature declaration. Still, we cannot rule out such a deal; the price of the deal was approximately $2.5 billion.
Foolish bottom line
Although the announcement of a deal has been withdrawn, that doesn’t guarantee that no further deal will take place or even that the current deal won’t work out. A lot is in store for the oil and natural-gas companies operating from the East Coast of Africa, especially given the high demand for natural gas in Asian countries and the price premium available.
What’s more interesting is the fact that Statoil is mulling the exploration of oil in the area and is confident about extracting 200 million barrels of oil from its offshore Cachalote well in Mozambique. Things are only becoming more interesting for Anadarko and Statoil in Mozambique, and above all for the global oil and natural-gas industry. Watch out for the stocks.
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Satarupa Bose has no position in any stocks mentioned. The Motley Fool recommends Chevron and Statoil (ADR). 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!