Don’t Miss the Chance to Fuel Your Portfolio with These Gas Giants

Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The rising price of crude oil, a strong dollar and a weak European economy have lowered the crude oil demand in developed economies. However, rising demand from emerging economies partially offset the lower demand elsewhere. Three oil and gas companies are adopting various strategic moves to advance in a slow growing industry. These strategies include increasing production, new projects and expanding overseas. Let's discuss how these strategies will help oil giants to grow.

Hoping for production growth from Gulf of Mexico

Royal Dutch Shell (NYSE: RDS-B) has been operating in the Gulf of Mexico the last 60 years, and the region contributes around 50% to Royal Dutch’s U.S. oil and gas production. To expand in the gulf, the company announced a successful exploratory well at its Vicksburg field, Gulf of Mexico in July 2013. The Vicksburg A discovery is estimated to have potential recoverable resources of more than 100 million barrels of oil equivalent (mmboe). This adds to existing potential of more than 500 mmboe in the nearby Appomattox discovery. This discovery will strengthen Royal Dutch's existing portfolio of deep-water exploration in the Gulf of Mexico. The company holds 75% of working interest in the Vicksburg A well.

Royal Dutch granted a contract to FMC Technologies to supply sub-sea equipment and infrastructure in order to continue the development of the Stone oil and gas field in the Gulf of Mexico. FMC Technologies will construct a floating production, storage and offloading, or FPSO, vessel that will receive hydrocarbons, process them to convert into oil and store oil. The development will initiate with two sub-sea production wells that will be tied back to the FPSO vessel. First phase of development is expected to generate annual peak production of 50,000 barrels oil equivalent per day. The Stone field contains more than two billion barrels oil equivalent per day of oil. Hence, Stone’s development will boost Royal Dutch’s revenue in the coming years. The company holds 100% interest in this project.

From the two above projects, the company expects production in the U.S. segment of Shell to be:

Year

2012

2016

2017

U.S. (production in ‘000s, barrels oil equivalent per day)

406

549

603

Overseas expansion will drive maximum revenue

PetroChina (NYSE: PTR) plans to spend around $16 billion for overseas investment this year. In order to expand its presence in Australia, the company recently bought BHP Billiton’s (NYSE: BHP) 8.33% share in the East Browse joint venture, and 20% shares of West Browse joint venture worth $1.63 billion. The Browse liquid natural gas (LNG) project is located on the Northwest coast of Western Australia and worth $45 billion. The project consists of three gas fields: Brecknock, Calliance and Torosa. These fields have large reserves totaling 15.5 trillion cubic feet of gas and 417 million barrels of condensate. This will be an important opportunity for PetroChina to improve its overseas LNG, unconventional oil and gas developments, in West Australia. This will eventually bring higher economic returns for the company in the coming years. It has set a target to generate half of its revenue from oil and gas production from overseas by end of the decade. The total revenue of PetroChina is expected to increase from $357 billion in 2012, to $362 billion this year, and $387 billion next year.

BHP Billiton wants to sell its non-core assets, the Browse LNG project, and focus more on its core mining business and to cut costs. The mining giant also announced a divestiture program including the sale of its major Gregory-Crinum coal operation in Queensland, Australia, and its 80% stake in the Ekati diamond mine in Canada. The total divestiture program could raise around $25 billion as it plans to sell 10 major businesses in coming years. With these proceeds, it will reduce its debt, focus on improving its mine productivity, and commence new exploration activities.

PetroChina is selling its minority stake in various plants to raise cash for its overseas acquisition targets in Australia, Central Asia, the Middle East, North America, Africa and Asia, and to offload its debt burden. It will sell its minority stake in the West-East pipeline 2, West-East pipeline 3, and stake in Tarim Basin and Xinjiang’s oil and gas fields. The company had debt of $82 billion at the end of 2012, a marked increase from $57 billion in 2011. With the selling of stakes between 20%-40%, PetroChina is expected to raise cash between $30 billion to $61 billion. Therefore, the cash generated will strengthen the company’s balance sheet and will generate good returns for the investors.

Conclusion:

Royal Dutch is expecting growth from its Gulf of Mexico portfolio. The company is also expecting growth from its exploratory well at Vicksburg field and an ultra deepwater project in Stones field, in Gulf of Mexico.

The proceeds from the sale of minority stakes will allow PetroChina to gain presence as it expands overseas. This will help the company accomplish its production targets and generate maximum revenue.

The proceeds from the divestiture program will reduce Billiton's debt, and it can further use these proceeds to improve its mine productivity as well as exploration activities.

Looking at the growth prospect in all the three companies, I recommend a buy.

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Shweta Dubey 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!

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