Colombia: A Hot New Energy Destination

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

If you are looking for the most stable energy company to invest in at the moment, look no further than Anadarko Petroleum (NYSE: APC). The company recently announced that it would partner with Colombia's Ecopetrol (NYSE: EC) to explore in the Caribbean Sea. The fact that Anadarko has decided to partner with Ecopetrol in a country that is one of the most promising oil and gas producing nations in the world is enough to boost investor confidence. In addition, Colombia has huge oil and natural gas reserves that will help Anadarko increase profitability and boost revenues in the long-term.

Anadarko’s Deal with Ecopetrol

Anadarko has a 50% stake in both the Fuerte Norte and Suerte Sur blocks, while Ecopetrol will have the other half. The two companies also received significant concessions from the Colombian government to explore at the Purple Angle block. This joint venture will help Anadarko to increase its oil production and also continue to maintain its status as the second-largest American independent oil and gas producer. The joint venture grants Anadarko the rights to explore 2.55 million acres, and the companies expect to produce more than 1.3 million barrels of oil per day by 2020. In addition, Anadarko also received permission to explore in almost 8 million acres across six deepwater blocks.

Profile of Colombia as an Energy Destination with Respect to Anadarko

Investors need to note that Colombia is a country with immense energy resources. A significant spike in hydrocarbon production has resulted in Colombia being ranked among the top oil and gas producers in Latin America. The country is self-sufficient in natural gas and also exports it to the world's most oil rich nation, Venezuela. Colombia has 1.9 billion barrels of proved reserves and is ranked number twenty two in total oil production. With such immense oil and gas reserves, it is only natural that Anadarko would want to be a major player in Colombia.

The government has been very pro-American in its policies, which will ultimately help U.S. companies like Anadarko to carry out exploration and drilling related activities. Ecopetrol, Anadarko's partner, expects to increase the production of oil to 1.3 million barrels per day. That immense figure gives us an idea about how much Anadarko will gain from this joint venture in the next decade. We must note that this long-term venture will stabilize Anadarko's earnings and revenue positively. The relative stability and safer work conditions will ensure that Anadarko is not dragged into problems unnecessarily.

Anadarko’s Competitors in Colombia and Elsewhere

ExxonMobil (NYSE: XOM) will also partner with Ecopetrol in two of the five unconventional blocks. Exxon was also awarded the Middle Magdalena basin, where it will carry out unconventional oil and gas exploration. As Ecopetrol is a nationalized energy company, it has the authority to work with several foreign competitors at the same time. Last year, Ecopetrol assumed Royal Dutch Shell's (NYSE: RDS-A) 50% stake at the Cano Sur oil block, and thus procured a 100% stake at that block. However, Shell already has La Guajira field in Colombia's Atlantic and also bid $11 million for one the largest offshore blocks. Shell also outbid Ecopetrol and other companies to win an exploratory block off Colombia's Caribbean coast.

What the Numbers Say

Anadarko is very well placed to invest money and time in offshore locations, unlike Marathon Oil (NYSE: MRO), which recently decided to spend almost $2 billion in Texas instead of elsewhere in the world. Marathon's capital budget for 2013 is $5.2 billion, but a third of that will be spent at Eagle Ford in Texas. Marathon has a price to sales ratio of 1.42, and a price to book ratio of 1.20. On the other hand, Anadarko compares positively when it comes to its performance against its peers and its own previous record. Anadarko's price to sales ratio is 2.79, and its price to book ratio is 1.84. Moreover, it has an operating cash flow of $4 billion and total cash of $2.5 billion. With a profit margin of almost 14% and an operating margin of nearly 9%, Anadarko is one of the strongest oil companies out there. It is worth noting that it has a very successful oil business in Mozambique, Kenya and the U.S.

Summary

The decision to partner with Colombia's largest oil company Ecopetrol will help Anadarko to diversify its production portfolio to unconventional methods as well. Anadarko will be able to increase its profitability due to the nearly 2 billion barrels of proved oil reserves that Colombia possesses. Oil and gas investors should consider Anadarko for solid long-term gains.


StockCroc1 has no positions in the stocks mentioned above. The Motley Fool owns shares of ExxonMobil. 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!

blog comments powered by Disqus