By Shweta Dubey - July 9, 2013 | Tickers: APC, CEO, OXY | 0 Comments
Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
According to the Energy Information Administration, global production of oil will increase from 89.13 million barrels per day in 2012 to 91.40 million barrels per day in 2014. With this, total world consumption is expected to increase from 89.16 million barrels per day in the previous year to 91.22 million barrels per day next year.
This rising demand trend will be beneficial for oil producing & marketing companies. Here is an analysis of three oil and gas companies. Anadarko (NYSE: APC) and CNOOC (NYSE: CEO) are focusing on increasing their oil production, whereas Occidental Petroleum (NYSE: OXY) is benefiting from its marketing and trading business. What opportunities will these companies provide for investors?
Betting on the Sahara
Anadarko has reserves of around 2.5 billion barrels of oil equivalent, and it's the second largest independent oil production company in the world. During the first quarter, the company started production in the Algerian Sahara Desert, installing production facilities to extract 500,000 barrels of oil per day. Moreover, crude oil produced from Sahara desert is considered high quality, due to low wax and sulfur contents, which results in low processing costs.
The price of crude oil and condensates is estimated to increase from $101 per barrels last year to $106 per barrels in 2014. Anadarko sold 86 million barrels of oil equivalent per day in the first quarter, which is expected to rise to 100 million barrels of oil equivalent per day in 2014. This will boost the total revenue of the company from $13 billion in fiscal 2012 to $16 billion in fiscal 2014.
Anadarko operates in an area of around 2.6 million acres in Mozambique, where the estimated total of recoverable gas is around 65 trillion cubic feet. The company sells its natural gas to industrial users, distribution companies, and downstream companies. As power generation companies shift from coal to natural gas, the International Energy Agency estimates the demand for natural gas will increase. Anadarko is well-positioned to leverage that increase. The company’s total sales volume of gas was around 913 billion cubic feet in the previous year, which is expected to move upward to 1,035 billion cubic feet in 2014.
Promising segment-wide growth
Occidental's chemical segment reported earning around $159 million, down by 14% year-over-year. This decline in revenue was primarily driven by higher ethylene costs and an increase in competition. However, higher seasonal demand and construction activities will increase Occidental's earnings from this segment to $170 million in the second quarter of 2013.
With this, midstream business of Occidental Petroleum reported earning around $215 million in the first quarter of 2013, up by 64% year-over-year. The company will get the benefits of marketing and trading of petroleum products. Earnings in midstream is dependent on arbitrage opportunities and market prices, and Occidental expects to receive higher prices from its operations. It is expected that Occidental Petroleum’s earnings from this segment will surge to $617 million this year, up by 40% year-over-year.
On the other hand, Occidental Petroleum is expected to make a share repurchase in 2014, and for that it will sell some assets in the Middle East, Asia, and North Africa. The total estimated assets in these regions are worth $25.7 billion and total production capacities in these regions are around 270 million barrels of oil equivalent per day.
Why sell? These regions provide challenging conditions, and the investment return was substantial. Together, they contribute around 34% to the total production of Occidental. By selling these assets, the company expects to be able to repurchase shares of around $20 billion. This will only benefit the stock price of the company.
Leveraging on production growth
In February, CNOOC completed the acquisition of Nexen for $15.1 billion. With this, it is estimated that CNOOC will have total production growth of around 12% this year, higher than any of its competitors. Also, the company will get the advantage of its project pipeline, as it will have opened ten new oil fields in China by the end of this year.
Oil reserve years are a metric that show the average duration of oil reserves, and CNOOC’s oil reserve years improved from 9.6 years last year to 10.2 in this year. Crude oil is expected to remain around $110 per barrel in this year, which will be beneficial for the company. Looking at this, the company can expect that its net income will increase to $11.18 billion in 2014, up from $10.3 billion in 2012.
CNOOC made four new discoveries on the Chinese shore in the first quarter. In the same period, domestic oil production was 745,000 barrels per day, up 8% year-over-year. The company reported 8% year-over-year growth, despite adverse weather conditions in Bohai, and expects quarterly growth of its production of 5.4% in Bohai.
Moreover, CNOOC started initial operation in 6-12 Weizhou oil fields in the South China Sea, and in the next year, production growth will be around 24.4% in this region. The company has 10 producing wells in the Weizhou oil fields. With the increase in domestic production, the company’s total sales are expected to surge from $40.3 billion last year to approximately $49.5 billion next fiscal year.
Initial production from the Sahara desert and recoverable gas from Mozambique will give a lift to Anadarko's sales.
Occidental's share repurchase plan will enhance investor confidence, while its chemical and midstream business give a boost to the company's revenue.
New projects and domestic production will enhance CNOOC's oil production. With the increase in production, the company will grow in coming years.
These three stocks are a Buy for the long-term.