Higher energy prices due to inflation simply means there has been a reduction in the purchasing power of the dollar (The dollar is the single trading currency for the world’s energy market). Dollar depreciation will force the global oil exporters to demand higher prices. Consequently, it will put more pressure on domestic oil production. According to the Energy Information Administration (EIA), US home oil production reached a 20 year high in 2012 and it is expected to further grow by ~14% in 2013.
In this article, I have selected three companies which are involved in oil & gas exploration and should benefit from the above scenario. Speaking of their business model, these companies provide an interesting investing opportunity due to constant growth in their exploration activities.
BP plc (ADR) (NYSE:BP)
Since 2003, BP along with TNK has been actively involved in the emerging market of Russia. Last year, BP plc (ADR) (NYSE:BP) announced to sell its 50% interest in TNK-BP to the Russian based company Rosneft. BP will get around $12.5 billion in cash along with a 18.5% share in Rosneft taking its total stake to ~20%. Earlier the transaction was expected to be completed by the 1H13, however Rosneft now plans to take charge by April, 2013. With the help of this deal BP plc (ADR) (NYSE:BP) will get two seats on Rosnetf’s board, thereby; keeping its operations alive in Russia. Via this deal, both companies will consequently increase their production and reserves in the long run and will share the revenue.
New pipeline of projects
With its huge capital inflow, BP plc (ADR) (NYSE:BP) will initiate four new projects in this financial year including North Ranking 2 in Australia, Na Kira 3 in Mexico, Angola LNG and Chirag oil project in Azerbaijan. BP has already started six projects during the fiscal year 2012 and may initiate six new projects in the coming year. Further, BP plc (ADR) (NYSE:BP) has also announced its joint venture with the India based company, Reliance, in order to develop a gas field in India. Under this BP and Reliance will together invest ~$5 billion for the next three-five years aiming to enhance gas production in India’s east coast. BP, along with Reliance, will take the advantage of the ever growing demand in India improving the earnings of the companies in the long run.
Looking at the future pipeline, I am confident about the company’s cash flow in the future. The recent downfall of BP’s stock creates a good opportunity for the investors to take a position. I recommend a buy on BP considering the long-term growth prospects.
Chevron Corporation (NYSE:CVX)
Chevron Corporation (NYSE:CVX) reported its 4Q12 results with good growth in its mbpd (million barrels per day) production for the fiscal year 2012. The company reported around 2.67 mbpd output as compared to 2.64 mbpd during last quarter of 2011. Quarterly earnings were up by ~41% y/y at $7.2 billion. The main contributors in this growth were its underlying projects around the globe including Nigeria, the US, and other countries.
Investments to pay-off
Chevron Limited Canada, a subsidiary of Chevron, has announced its partnership agreement with Apache Canada Ltd, a business unit of Apache Corporation (NYSE: APA). Chevron Corporation (NYSE:CVX) will acquire 50% in the Kitimat Liquefied Natural Gas (LNG) project and will also share 50% rights in petroleum and natural gas in Liard Basin and Horn River, British Columbia, Canada. This joint venture will create tremendous production growth opportunities for both companies and boost their LNG share globally.
Chevron Corporation (NYSE:CVX) recently announced that it will invest around $33 billion in 2013 on natural gas and crude oil exploration and production plans. With this huge capex plan, the company will initiate exploration and plant production activities in the US (Gulf of Mexico), Australia, Nigeria, Kazakhstan, Republic of Congo, and Angola. The Australian Project has already started and around 55% of construction has been completed. Whereas, the LNG project in Angola will start in 2Q13 and will contribute around 60 mboed, in full capacity. With the help of these new projects, I believe production growth for Chevron to be in the range of 4% – 5% annually for the next two-three years.