Crude oil production in the U.S. is rising year-over-year and reached 6 million barrels per day in 2012. It is expected to touch 8 million barrels a day by the end of 2014, and around 10 million barrels a day by 2020. This has raised the hopes of the oil and gas industry, although volatile commodity prices and environmental rules and regulations are big concerns.
With new development and exploration projects, the oil industry is trying to keep up the pace. In this article, I have picked up three big names in the oil and gas industry that have seen firm and steady expansion plans. Let’s see if any investment opportunity exists in these stocks.
ConocoPhillips recently discovered a new Shenandoah well in the Gulf of Mexico, close to its original well, with similar indications of the presence of oil. The original well has around 300 net feet of oil whereas the newly discovered well is expected to have around 1,000 net feet of oil of good quality. This well will be a good addition to the company’s portfolio.
Also, the recent discovery of hydrocarbons in Coronado’s well makes the company’s position strong in the deep-water of Gulf of Mexico. With addition of the Shenandoah well in its portfolio, ConocoPhillips (NYSE:COP), while maintaining its exploration success, expects to generate $6 billion to $7 billion in operating cash flow in the next five years.
The company has plans to invest $2.3 billion for its exploration projects both in the US and in international fields. It expects that this capital expenditure will drive its earnings for the next two decades.
Seeing the Gulf of Mexico as a long-term opportunity, the company plans to drill five to eight wells in 2013. Tiber and Shenandoah are the two wells that are already under evaluation; and, Ardennes and Thorn are two important wells, which will enhance the company’s operations in the Gulf of Mexico. The Ardennes well was dug in the first quarter of 2013 and the Thorn well is expected to be dug by the second quarter.
With 2 million acres to be explored in the Gulf of Mexico, investors can expect better growth prospects through new exploration plans.
Chevron Corporation (NYSE:CVX)
Chevron also discovered a Coronado well in the deep-water Gulf of Mexico. This well is expected to have deposits of more than 400 net feet of oil pay. The company expects to see a huge cash flow from its major projects under development under the liquefied natural gas segment. With the addition of new liquefied natural gas projects, Chevron Corporation (NYSE:CVX) will see over $7 billion in cash flow from these operations by 2018.
Also, with additional expansion plans of the Gorgon and Wheatstone projects in Australia, it expects to reach 40 million metric-ton-per-year by the end of 2018. These long-term projects with longevity of around 30 years with steady production rates and high profitability will contribute to company’s total cash flow by 15%.
On the other side, Chevron Corporation (NYSE:CVX) has plans to drop its Woodside Petroleum project in Western Australia. Energy companies have spent around $140 billion in six new liquefied natural-gas plants in Australia, making it the world’s number-one gas exporter. However, Chevron, in a strategic move to save costs, has planned to focus on existing offshore plants that can be built at reduced costs. This step will save the company $45 billion.
Also, it plans to return $520 million to its investors in the form of dividend. With this special dividend to be paid on May 29, Chevron Corporation (NYSE:CVX) aims at a dividend payout ratio of 80% from its underlying profits.
Valero Energy Corporation (NYSE:VLO)
Valero Energy will invest around $30 million to expand its crude-oil production by rail capacity in Benicia, CA by 2014. The amount will be spent to add a new refinery terminal at its Benicia refinery. This new refinery terminal will help Valero to cut costs by using domestically-produced crude oil rather than importing oil from overseas at higher costs. Valero Energy Corporation (NYSE:VLO) aims to improve its refinery’s competitiveness and reduce high operating costs by bringing down the cost of crude oil.