The global oil and gas exploration and production industry is expected to generate revenue of $4.5 trillion this year with a CAGR of around 1.35% from 2008 to 2013. The companies in this industry are trying hard to improve efficiency and acquire key oil and gas rich areas to raise their production. Three companies are aiming to improve their drilling and exploration techniques in order to enhance their outputs, resulting in better returns.
Furthermore, these companies are selling non-core assets, which will allow them to focus on their main production areas. How will these strategies help the companies perform in the future?
Improved drilling technique and divestiture
In the last quarter, Marathon Oil Corporation (NYSE:MRO) reported quarter-over-quarter production growth of 22% to 72,000 barrels of oil equivalent per day, or Boepd, from the Eagle Shale region. The company plans to invest around $2 billion this year in building new pipeline infrastructure and enhancing drilling activities. The new infrastructure will enable it to transport more than 75% of crude production via the pipeline from the current level of 65%, which will result in cost savings of around $1.00-$1.50 per barrel.
In addition, Marathon Oil Corporation (NYSE:MRO) shifted 80% of drilling activities to the pad drilling technique, which will help in improving its performance by cutting drilling time with year-over-year reduction of 36% to just 18 days. Reduction in drilling time enables it to achieve the target of drilling around 250 new wells in 2013. Marathon Oil Corporation (NYSE:MRO)’s production in its Eagle Ford region is expected to grow in the range of 7%-10%, year-over-year, in 2013.
Marathon Oil Corporation (NYSE:MRO) is aiming to sell $1.5 billion- $3 billion in assets over the period of 2011-2013. The company has already achieved the lower-end of this target and is continuously looking across its portfolio for further optimization. Therefore, in June 2013, it announced to sell 10% working interest of its non-core Angola Block 31 to Sonangol Sinopec International for $1.5 billion.
This deal is expected to close by the end of the fourth quarter of 2013. On completion of this deal, it will have achieved asset sales of nearly $2.9 billion. The company is planning to use these proceeds for general corporate purposes and for its share buyback program of nearly $5 billion this year, which will strengthen its balance sheet.
It is expected that the company can improve its EPS to $2.82 this year and $3.35 next year from $2.23 last year.
Asset sales to fund new spending
Chesapeake Energy Corporation (NYSE:CHK) is the second largest gas producing company in the U.S. Due to aggressively focusing on expanding its acreage and drilling activities, its spending exceeded cash flows, resulting in a debt burden of $12 billion.
In order to reduce its debt and to fund spending, Chesapeake Energy Corporation (NYSE:CHK) plans to sell its non-core assets. Additionally, to overcome the adverse impact of falling natural gas prices, it has agreed to sell its 55,000 acres in the Northern Eagle Ford Shale and non-operated 9,600 acre assets in the Haynesville Shale region to EXCO Resources Inc (NYSE:XCO) for $1 billion. With this asset sale, the company will end-up with funds totaling around $3.6 billion year-to-date from asset sales, which will enable Chesapeake to cover is full expansion budget of around $7 billion for 2013.
The company may utilize around 80% of these proceeds for drilling new wells in other lucrative oil-rich fields, especially in the Eagle Ford region, compared to 50% in the last three years, which would allow it to offset losses from falling gas prices. By selling-off its non-core assets and exploring oil-rich fields, Chesapeake Energy Corporation (NYSE:CHK) is in a better position to increase its production approximately 28% year over year to around 40 million barrels of oil.