Anadarko Petroleum Corporation (APC), Noble Energy, Inc. (NBL), Murphy Oil Corporation (MUR): Which Large-Cap Domestic E&P Play Should You Bet On?

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I am currently conducting a broad study of the US oil industry from small- capitalization refiners to large-capitalization integrated-oil companies. The shale revolution has added to the industry a dynamism that it has not had since the 20th century started. The US will become one of the world’s biggest gas exporters and an energy powerhouse. Here I present three great exploration and production (E&P) companies. Let’s see if any of this companies should be a part of your portfolio.

No free lunch: Quality comes with a high price tag

Anadarko Petroleum Corporation (NYSE:APC) is one of the largest independent oil and gas companies engaged in the E&P of natural gas, crude oil, and natural-gas liquids. Anadarko Petroleum Corporation (NYSE:APC) operates mainly in North America, Algeria, Venezuela and Qatar. The company has approximately 2.6 billion barrels of oil equivalent (bboe) of proved reserves and more than 740 million barrels of oil equivalent (mboed) worth of production.

Anadarko Petroleum Corporation (NYSE:APC) is ameliorating its performance steadily. The company’s adjusted 1Q 2013 earnings were 16% above consensus, up 18% year-over-year and 19% sequentially. Earnings benefited from increased production, lower unit costs, and higher realized prices. The company’s continued growth in US unconventional resources has been lifting production steadily and, hence, earnings.

Financially, Anadarko Petroleum Corporation (NYSE:APC) is also performing very well. Its net debt ratio fell to 31%, from 33% at the end of last year. All of the above being said, the company trades at a relatively expensive level. At 2013 17x P/E and 6x P/CF, Anadarko Petroleum Corporation (NYSE:APC) is a great company trading at a very well-deserved premium to its peer group. I would buy it, if it was cheaper.

Successful asset diversification in progress but a bit too expensive.

Noble Energy, Inc. (NYSE:NBL)‘s  main domestic operations are located in the Gulf of Mexico and in the Rockies. Besides this, Noble has relevant international investments in Israel, where huge offshore-gas projects such as the Leviathan field are located.

The first thing we should note when taking a look at Noble Energy, Inc. (NYSE:NBL) is that the company continues to make good progress diversifying its asset portfolio and growing its reserves and production with an increased focus on oil and liquids. As a matter of fact, results are coming in better than what’s expected by most analysts.

For the first quarter, Noble Energy, Inc. (NYSE:NBL)’s adjusted earnings were 21% above consensus thanks to better-than-expected volumes and lower-than-expected costs and expenses. Earnings, however, declined 15% year-over-year and 10% sequentially on lower realized prices and lower volumes. Nevertheless, the company keeps on generating great amounts of cash. Noble Energy, Inc. (NYSE:NBL) should generate operating cash flow of approximately $3.2 billion this year and is expected to increase that number by 12% in 2014.

Having raised its quarterly dividend by 12% to $0.28 per share, Noble Energy, Inc. (NYSE:NBL) pays a 0.9% dividend yield and trades at 2013 17x P/E and 6.5x P/CF. Those multiples are a significant (I believe unjustified) premium to its peer group. Within this group of three companies, I think Noble is the least compelling alternative at the current market prices.

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