Selling assets is just part of the game for oil and gas companies. It helps them focus on their core business and raise funds for the development of other assets to achieve sustainable growth. Moreover, they can use cash received from the asset sales to reduce debt, which increases investor confidence. Let’s take a look at three oil and gas companies selling assets to attain long-term sustainable growth and low debt portfolios. How can investors gain maximum returns by betting on these companies?
Change of focus
Chesapeake Energy Corporation (NYSE:CHK) was aggressively investing to increase acreage and its drilling program, which resulted in mounting debt of around $13 billion in the past few years. To tackle its rising debt, the company plans to sell $7 billion of assets this year, out of which it has already sold $3.6 billion.
Power generation plants widely use coal as a raw material for electricity generation. Last year, the U.S. government initiated an environmental plan to reduce the emission of carbon dioxide, and therefore new coal-fired power plants were blocked. Due to this policy, power generation companies will need to install carbon capture technology, which will increase per unit cost of electricity. Moreover, coal emits double the carbon dioxide compared to natural gas, so demand for natural gas is expected to increase since it is a substitute of coal. In addition, natural gas-fired plants cost $1,000 per kilowatt, while coal-fired plants cost up to $3,200 per kilowatt.
As a result of the lower cost of natural gas and government policy, demand for natural gas in the U.S. is expected to rise. Therefore, revenue of the company is expected to surge, as it is second largest producer of natural gas in the U.S. It is estimated that Chesapeake Energy Corporation (NYSE:CHK)’s revenue from natural gas will increase from $1.94 billion last year to around $4.4 billion by 2015.
Chesapeake Energy Corporation (NYSE:CHK)’s production of oil and natural gas liquids is expected to surge from 48.9 million barrels last year to around 62 million barrels this year. With the increasing production, the company estimates it will generate revenue of around $4.5 billion this year, up 9% year over year.
Murphy Oil Corporation (NYSE:MUR) mainly operates in the Gulf of Mexico, Malaysia, and Eagle Ford, with 80% of its production being brent crude. The company holds 80,000 acres in Sabah, offshore Malaysia, and it is expected to invest $1.2 billion in this oilfield, as Malaysia contributes the highest revenue for the company in upstream business. Moreover, Murphy Oil Corporation (NYSE:MUR) is evaluating the floating LNG in Malaysia, to increase its production. Murphy’s cash flow is negative in Malaysia due to the investments made; however, it is estimated that the company will generate positive cash flow starting next year. With the key development of production in Malaysia, it is expected that the company’s overall production will increase from 200 million barrels of oil equivalent per day, or Mboed, this year to 245 Mboed next year.
Last year, Murphy Oil Corporation (NYSE:MUR) announced to sell some of its assets in the U.K Mungo/Monan field, and spin-off the U.S. downstream business in order to focus on oil exploration and production. With the aim of focusing on upstream for the long term growth, the company will get rid of its downstream businesses. Murphy Oil Corporation (NYSE:MUR)’s U.K. downstream business declined, and incurred a loss of $4.1 million in the first quarter, compared to a profit of $3 million in the same period of 2012. The spin-off and sale of these assets are expected to be complete by the second half of this year.