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Pioneer Natural Resources (PXD), Valero Energy Corporation (VLO): Three Oil Companies Fueling Growth Prospects

Presently, the net production of the Marcellus Shale is approximately 2 million cubic feet per day from 17 gross wells, which is expected to rise to double digits by the end of 2013.

Southwestern Energy Company (NYSE:SWN)’s holdings in the Fayetteville Shale in Northern Arkansas offer high-quality natural gas. In 2013, the company expects to spend about $830 million in the region under its expansion plan. It expects to drill around 400 wells in 2013, which is down from the 2012 level of 533. This lower count is the result of its focus on its newly acquired Marcellus Shale acres. Despite the reduction in capital spending in the region, the company’s plan of increasing production remains the same. The Fayetteville Shale contributes about 80% of the company’s production. Earlier, Southwestern had more than 700 million cubic feet equivalent per day capacity. But, after the addition of new regions, Southwestern now has a 2,700 million cubic feet equivalent per day capacity.

Share repurchases will boost investors’ confidence

Valero Energy Corporation (NYSE:VLO) reported solid first-quarter results, with operating income of $1.1 billion, compared to an operating loss of $244 million in the first quarter of 2012. This result was driven by the company’s refining activity, which increased by 11,000 barrels per day from the first quarter of 2012. It invested $3 billion in two hydrocracker projects recently. In the first quarter, the Port Arthur hydrocracker contributed $94 million to the earnings, before interest and tax, or EBIT, of the company. Its St. Charles hydrocracker is expected to begin by the end of June 2013. Based on the contribution of the Port Arthur hydrocracker, investors can expect a boost of $600 million – $1 billion in the company’s earnings before interest, taxes, depreciation, and amortization, or EBITDA, during the second half of 2013. It is also planning to increase the capacities of the new hydrocrackers along with the hydrocracker at Meraux.

With its strong cash flow, the company returned $415 million of cash to its shareholders through dividends and stock buybacks in the first quarter. It distributed $111 million through dividends and paid $304 million to purchase 6.9 million shares of its common stock. With the expected continued cash flow of $4 billion in the second quarter, Valero Energy Corporation (NYSE:VLO) is on track to retire 4%-5% of the shares annually, which will increase shareholders’ value.

Additionally, Valero Energy Corporation (NYSE:VLO) completed the spin-off process of its retail business, CST Brands, in the first week of May 2013. 80% of its CST Brand shares have been distributed. Valero Energy Corporation (NYSE:VLO) will retain 20% stake in CST after distribution, which it will sell in the market within 18 months. The company expects its spin-off business will derive higher profits in the shareholders account, being the largest independent retailer of motor fuels and convenience merchandise in the U.S. and Canada.

Conclusion

Pioneer Natural Resources (NYSE:PXD) Natural Resources will benefit from its joint venture, which will enhance its production as well as revenue. Southwestern Energy Company (NYSE:SWN)’s acquisition helped it in doubling the exploration area, which will help it in better production and revenue generation. Valero Energy Corporation (NYSE:VLO), with the strategic move of spinning off of its retail business and the substantial cash flow, will continue driving profits to shareholders. I recommend buying these three stocks for the long-term gain.

The article 3 Oil Companies Fueling Growth Prospects originally appeared on Fool.com is written by Shweta Dubey.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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