Yearly growth of production
Growth of production is often used as a measurement of success for energy companies.
Firms measure growth by how many barrels of oil they produce every year. They always look to increase production and expand drilling to stay ahead of the industry. However, as a firm gets larger, this becomes more difficult.
By selling off assets and buying back shares, Apache Corporation (NYSE:APA) hopes to increase liquidity and boost the percent of earnings attributable to each share. In short, Apache Corporation (NYSE:APA) hopes to clean up its balance sheet and essentially buy earnings.
Apache and BG Group plc (LON:BG)’s approach may seem counter-intuitive but this is not the case. Both belong to the “million barrel club” (term coined by Robin West) since each firm is expected to reach outputs of one million barrels daily by 2018. Before they can reach this lofty goal, however, these firms realize they must clean up their dirty balance sheets.
Conclusion
To better understand energy firms, we looked into three of the unique trials they face. Within the sector, companies must overcome elbow shoving by shareholders, intense capital requirements for discovering and producing fuel, and growing yearly production while keeping a clean balance sheet. Energy firms who prove they can overcome are those investors will grow to love.
The article 3 Things to Know About Energy Stocks originally appeared on Fool.com and is written by Marie Palumbo.
Marie Palumbo has no position in any stocks mentioned. The Motley Fool recommends Chevron. The Motley Fool owns shares of Apache and has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy (NYSE:CHK), Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy. Marie is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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