Crude oil production in the U.S. is rising year-over-year and reached 6 million barrels per day in 2012. It is expected to touch 8 million barrels a day by the end of 2014, and around 10 million barrels a day by 2020. This has raised the hopes of the oil and gas industry, although volatile commodity prices and environmental rules and regulations are big concerns.
With new development and exploration projects, the oil industry is trying to keep up the pace. In this article, I have picked up three big names in the oil and gas industry that have seen firm and steady expansion plans. Let’s see if any investment opportunity exists in these stocks.
ConocoPhillips (NYSE:COP)
ConocoPhillips recently discovered a new Shenandoah well in the Gulf of Mexico, close to its original well, with similar indications of the presence of oil. The original well has around 300 net feet of oil whereas the newly discovered well is expected to have around 1,000 net feet of oil of good quality. This well will be a good addition to the company’s portfolio.
The company has plans to invest $2.3 billion for its exploration projects both in the US and in international fields. It expects that this capital expenditure will drive its earnings for the next two decades.
Seeing the Gulf of Mexico as a long-term opportunity, the company plans to drill five to eight wells in 2013. Tiber and Shenandoah are the two wells that are already under evaluation; and, Ardennes and Thorn are two important wells, which will enhance the company’s operations in the Gulf of Mexico. The Ardennes well was dug in the first quarter of 2013 and the Thorn well is expected to be dug by the second quarter.
With 2 million acres to be explored in the Gulf of Mexico, investors can expect better growth prospects through new exploration plans.
Chevron Corporation (NYSE:CVX)
Chevron also discovered a Coronado well in the deep-water Gulf of Mexico. This well is expected to have deposits of more than 400 net feet of oil pay. The company expects to see a huge cash flow from its major projects under development under the liquefied natural gas segment. With the addition of new liquefied natural gas projects, Chevron Corporation (NYSE:CVX) will see over $7 billion in cash flow from these operations by 2018.
Also, with additional expansion plans of the Gorgon and Wheatstone projects in Australia, it expects to reach 40 million metric-ton-per-year by the end of 2018. These long-term projects with longevity of around 30 years with steady production rates and high profitability will contribute to company’s total cash flow by 15%.
On the other side, Chevron Corporation (NYSE:CVX) has plans to drop its Woodside Petroleum project in Western Australia. Energy companies have spent around $140 billion in six new liquefied natural-gas plants in Australia, making it the world’s number-one gas exporter. However, Chevron, in a strategic move to save costs, has planned to focus on existing offshore plants that can be built at reduced costs. This step will save the company $45 billion.
Also, it plans to return $520 million to its investors in the form of dividend. With this special dividend to be paid on May 29, Chevron Corporation (NYSE:CVX) aims at a dividend payout ratio of 80% from its underlying profits.
Valero Energy Corporation (NYSE:VLO)
Valero Energy will invest around $30 million to expand its crude-oil production by rail capacity in Benicia, CA by 2014. The amount will be spent to add a new refinery terminal at its Benicia refinery. This new refinery terminal will help Valero to cut costs by using domestically-produced crude oil rather than importing oil from overseas at higher costs. Valero Energy Corporation (NYSE:VLO) aims to improve its refinery’s competitiveness and reduce high operating costs by bringing down the cost of crude oil.
On the other side, the company is all set to separate its retail segment — to be named as Corner Store Holdings — which will be listed on the NYSE and traded under the ticker CST. Its retail segment earned $467 million in earnings before interest and taxes last year.
The separation process will be completed by distribution of 80% outstanding shares of Corner Store Holdings to Valero Energy Corporation (NYSE:VLO)’s shareholders on the record date. The company’s investors will receive one Corner Store share for every nine Valero shares.
Bottom line
ConocoPhillips (NYSE:COP) with its exploration projects and strong cash flow seems to be a good stock to pick. With new discoveries in Gulf of Mexico and addition of Coronado, Ardennes and Thorn wells into its portfolio, investors can see better future growth prospects in the company as it focuses to expand organically.
Chevron Corporation (NYSE:CVX), with its huge cash flow from new project operations and the addition of new liquefied natural gas projects under its portfolio, makes an attractive stock for shareholders. Also, due to the cost-savings by closing down its Woodside Petroleum project, investors will get the advantage in the form of special dividend payouts.
I feel Valero Energy Corporation (NYSE:VLO)’s plan to spin off its retail segment will help the company to focus on its core refinery segment only. This spin off will also help investors to get a tax exemption. It has planned to invest $30 million to add a refinery terminal at Benicia, which will help to lower costs of domestic crude oil by lowering operating costs.
I recommend these three stocks as a buy.
The article 3 Oil Stocks You Should Buy This Month originally appeared on Fool.com.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
