The Niobara Formation is an ancient geological formation that has existed for almost 82 million years. The region is rich in natural gas, which is found at the eastern Denver Basin. North Park Basin has huge oil deposits and commercial hydrocarbon projects are underway across the Niobara area. Three major players, ConocoPhillips (NYSE:COP), Noble Energy, Inc. (NYSE:NBL) and Anadarko Petroleum Corporation (NYSE:APC), have invested much time and effort to drill and explore in these shale formations. In this article, I shall discuss what ConocoPhillips is doing in this region and why Barclays PLC (ADR) (NYSE:BCS) upgraded its shares to ‘overweight’ recently.
ConocoPhillips gets an overweight rating by Barclays
The results are being closely monitored by the investment community, but we must take the gestalt into consideration. ConocoPhillips (NYSE:COP) has been an impressive player when it comes to unconventional methods. Barclays PLC (ADR) (NYSE:BCS) stated that ConocoPhillips will depend on its unmatched unconventional oil portfolio in North America in order to increase its returns on investments. With that in mind, Barclays also upgraded the company’s shares to ‘overweight’ and increase the target price from $67 to $80. In a release note to investors, Barclays informed that along with ConocoPhillips (NYSE:COP), Suncor Energy Inc. (USA) (NYSE:SU) and Husky Energy will offer the best value in the next year or so.
Noble in Niobara
Noble Energy, Inc. (NYSE:NBL), the other bigwig in the area, plans to drill more than 500 wells every year by 2017, in Niobara Shale. Noble expects its production to increase by 17% each year for the next five years. That hope comes from its investment in Niobara, according to a release note. With a net recoverable resource of 2.1 billion barrels of oil equivalent (boe), the figure is already a 60% increase from what the company thought it would get from Niobara. Noble described Niobara as a top-tier American oil play that will yield almost 175 million Boe by 2017.
At this juncture, I would also like to point out Noble’s businesses in Israel and Cyprus, where it found huge deposits at the Levant Basin. Noble also has lucrative deals in the Falkland Islands and a 3-dimensional seismic study will be carried out in the next few months in order to estimate the quantity of reserves. Noble currently trades at $58 and has a market cap of $21 billion. With a profit margin of 25% and an operating margin of 27%, Noble is one of the most profitable oil companies to invest in.
Anadarko in Niobara
Anadarko Petroleum Corporation (NYSE:APC) produced an average of 80,000 boe per day at its Niobara and Codell acreage a year ago. Anadarko also indicated that it will spend $1 billion a year in order to develop and extract from Niobara Shale. This makes Anadarko one of the biggest spenders in Niobara. The company’s interests are mostly located at the Wattenberg field where the estimated resources are between 500 million and 1.5 billion Boe.
Anadarko has also proposed the Front Range Pipeline, which will begin at Weld County, Colorado and end at Skellytown, Texas; a distance of 420 miles. This pipeline is expected to carry Colorado’s natural gas liquids to refineries in the Gulf Coast. Certainly, Anadarko knows where it is putting its money.
The price-to-book metric
The price-to-book ratio (P/B ratio) tells you if a company’s current market price is higher than its book value. A higher price-to-book ratio suggests that you are paying more than what the shares might have fetched if not for investors’ having very high expectations for the company.
Anadarko trades at $86 and its price to book ratio is 2.04. ConocoPhillips (NYSE:COP)’s price to book ratio is 1.53, which shows that people expect more from Anadarko than from ConocoPhillips. Noble’s price to book ratio is 2.40, which is higher than either Anadarko’s or ConocoPhillips’. Anadarko’s profitability is satisfactory and when we consider its operations in Mozambique, it is a good long-term investment, yet you will be paying marginally less to own ConocoPhillips.
What now?
All three stocks are potentially smart long-term investment choices but ConocoPhillips (NYSE:COP) seems more interesting at the moment because of the “Overweight” status attached to it. Moreover, with a target price of $80, it might prove to be a good investment choice, considering it trades at $62. With a profit margin of 13% and an operating margin of 24%, the company’s profitability is impressive too.
Jaiyant Cavale has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Jaiyant is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article How the Niobara Formation Helps ConocoPhillips Stay on Top originally appeared on Fool.com and is written by Jaiyant Cavale.
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