BP’s near-term share repurchases
Compared to its peers including BP plc (ADR) (NYSE:BP) and Chesapeake Energy Corporation (NYSE:CHK), Pioneer has a much higher EBITDA multiple. BP, at $41.70 per share, is worth nearly $133.20 billion on the market. The market values BP at only 5.4 times its trailing EBITDA. BP had a much higher proved reserves of more than 17 billion BOE. In the first quarter, BP has beaten analysts’ forecasts by 30% with $4.2 billion in underlying replacement cost profit. What investors might be bullish about BP in the near future is its recent good move to divest 50% interest in TNK-BP. The divestment brought in around $27.5 billion in both cash and Rosneft shares, resulting in a $15.5 billion in disposal gain. In 2014, BP plc (ADR) (NYSE:BP) will continue its plan to return as much as $8 billion in cash to shareholders via share buybacks. The buyback yield is quite juicy, around 6% at its current trading price.
Chesapeake to divest non-core assets
Chesapeake Energy Corporation (NYSE:CHK) also has a much lower valuation than Pioneer Natural Resources (NYSE:PXD). It is trading at around $20.20 per share, with the total market cap of $13.10 billion. The market values Chesapeake Energy at only 5.8 times its trailing EBITDA. The bull case for Chesapeake Energy is the huge potential of its assets. Chesapeake had as much as 15.7 tcfe in its proved reserves, making it the second largest natural gas company in the U.S., only after Exxon Mobil Corporation (NYSE:XOM). Chesapeake could unlock its hidden asset value by the ongoing effort to divest its non-core assets to mainly focus on the profitable “core of the core” drilling area. In 2012, the company sold as much as $12 billion of its assets. For the full year 2013, Chesapeake targeted to sell an additional $4 billion to $7 billion of asset values.
My Foolish take
All three oil & gas companies look quite interesting. In the near future, BP could deliver decent returns for its shareholders by a potential $8 billion, or 6% share buyback. With the current dividend yield at 5%, the total yield of BP is quite high at around 11%, assuming the gained equity thought the buyout, as today’s share prices. Both Pioneer and Chesapeake could fit well in the energy segment of investors’ portfolios due to their huge hidden potential asset value, which could be unlocked or realized by the market in the future.
Anh HOANG owns shares of Chesapeake Energy. The Motley Fool has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Huge Potential Asset Value in This Oil & Gas Company originally appeared on Fool.com and is written by Anh HOANG.
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