According to MarketLine, the global oil and gas market is expected to reach $3.7 trillion in 2015 with a compound annual growth rate of 7% from 2010. The rising prices have resulted in an increase in oil and gas production. Companies in the industry are adopting various measures to increase their revenues from oil and gas extraction. Three such companies are looking for growth opportunities to enhance their production level by drilling new wells, taking on pipeline projects, and selling assets to keep up with industry growth.
Drilling success in Marcellus Shale will drive production
Range Resources Corp. (NYSE:RRC) reported production of 910 million cubic feet equivalent per day (mcfepd) in the second quarter of 2013, up 27% year-over-year. The production was 79% natural gas, 15% liquefied natural gas (LNG), and 6% crude oil. The increase in production was due to success in its drilling program in the Marcellus region. It has around 835,000 acres in the Marcellus shale region.
Under its transportation agreement, Range Resources Corp. (NYSE:RRC) made first deliveries of ethane into Mariner West to Sarnia, Canada on July 21, 2013. Mariner West is a pipeline project for delivering Marcellus ethane to the Canadian market. The company expects to deliver around 5,000 barrels per day to Sarnia in second half of 2013. It will increase ethane deliveries through Mariner West to 15,000 barrels per day at the beginning of 2014. It also has an additional ethane transportation project known as ATEX that will be operational by next year and will increase ethane deliveries to around 35,000 barrels per day.
Focus on midstream with new pipeline project
Phillips 66 (NYSE:PSX) is focusing on its midstream segment growth with pipeline projects. It is investing in this segment to take advantage of the rise in oil and gas production in North America. On June 17, 2013, the company announced that its two new pipelines, the Sand Hills and Southern Hills natural gas liquid pipelines, are now in operation. These pipelines are jointly owned by Phillips 66 (NYSE:PSX), DCP Midstream and Spectra.
The Sand Hills pipeline will provide LNG from Eagle Ford and Permian Basin to Mount Belvieu, Texas. This pipeline has an initial capacity of more than 200,000 barrels per day. With the installation of additional pump stations, its capacity will increase to 350,000 barrels per day.
The Southern Hills pipeline will provide takeaway capacity from Rockies and mid-continent regions to the Gulf Coast market. It will have a capacity of 175,000 barrels per day after the planned pump station’s completion. With these growth plans, the company expects midstream segment operating earnings to rise to $370 million this year and $454 million in 2014, as compared to $362 million last year.
Oil discoveries providing visibility for future growth
In March 2013, ConocoPhillips (NYSE:COP) announced two oil discoveries at the Coronado and Shenandoah wells in deep water in the Gulf of Mexico. The Coronado wells encountered more than 400 feet of net pay and the Shenandoah well encountered 1,000 feet of net pay; this refers to the thickness of a reservoir capable of producing oil and gas.
ConocoPhillips (NYSE:COP) has 35% working interest in Coronado and 30% in Shenandoah. It is one of the largest leaseholders in deep water in the Gulf of Mexico with two million net acres. These two oil discoveries provide viable exploration growth in the Gulf of Mexico, and the company plans to drill five to eight exploration wells in 2013 and 2014. The total crude oil production is expected to rise to 655 million barrels of oil equivalent per day in 2014, as compared to 618 million barrels in 2012.
On July 2, 2013, ConocoPhillips (NYSE:COP) received notification of the Kazakhstan Oil and Gas Ministry’s intent to purchase the company’s 8.5% interest in the North Caspian Sea production sharing agreement for $5 billion. The sale is part of the company’s plan to increase shareholder value by focusing on capital investment, delivering production growth and an increased dividend. The company plans to spend $16 billion per year since it has significant exploration and growth projects in the North Sea, Canadian oil sands, and Malaysia. It expects annual production growth of 3% to 5% through 2017.
Conclusion
All three of the oil and gas companies detailed above are trying to keep pace with industry growth through strategies including new discoveries, pipeline projects, and asset sales. Range Resources Corp. (NYSE:RRC)’s drilling in Marcellus shale and ethane transportation projects will drive revenue. Phillips 66 (NYSE:PSX)’s focus on its midstream segment with new pipeline projects will enhance earnings, and its share repurchase plans will enhance investor confidence. The sale of ConocoPhillips (NYSE:COP)’ assets in the North Caspian Sea and its oil discoveries in the Gulf of Mexico will drive revenue and production growth.
All three of these companies’ stocks are a “buy.”
Shweta Dubey has no position in any stocks mentioned. The Motley Fool recommends Range Resources.
The article 3 Oil and Gas Companies with Plans For Growing Returns originally appeared on Fool.com and is written by Shweta Dubey.
Shweta 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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