With energy investing at the forefront of investors' minds, Investment Underground looked for undervalued global exploration powerhouses in the energy sector. This is what we came up with:
ATP Oil and Gas (ATPG): ATP is awaiting permits for several of its wells in the Gulf of Mexico. While it waits, the company has initiated five leases in the Israel Isramco and Shimshon fields. In the third quarter of 2010, the company sold a 2/3rds working interest in the deep operating rights of one of its Gulf of Mexico properties to a third party for an undisclosed amount resulting in a $15.0 million gain. In addition, ATP retained a 10.005% overriding royalty interest that decreases to 1.6675% following the conclusion of deepwater royalty relief.
On April 16, 2010, the company acquired Entrada (Garden Banks Block 782) for a song, at $232,100. Previous exploration drilling on Garden Banks 782 found logged hydrocarbons, and Entrada is in the vicinity of existing infrastructure owned by other operators. We are particularly enthusiastic about ATPs prospects in the North Sea, with its key operation at the Cheviot field coming online in 2014. The Cheviot project will use the Octabuoy rig, a unique pontoon facility marked by its octagonal ring. The structure is more flexible than traditional production facilities due to its design and will be reused at subsequent production fields. For our full long thesis on ATPG from last year, see here.
Chesapeake (CHK): This company has been on a tear, off-loading non-core properties and entering new ventures. Two weeks ago CHK said that it would sell 487,000 net acres of leasehold and producing natural gas properties in the Fayetteville Shale play in central Arkansas to BHP Billiton Petroleum (BHP) for $4.75 billion in cash. This includes existing net production of approximately 415 MMcfe of natural gas equivalent per day and midstream assets with approximately 420 miles of pipeline.
The company began 2010 with estimated proved reserves of 14.254 tcfe and ended the Q3 2010 with 16.223 Tcfe, an increase of 1.969 Tcfe, or 14%. It is also the second largest producer of natural gas and a Top 20 producer of oil and natural gas liquids in the US. It owns interests in approximately 45,100 producing natural gas and oil wells that are currently producing approximately 2.8 Bcfe per day, 88% of which is natural gas. Its strategy is focused on discovering and developing unconventional natural gas and oil fields onshore in the U.S., primarily in its "Big 6" shale plays: the Barnett Shale in the Fort Worth Basin of north-central Texas, the Haynesville and Bossier Shales in the Arkansas-Louisiana-Texas area of northwestern Louisiana and East Texas, the Fayetteville Shale in the Arkoma Basin of central Arkansas, the Marcellus Shale in the northern Appalachian Basin of West Virginia, Pennsylvania and New York and the Eagle Ford Shale in South Texas.
The company also has substantial operations in the liquids-rich plays of the Granite Wash in western Oklahoma and the Texas Panhandle regions, the Niobrara Shale and Frontier Sand plays of the Powder River and DJ Basins of Wyoming and Colorado, as well as various other liquids-rich plays, both conventional and unconventional, in the Mid−continent, Appalachian Basin, Permian Basin, Delaware Basin, South Texas, Texas Gulf Coast and Arkansas−Louisiana−Texas regions of the U.S. We have vertically integrated our operations and own substantial midstream, compression, drilling and oilfield service assets.
The company announced earlier this year that it is extending our strategy to apply the horizontal drilling expertise gained from its natural gas plays to unconventional oil reservoirs. The goal is to reach a balanced mix of natural gas and liquids revenue as quickly as possible through organic drilling, rather than through acquisitions. This transition is already apparent in the mix of natural gas and oil and natural gas liquids wells it drills. In 2010, the company expects that ~31% of drilling and completion capital expenditures will be allocated to liquids-rich plays, compared to 10% in 2009, and it is projecting that these expenditures will reach 65% in 2012. The company now owns approximately 3.1 million net leasehold acres in unconventional liquids-rich plays.
For more on our opinions on Chesapeake Energy, see here.
Exxon-Mobil (XOM): ExxonMobil made $383.2 billion in revenues in 2010, which was an increase of 23.39%, after falling 34.9% in 2009. The EBT margins in 2010 and 2009 were 13.8% and 11.2%, respectively. The respective ROEs were 23.67% and 17.25%. The 30-day put/call ratio is 0.7. Share price is up nearly 20% since December, 2010. A joint venture agreement was signed with Qatar Petroleum which provides Exxon an entry into the Barzan Project. Barzan projections show a supply 1.4 billion cubic feet per day of natural gas with gas production expected in 2014. Additionally, Exxon acquired Petrohawk (HK) shale assets in the Fayetteville which included 150,000 net acres, equating to 95 million cubic feet of net production per diem. On top of that, the company expanded further into the lucrative carbon dioxide capture market with its LaBarge facility expansion, which increased volumes around 50%.
CNOOC Limited (CEO): CNOOC has averaged a 26.3% return on equity over the last five operating years and sports a PEG ratio around 0.6. Shares yield 2.4% with a modest 35% payout ratio. The company maintains four areas of production in China at Bohai Bay, Western South China Sea, Eastern South China Sea and the East China Sea. Further, the company also maintians offshore production in Indonesia. Upstream assets operate in Nigeria, Australia and throughout China. At year-end 2009, the company's net proved reserves totaled 2.68 billion barrels of oil equivalent with net production of 624,000 per diem. CNOOC subsidiaries include CNOOC China Limited, CNOOC International Limited, China Offshore Oil of Singapore and CNOOC Finance which provide ancillary regional services to the parent company.
Disclosure: I am long XOM.