Anadarko Petroleum (APC) recently announced that it has made further discoveries in Mozambique. This news has fueled the bidding war for Cove Energy (COV), and it will likely bring good results to the company and shareholders.
Anadarko has previously made other significant natural gas finds in the area as well, so this is just further demonstrating the profitability of the project. Cove is a natural gas company operating in a similar area, and it has an 8.5% stake in Anadarko's activities in the Mozambique area. It is also looking for a larger firm that will acquire it. Since Anadarko has discovered more natural gas off the coast of Mozambique, Cove may have become an even more attractive target for potential buyers.
Shell (RDS.A) is amongst the companies that are interested in acquiring it. The new discovery may lead companies to act more quickly on the acquisition in hopes of not missing out on this good opportunity. This means that Cove might be able to get a higher price as a result of Anadarko's discovery. Potential buyers should remember that the new discovery does not overlap with the area that Cove serves. It is still enough to spark renewed interest in the area and should help Cove stock go up as well.
This discovery highlights the fact that East Africa may be a major source of natural gas for Asia in coming years. If Anadarko continues to focus its efforts on the area, it will most likely continue to see profits in the short term and in the long term. As things stand, the company will be able to expand its operations in the area. The new discovery may yield as much as 30 and 60 trillion cubic feet of recoverable gas. To put this number in perspective, consider how 10 trillion cubic feet is enough to supply Germany, Britain, Italy, and France for an entire year. To call this discovery "significant" seems to be an understatement.
It must be noted that the find has not yet been properly appraised, and Anadarko will immediately commence a "four-well appraisal program" in order to ascertain the importance of the find. The fields discovered may be linked to areas where Anadarko already functions, and this means that the new discovery could become a major asset to the company.
Almost needless to say, these developments are great for Anadarko and its shareholders. The company could become a leader in the industry as a result of this discovery. If the company continues to invest, it will also be able to create a large client base in Asia. This is a good move, as Asia has great potential with China being one of the fastest-growing emerging markets that we see today. A foothold here could make a significant difference in the future.
News is fairly mixed for other competitors, which makes Anadarko stand out even more.
Chesapeake's (CHK) major investor, Carl Icahn, says that the company is focusing too much on non-core assets, and I am inclined to agree with him. It recently came to light that Chesapeake is involved in expensive real-estate developments in its home state. These are significantly increasing the costs that the company has to pay on a regular basis. It does not seem that Chesapeake should even be involved in real estate. This is not what we expect from an oil-and-gas stock. The focuses should be on its primary function and on maximizing shareholder profit. News stories like this one will have a negative impact on Chesapeake stock.
Competitor ATP Oil & Gas (ATPG) is experiencing some ups and downs at the moment, and it is up to investors to decide if the good news outweighs the bad. The biggest problem is the company's struggle to keep a CEO. Crumbling management can have a severe impact on the stock. Most recently, the company's new CEO resigned shortly after being hired, and this caused shares to drop significantly. On the positive side, however, the company has resumed operations in the Gulf of Mexico at the Titan platform. This could boost profits in the near future. I believe this will help it in the long run, but at the moment, I expect the stock to be going down.
Exxon Mobil (XOM) recently submitted its plans for expanding in the Baytown area in Texas, and I feel that this is a wise move. We have recently experienced a marked increase in the demand for chemicals, which is probably the result of an increase in natural gas. By implementing this expansion, Exxon will be addressing this growing need. In the process, it will also increase its revenue stream significantly. It is much too early for Exxon investors to get excited, however, as environmental and quality approval could take as long as a year to come through. At the moment, therefore, I expect Exxon stock to remain at a fairly consistent price.
Valero Energy (VLO) has experienced a bit of bad luck recently. Its refinery in Port Arthur is operating at reduced levels, and this refinery is a "key gasoline-producing fluid catalytic cracking unit." In addition, we currently have no idea when normal production will resume. The reduced production is due to its blowers going offline. This is just one refinery, however, and it is still in production. At this stage, therefore, I do not think stockholders in Valero should worry, as more information needs to be established before this event's effect on the stock will be significant.
Compared to its competitors, it seems that Anadarko has the best chances of success in the long run. New finds are exactly the kind of thing that an oil-and-gas company needs to keep it going. The long-term effects of this discovery will be highly beneficial, so I believe that Anadarko is a good stock option to back or continue backing.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.