by Morgan Smith
When it comes to being a successful force in the oil and gas industry, the companies that tend to be the best are those that enter into strategic joint ventures in order to achieve their aims. In this article, I will hone in on joint ventures between Anadarko Petroleum (APC) and an undisclosed party, BP and Sasol (SSL), Cabot Oil & Gas (COG) and the U.S. subsidiary of Osaka Gas, and Occidental Petroleum (OXY) and Magellan Midstream Partners (MMP).
Anadarko recently entered into a joint venture with an undisclosed party. For a fee of $556 million this mystery collaborator will get a 7.2 percent working interest in the Gulf of Mexico Lucius oil and gas project. In return, Anadarko will receive funds to help it pay for the project until such time as production begins, which at this point I believe will begin in the 2014. In addition, it will be able to spread out the risk portfolio of the project a little further. Anadarko's shares have dipped significantly in April and May, with a 52 week range of $56.42 to $88.70, but it now seems that it is in recovery. It's up over 7% in the last month
Similarly, BP's South African subsidiary signed an agreement with the South African company, Sasol, a deal which has already received the appropriate and necessary approval from the Competition Commission. According to the terms of the agreement the companies will jointly own Alrode Fuel Depot in Alberton (previously the sole property of Sasol) and Waterloo Depot in Pretoria (previously the sole property of BP), a deal which could be highly beneficial and profitable for both companies involved. It is essentially a strategic move on the part of these two companies to ensure the security of the supplies in the areas that they operate in.
Through a joint venture they will not be placing all of the eggs in one basket, but will instead each have interests in two separate depots. They will also be able to serve their consumers more effectively in this way. The deal is yet to go through as new licenses must be applied for each depot and the old licenses need to be revoked. The partnership does not extend beyond matters related to jointly owning the depots and the two companies will still continue to be competitors in the oil and gas market.
BP shares have been on a steady and healthy rise since the announcements. It's up over 5% in the last month and is looking to break through the high side of its 52 week range. It still has a little ways to go to get to the near $43 price it started 2012 at, but it's definitely possible.
The joint venture between Cabot Oil & Gas and the U.S. subsidiary of Osaka Gas involves the sale of a 35% non-operated working stake in Pearsall Shale acreage to Osaka for the price of $250 million. This is a good move, in my opinion, for Cabot to have made as it diversifies its portfolio further. However, natural gas prices are not what you would describe as particularly strong at the present moment, and Cabot does seem to be overly dependent on the commodity. Despite this, Cabot has been on the rise lately, up over 30% in both the 1 month and 3 month timelines. It hit a low in April of around $29 and is up to over $39 now, a quick turnaround for the company. It's also up over 20% from July of last year.
Early last month there were reports that Occidental Petroleum and Magellan Midstream Partners were looking into a joint venture related to a proposed oil pipeline running from the Permian Basin in West Texas to the Gulf Coast. Customers who are interested in this pipeline have to submit binding commitments by later this month in order to get in on the action. If enough interest is shown in the pipeline production will most likely commence in the middle of 2014. The deal has the potential to be highly lucrative for both of the companies involved in it. Occidental is gaining back some of the ground it lost in 2012, though it has a lot of work to do. It started the year over $100 and is now under $85. It does boast a 8.35 EPS so investors are still enjoying Occidental.
As the oil and gas market starts to enter the recovery phase, more and more companies are becoming interested in entering into joint ventures in order to make the most of the situation. These joint ventures are generally engaged in for strategic purposes and, as you can tell by the information contained here, they tend to be correlated with improvements in the stock of the companies that are involved in them.
The stocks mentioned here are oil and gas stocks well worth watching if you are looking for a way to boost and potentially diversify your portfolio. Cabot may be the way to go right now, though Anadarko should be watched too. Occidental may not go up too much, but its earnings should still provide a solid space in your portfolio.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.