Oil Lovers Won't Regret These Stocks, And Neither Will You

Includes: CEO, MUR, XOM
by: Fusion Research

Global consumption of oil and gas products is expected to increase from 89.16 million barrels per day last year to 91.22 million barrels per day in 2014. Oil and gas companies are adopting various strategies to capitalize on rising consumption. Among the many, three oil and gas giants, which are ramping up production and exploration activities, are worth a closer look. Let's see what these companies have in store for the investors.

Ramping up production

Murphy (MUR) is pushing production of brent crude to achieve its target of 9.5% compound annual growth rate, or CAGR, in the next three years. It is ramping up production in regions rich in resources like the Eagle Ford, Gulf of Mexico and Malaysia. Also, the company has many projects expected to commercialize this year, which will help it to achieve its target.

It has four deep-water projects under development in Malaysia's Kikeh fields, which are expected to commercialize by the end of this year or early 2014. Kikeh crude is the most expensive crude across the world due to low sulfur content. The crude oil with low sulfur can be easily processed in comparison to crude oil with higher sulfur content. Also, it is highly preferred across Asia due to its excellent quality. The gross production from these projects is expected to exceed 19 million barrels oil equivalent per day, or mboed, by 2014-2015. With this, I think Murphy will be able to achieve its production target easily and investors can expect higher revenue in the upcoming quarters starting 2014.

Murphy has set a target of 900 million barrels of oil equivalent, or mmboe, of net risked resources in the next two years. Net risked resources are the company's internal estimates of natural gas and oil volume from unproven reserves. It plans to drill 15 exploratory wells through 2014. The exploration plan focuses on four major regions rich in natural resources -- Gulf of Mexico, Atlantic, Southeast Asia and Australia. With this exploration, Murphy can achieve its target, and it expects to generate cash flow of $3.7 billion by 2015. It plans to return cash to its shareholders in the form of dividends and share repurchases.

Papua New Guinea project sounds beneficial

Exxon Mobil's (XOM) Papua New Guinea LNG, or PNG LNG, project has 22.6 trillion cubic feet of natural gas reserves with an expected operational life of 30 years. Exxon operates and owns a 33% stake in the project. The existing facility has two trains with the capacity of 6.9 million metric tons per annum, or mmtpa. The company recently discovered more resources in Papua New Guinea, which will provide an expansion to its existing facility. It is planning to expand its capacity to approximately 15.5 mmtpa by adding a third train. The construction of the project is 80% complete and is expected to commence in 2014.

Kearl oil sands project, a joint venture between Imperial Oil (IMO) and Exxon Mobil Canada, is located in Alberta, Canada, with a bitumen production capacity of 37,000 barrels per day. The project's first sale is expected in the third quarter of this year. Currently the plant processes the bitumen twice. However, it plans to process bitumen once instead of twice with the introduction of its proprietary froth technology that does not need on-site upgrading, saving the company a multi-billion dollar investment. This will also reduce the emissions generated during the upgrade process. Due to the increasing demand for bitumen for road projects, Exxon is expanding its production capacity to 110,000 barrels per day. Expansion is 43% complete and plans to start up by 2015. The company expects to generate gross revenue of $1.63 billion this year and $2.39 billion in 2014 from the Kearl oil sands project.

Achieve production target through projects

CNOOC (CEO) is working towards achieving its five-year production targeted CAGR of 6%-10% from its projects expected to commence by the end of 2013, or early 2014. These projects are under development in the South China Sea and overseas in Eagle Ford and Missan Oilfield, which are expected to bring in higher returns. In the Liwan gas field project in the South China Sea, CNOOC holds a 51% stake in the largest natural gas discovery to date. Canada's Husky Energy (OTCPK:HUSKF) operates this project, which is expected to commence with a production capacity of 540,000 million cubic feet, or mcf, per day. In addition, its acquisition of Nexen (NXY) has provided CNOOC with offshore production opportunities from areas like the North Sea, the Gulf of Mexico and off-western Africa region. It is estimated to contribute year-over-year production growth of 6% in 2014 and 11% in 2015.

Bohai has been the primary area for exploration and development activities since it is a region rich oil and gas resources. CNOOC recently made two new discoveries, Bozhong 8-4 and Kenli 10-4, located in Bohai with oil production capacity of 660 barrels per day and 2,800 barrels per day, respectively. With the new discoveries, the company expects to maintain reserve replacement ratio, or RRR, of 100% in 2013. Investors use RRR to evaluate the operating performance of an oil and gas exploration and production company, which measures the reserves added to the company's reserve base in comparison to production done in a year and 100% denotes the company's capacity to fulfill the stable demand. New and existing discoveries will add to domestic production, which drives approximately 84% of its operating earnings.


All three companies have positioned themselves to capitalize on the increasing consumption level.

Murphy is ramping up its production in four major regions to achieve its production target and is focusing on its deep-water projects in Malaysia's Kikeh field. The Kiheh crude is the most expensive cure and highly preferred due to its excellent quality. This will help company generate higher revenue in the coming years. Exxon, the world's largest oil and gas company, is expanding its production capacity in its PNG LNG project, which will make it a major hub for LNG and will drive in revenue for the company. China's largest producer of offshore crude oil and natural gas, COONC, aims to achieve its production target through its upcoming projects. With the new exploration, the company will be able to maintain its RRR and increase domestic production, which drives approximately 84% of its operating earnings.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.