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Oil Companies That Can Provide Good Return In Future

June 23, 2014 | About:

Tech Archival estimates that global oil and gas market value will continue growing at an improved CAGR of nearly 4% right through 2018, reaching about US$4 trillion of market value by 2018. The rising prices have also 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. I will discuss two such companies that 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.

A company that is focused on midstream and chemicals

Phillips 66 (NYSE:PSX): The company plans to grow its portfolio primarily in the higher-valued Midstream and Chemicals segments. The company anticipates that the majority of the enterprise value will come from these businesses. It is investing in this segment to take advantage of the rise in oil and gas production in North America.

In the recent past, 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, 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 $454 million this year, as compared to $370 million last year.

Growth Strategy

A key component of growth strategy is its newly launched master limited partnership (MLP), Phillips 66 Partners LP. Although growth strategy focuses on Midstream and Chemicals, the company is also committed to enhance returns in Refining.

Last year, the company successfully launched Phillips 66 Partners to own, develop and acquire primarily fee-based transportation and midstream assets. The MLP is actively evaluating strategic acquisitions from Phillips 66 and third parties, as well as other growth opportunities.

Recently On March 1, 2014, the MLP completed its first acquisition since its initial public offering. The acquisition included an interstate refined products pipeline system and storage facilities

Oil discoveries providing future growth

Recently, 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 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 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.

ConocoPhillips also 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.


Both 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. Phillips 66’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’ assets in the North Caspian Sea and its oil discoveries in the Gulf of Mexico will drive revenue and production growth.

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