5 Shale Plays for 2013 $APC $HES $COP $MRO $RDS.B
By Contributor Stephen Edson
U.S. domestic oil production is on the upswing after hitting the bottom of the trough in 2008. Current production of 6.6mmboe/d is well below the 10mmboe/d peak in 1970/1. Breakthroughs in technology have changed the economics of Shale oil & gas extraction, accelerating the contradiction of Hubbert’s peak theory. Shale oil economics require between $60 and $80 barrel oil to justify the extraction cost. Given the variability of Shale economics, it is important to focus on core plays that have large reserves and low decline rates. Let’s look at 5 E&P companies whose assets have set them up to outperform.
Anadarko Petroleum (APC): Anadarko is active and ramping up in the Marcellus and Eagle Ford shales and also has a presence in the Haynesville, Permian, and Niobara (Wattenberg/Rocky Mountains) shale regions. Anadarko also has non-producing acreage in the emerging Utica Shale play in central Ohio.
Hess Corp. (HES): Hess Corp. is in the super-prolific Bakken Shale, a growing production presence in the Eagle Ford, and is performing appraisal activity in the Utica Shale. HES’s strategic infrastructure in North Dakota significantly enhances the value of its oil and gas resources there. The gas in the Bakken is rich in NGLs and LPGs.
ConocoPhillips (COP): COP has multiple unconventional drilling activities in the U.S. including the Wolf Camp, Avalon, Lewis, Bakken, Niobrara and Mancos shales. But it is the Eagle Ford where COP is starting to get recognition. Total shale production was 102 mboe/d in Q3 2012, up 100% from Q3 2011 levels.
Marathon Oil Corp. (MRO): Marathon also has growing production in the Bakken and Eagle Ford oil shale plays in the U.S. Rounding out her shale portfolio, MRO has acreage positions in the Anadarko Woodford, the Powder River Basin, Piceance Basin and Niobrara/DJ Basin in the Rockies, and the Marcellus in Pennsylvania.
Royal Dutch Shell (RDS.B): RDS acquired about 618,000 acres in the Permian Basin from Chesapeake Energy back in September. Royal Dutch Shell has additional acreage in British Columbia, in Kansas’ Mississippi Lime, and the Marcellus Shale. Smaller acreage plays are also located in Ohio, Wyoming, Colorado and California.
The above E&P companies have exposure to core shale positions in their portfolios that bode well for 2013. The reserve size, low capex requirements, and low decline rates are the qualities that distinguish their shale assets from other plays. For the stock investor, the above operators offer a diverse asset portfolio ripe with M&A potential, economics that are less sensitive to a downward movement oil prices, and strong dividend yields.
Stephen Edson is a finance professional within the upstream oil & gas segment. Mr. Edson focuses on going public transactions as well as public / private equity and debt investment into ventures and funds. Mr. Edson provides finance expertise at to support portfolio ventures through offering project and corporate finance advisory to private and public companies in upstream E&P and OFS. Finance structures include include senior debt, mezzanine debt, private equity placement, and IPO.
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