As global economies continue to grow, so does the world's seemingly insatiable thirst for energy. Especially in the emerging markets, where economies are growing faster than larger, more developed nations, demand is expected to grow steadily in the future. That means big opportunities in both oil and natural gas.
Consider that the U.S. Energy Information Administration's 2013 Outlook calls for global energy demand to increase by 45% over the next two decades. Read on to discover why it's likely that integrated energy giant Chevron (NYSE: CVX ) , among others, should reward their investors handsomely in the years ahead.
Oil and natural gas are key to the global energy mix
Chevron management expects oil demand to grow by 1% per year over the long-term, and that while all forms of energy will be necessary to fuel the future, fossil fuels will remain the single largest contributor.
Put simply, there are very few companies that have the financial size and scope to absorb the challenges posed by each energy source. As production rises, so do costs. Chevron, however, is one of them, and has the resources necessary to deliver. Chevron is guiding investors to expect 25% production growth by 2017, with further growth beyond that date extremely likely.
In management's view, Chevron is well equipped to combat rising costs, thanks to its focus on investing in the best technological advancement to discover and produce energy from increasingly hard-to-reach places. The company points to its industry-leading margins to explain how this is possible. Through the first half of 2013, Chevron earned $23.88 per barrel, outperforming its next closest competitor by $4 to $6 per barrel.
Chevron isn't the only major intent on meeting global energy demand with efficiency and effectiveness. Marathon Oil (NYSE: MRO ) is also ratcheting up production to fulfill future global demand. The company's 2013 production is expected to be 8% to 10% higher than last year, and through 2017, should rise at a compound annual rate of 5% to 7%.
Marathon is in the process of streamlining itself to capitalize on its highest-priority projects. The company recently announced the sale of an Angola asset for $1.5 billion. Marathon considers its portfolio to now be of a high grade, as evidenced by the fact that the company has divested $7 billion in under-performing assets since 2006.
Marathon has taken these steps to reduce costs, improve margins, and keep providing compelling shareholder returns. The company provided investors double-digit dividend increases this year and last year, and is in the process of a $1 billion share buyback plan.
A natural gas winner in the making
In addition to oil, Chevron expects continued growth in demand for natural gas. The company expects LNG (liquid natural gas) demand to grow 2% per year over the long term. Should Chevron's projections materialize as expected, it will undoubtedly be good news for Chesapeake Energy (NYSE: CHK ) , which engages in the acquisition, exploration, and production of natural gas. Chesapeake has undertaken a number of initiatives designed to streamline itself and focus only on the highest-return projects, and as a result, should be set up well to capitalize on the continued growth in natural gas demand.
Chesapeake has aggressively sold assets over the past year to bolster its famously debt-laden balance sheet as well as place it in a better position to take advantage of key projects more closely aligned with the company's strategic direction. Recently, Chesapeake sold $1 billion worth of assets in the Northern Eagle Ford and Haynesville Shales. Year to date, the company has divested itself of $3.6 billion worth of assets.Going forward, the company will focus intently on a more efficient capital allocation process, to ensure its 2014 capital budget will not be dependent on asset sales.
This should mean substantial improvement for Chesapeake in the quarters ahead, and significant progress can already be seen from the company's recent results. Chesapeake's second-quarter total production increased 7% year over year, and its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) jumped 77% year over year.
Fuel up your portfolio
As the energy landscape becomes more complex, the better performing global industry heavyweights are likely to lead. Chevron, Marathon, and Chesapeake are doing excellent jobs of aligning themselves best to meet the ever-evolving global energy challenges.
These three companies are focusing assets only on the highest-return projects, a shrewd move given the rising costs set to hit the industry. Each is set to pounce on their respective areas of the oil and natural gas landscapes, and as a result, Chevron, Marathon, and Chesapeake stand a good chance of rewarding their investors handsomely for many years.
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