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ConocoPhillips (NYSE: COP ) once operated a liquefied natural gas, or LNG, plant in Nikiski, a small town on the Kenai Peninsula in Alaska. With its partner Marathon Oil, Conoco decided to shut down the plant in 2011, due to what it cited as "market changes." The plant still made some shipments all the way up until this year, when Conoco opted not to renew its export license.
Nikiski may have more allure now, however, with global natural gas demand increasing and Conoco's new partners that see its potential. TransCanada, ExxonMobil (NYSE: XOM ) , and BP (NYSE: BP ) are now looking at the small town as the lead contender for a multi-billion dollar pipeline project and a new LNG plant that would be 16 to 17 times bigger than the original one operated by Conoco.
The plant would allow natural gas to be liquefied and shipped off to lucrative Asian markets, and would compliment the proposed 800 mile long pipeline that would allow Alaska's major population centers to access gas from the line. Exxon, Conoco, TransCanada, and BP have shown renewed interest in the state of Alaska after favorable oil tax reforms came into play earlier this year.
An oil and gas friendly state
Mark Begich, a Democratic senator representing Alaska, said in a statement, "A Nikiski area liquefaction plant and export terminal will be a multi-billion investment and huge shot in the arm to both Alaska's economy and confidence in our state's energy future... A gas line from Prudhoe Bay to the Kenai Peninsula can meet Alaska's in-state energy needs while supplying the energy-thirsty countries of the Asia Pacific."
Alaska recently asked Conoco to renew its export license in the state, a further indication of its interest in developing its natural gas assets. Conoco stated that it would renew if local gas markets were developed and a sufficient amount of natural gas was available for export. With big-timers like Exxon and BP looking to help, it is likely that Alaska will inevitably become a hub for LNG.
Alaskan governor Sean Parnell was a major advocate for tax reform, and he is also big on LNG. When it comes to natural gas, however, oil companies are still waiting for tax reform related to gas.
Nikiski is currently the leading area for consideration due to its available land for a plant and its strategic location. With the Alaskan state government becoming increasingly open to "Big Oil," the companies involved will profit tremendously when everything gets worked out and production begins.
Excellent income plays
Conoco's dividend yields around 4%, making for a good income play, considering it has managed to increase its dividend for decades. The company held proved reserves of 8.6 billion in barrels of oil equivalent at the end of 2012. This compares to an enterprise value of about $108 billion. Shares currently trade at an EV/EBITDA of 4.9.
ExxonMobil, with an enterprise value of over $392 billion, is more expensive than Conoco, trading at an EV/EBITDA of about 6. Yielding almost 3%, it is a favorite among income investors for its relative safety and track record of increases. Exxon is also investing in other areas of Alaska, including Point Thomson, an area that holds "approximately 25 percent of the known natural gas deposits on the North Slope, and is designed to produce and deliver approximately 10,000 barrels of condensate per day into the trans-Alaska pipeline when the project comes online in 2016," according to the company's production manager in Alaska. The company held 25.3 billion in proved reserves of boe at the end of 2012.
BP is cheapest of the group with an EV/EBITDA of around 4.8. Its dividend yield is also over 5%. It held around 17 billion boe in proved reserves in 2012, and currently maintains an enterprise value of about $150 billion. Litigation worries have beaten down the stock, but major projects in Alaska may help it grow and offset these litigation damages. The company is planning to possibly tap new oil fields in Alaska as well, like the Sag River formation where a 16-well hydraulic fracturing test program is scheduled for 2015 and 2016. A spokeswoman for the company stated that it could produce up to 200 million barrels of new oil production-- a much needed source of growth.
The bottom line
ConocoPhillips, ExxonMobil, and BP are all looking to Alaska's more "oil-friendly" environment for new sources of growth. A large export terminal in Nikiski would be a game-changer, because it would be capable of supplying gas directly to customers in Asia without having to go through "choke point" areas like the Panama Canal. While BP has its issues, Alaska could help it get back on track. ExxonMobil and ConocoPhillips also make solid long-term income investments, and Alaskan projects in both oil and gas will be lucrative going forward.
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