Why These 3 Energy Companies are Getting Domesticated

The energy production boom taking place in the United States right now is truly impressive. Domestic oil production is now at levels not seen in decades, thanks to revolutionary drilling techniques and the emergence of abundant supplies of natural gas. At the same time, international operations are turning increasingly risky due to rising geopolitical risk.

As a result, in the energy space, exploration and production companies are dealing with a mixed outlook within their portfolios. Rising domestic production is somewhat being offset by declining returns elsewhere, particularly in other parts of the world where business conditions aren't nearly as promising. Energy majors such as ConocoPhillips (NYSE: COP  ) , Hess Corp. (NYSE: HES  ) , and Anadarko Petroleum (NYSE: APC  ) are responding by reducing the level of geopolitical risk within their portfolios. They are actively shedding international assets in geographies that present pronounced levels of political and operational uncertainty.

Here's why these companies are doubling down on domestic production, and why that strategy may turn out to be an extremely wise decision.

Energy companies actively managing portfolios
Oil majors are increasingly relying on domestic energy as their major source of oil production and development. By the same token, they're unloading overseas assets that are deemed non-critical to future growth, primarily because those assets are located in areas of the world with heightened instability.

For example, ConocoPhillips advised investors it would sell considerable interests in Kazakhstan, Algeria, and Nigeria. Proceeds from Conoco's divestments last year totaled $7 billion, which will be reinvested primarily in U.S. oil fields. Continuing political tensions and unrest prompted the move. In addition, Conoco's results last year were once again adversely affected by poor performance in the company's Libyan operations.

Libya is a specific region becoming increasingly troublesome for U.S.-based oil majors. This is causing many, including Conoco and Hess, to rethink their devotion to Libyan production. Conoco has effectively curtailed production in Libya. This is reflected in the fact that production in Conoco's 'Other International' segment, which houses Libyan operations, fell by 88% in the fourth quarter, year over year.

Similarly, Hess's production was significantly affected by worsening conditions in Libya last year. Extended shutdowns caused from civil uprisings in Libya resulted in a 20,000 barrel-per-day drop in production in the fourth quarter. This was a major contributing factor behind Hess reporting a 22% drop in fourth quarter production versus the same period the previous year.

Anadarko turns away from China
If you heard that a major oil and gas exploration and production company was reducing its exposure to China, one of the fastest-growing emerging economies in the world, you might think they were crazy. And yet, that's exactly what Anadarko is doing now that it's undergone a major divestment there. The company recently announced it would divest its Chinese subsidiary in a deal worth approximately $1.075 billion.

Anadarko Chief Executive Officer Al Walker referred to the transaction as a demonstration of the company's commitment to active portfolio management. The divestment involves a non-operating interest in the Bohai Bay field, where 2013 oil sales volumes totaled approximately 11,000 barrels per day.

The region had underperformed last year, which amounted to a relatively small impact since Anadarko's sales volumes per day rose by 7% last year. Nevertheless, Anadarko is determined to sell interests which are not deemed critical to the future, and that includes its Chinese subsidiary.

Oil and gas majors focusing on the U.S.
In order to keep production growing, energy majors ConocoPhillips, Hess, and Anadarko are increasing investment in domestic production while simultaneously shedding international assets. ConocoPhillips and Hess are currently suffering from poor results in Libya due to continued supply disruptions. For its part, Anadarko reported disappointing results in China last year, despite that nation's status as a premier emerging economy.

The end result is that oil and gas giants are selling off portions of their portfolios located in non-critical geographies and reinvesting the proceeds in more promising domestic plays. With $100 per barrel oil in the United States and a production boom in onshore developments like the Permian Basin and Bakken shale, these three companies are likely to see good results from their strategic initiatives.

3 stock picks to ride America's energy bonanza
Have you missed out on the record oil and natural gas production that has been revolutionizing the United States' energy position? If so, it's not too late to start investing in it. For this reason, the Motley Fool is offering a comprehensive look at three energy companies with plenty of room left to grow. To find out which three companies we have identified, we invite you to check out the special free report, "3 Stocks for the American Energy Bonanza." Don’t miss out on this timely opportunity; click here to access your report -- it’s absolutely free. 


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 2890681, ~/Articles/ArticleHandler.aspx, 7/22/2014 9:41:00 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement