Four energy industry giants have begun working with Alaska on a massive energy project. It's a decade-long venture, so are any of the four companies likely buy-and-hold candidates?
On July 3, Governor Sean Parnell said that the state had signed an agreement with four companies to begin preliminary front-end engineering and design work on an 800-mile natural gas pipeline from the North Slope to a liquefied natural gas (LNG) export plant, according to a report by Reuters. The state will be working with North Slope leaseholders ExxonMobil (NYSE:XOM), BP (NYSE:BP), and ConocoPhillips (NYSE:COP), as well as pipeline company TransCanada (NYSE:TRP) on the $45 billion-$65 billion project that could begin exporting LNG to Asia by 2025.
Asia is a growing market for LNG. A lack of pipeline infrastructure, Japan's need for an alternative to its nuclear plants, and China's desire to turn away from smog-producing coal all create a perfect storm of demand for LNG.
Alaska's legislature still needs to ratify the contract. Reuters quoted Governor Parnell as saying, "While many projects have faltered in the past, I am cautiously optimistic about this one because it's the first time in our history when all the necessary parties for a project are aligned, all the necessary parties are putting down their money and all have agreed to work together."
The project will involve building a gas treatment plant at Prudhoe Bay, a pipeline from Prudhoe Bay to Nikiski on the southern coast of Alaska, and a new liquefaction plant at Nikiski.
The Prudhoe Bay treatment plant is to have a capacity of up to 3.5 billion cubic feet per day of natural gas. From there, a 42-inch pipeline and eight compressor stations will move the gas along the 800-mile long journey to the 400-600 acre site at Nikiski. The new liquefaction facility there will be able to produce 15-18 million tons of LNG per year from three processing trains. The site will also include three LNG storage tanks, each with a capacity of 160,000 cubic meters, along with a terminal with two loading jetties.
According to Dan Fauske, president of the Alaska Gasline Development Corporation, the second phase of work should commence in 2016. Production from the LNG facility will not begin until at least 2025.
ConocoPhillips is a large oil producer, and also has natural gas facilities in central Alaska and on the North Slope. The company holds interests in the Prudhoe Bay field and the Trans-Alaska Pipeline System. It also has an existing liquefaction facility in Nikiski, and obtained a license in April to export about 858,000 metric tons of LNG over a two-year period.
ExxonMobil began working with TransCanada in 2009 on the Alaska Pipeline Project. In 2012, the two agreed to work with the other North Slope producers on Alaska's LNG export plans. TransCanada recently received a similar project in Canada for a $4 billion gas pipeline to another proposed liquefaction plant near Kitimat, BC.
BP operates 13 oil fields on Alaska's North Slope and holds the greatest ownership share in the 800-mile long Trans Alaska Pipeline System. However, North Slope natural gas is one of the largest undeveloped resources in BP's global portfolio, according to company materials, so this project represents a great opportunity for BP.
A Foolish look forward
The table below provides broad valuation and return comparisons among the four companies involved in Alaska's LNG export project.
|Company||Market Cap ($billion)||P/E||ROA||ROE||Leverage|
This is a very large long-term project, so it's probably of most interest to investors looking for buy-and-hold energy industry candidates. ConocoPhillips and ExxonMobil both shine based on this comparison, with good valuation, low leverage, and nice returns. BP and TransCanada are both a bit pricier, and each is somewhat more leveraged.