Weekly Oil and Gas Notes: Alaska LNG Project and BP’s Oil Spill Liabilities

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Oil and gas stocks trended lower this week, as global crude oil prices declined on abundant supplies and indications of slower than expected demand growth. The International Energy Agency (IEA) in its latest monthly report, cut its forecast for the growth in global oil demand this year. It now expects global oil demand, which stood at around 90.5 million barrels per day last year, to increase by just around 0.9 million barrels per day this year. The price of front-month Brent crude oil futures contract on the ICE has declined by almost 2.5% so far this week. [1]

Below, we provide an update on some of the key events that occurred this week related to the oil and gas companies we cover.

Exxon’s Alaska LNG Project Moves Forward

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Exxon Mobil (NYSE:XOM) announced that it has submitted a formal request to the Federal Energy Regulatory Commission (FERC) to start the pre-file process for the liquefied natural gas (LNG) project in Alaska. The milestone sets the stage for the environmental review required for the design and construction of the project to begin. The project is expected to produce and export up to 20 million metric tons of LNG per year. Exxon’s partners in the $45 to $65 billion project include BP Plc. (NYSE:BP), ConocoPhillips (NYSE:COP), TransCanada and the State of Alaska.

The proposed project facilities include a liquefaction facility in Nikiski, Alaska, on the Kenai Peninsula along with an 800-mile, large-diameter pipeline, a gas treatment plant on the North Slope and gas transmission lines from Prudhoe Bay and Point Thomson to the gas treatment plant. It also includes up to eight gas compression stations and at least five take-off points for in-state gas delivery. [2]

  • We currently have a $107/share price estimate for Exxon Mobil, which is around 10% above its current market price.
  • We currently estimate Exxon’s 2014 GAAP diluted EPS to be at $7.96, compared to the consensus estimate of $7.71 reported by Reuters.

See Our Complete Analysis For Exxon Mobil

BP Gets Support From The U.K. Government

The U.K. government has urged the U.S. Supreme Court to review the appeals court’s ruling against BP over the 2010 Deepwater Horizon incident that killed 11 workers and resulted in millions of barrels of oil being spilled into the Gulf of Mexico. BP requested for “en banc” review by all the active Fifth Circuit court judges after it was denied a permanent injunction on the settlement of business and economic loss claims not traceable to the oil spill earlier this year.

In May, the court rejected BP’s argument that the claims administrator is misinterpreting the settlement agreement it entered into with the Plaintiffs’ Steering Committee (PSC) in 2012. If the Supreme Court also rejects BP’s appeal, it could mean billions of dollars in additional settlement costs for the British oil giant. (See: BP Pins Hope On The U.S. Supreme Court To Limit Settlement Costs) In a friend of court brief, the U.K. government stated that lower court rulings undermine confidence in the vigorous and fair resolution of disputes, thereby raising grave international concerns. [3]

  • We currently have a $54/share price estimate for BP, which is around 20% above its current market price.
  • We currently estimate BP’s 2014 diluted EPS to be at $4.69, compared to the consensus estimate of $4.70 reported by Reuters.

See Our Complete Analysis For BP

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Notes:
  1. ICE Brent Crude Oil Front Month, ft.com []
  2. Alaska LNG Project Marks Milestone With Submission of FERC Pre-Filing Request, exxonmobil.com []
  3. BP Gets Support From U.K. Government in U.S. Lawsuit Over Spill, bloomberg.com []