Last week, we saw some major announcements from Anadarko Corp (NYSE:APC) and ConocoPhillips (NYSE:COP) regarding their international operations in Asia-Pacific. Anadarko announced that it was upbeat about the potential of its three exploration blocks in New Zealand. It estimates that the blocks could hold up to 150 million barrels of crude oil or trillions of cubic feet of natural gas. This just about meets the company’s threshold for investing in overseas exploration projects. Conoco announced that it was expanding its natural gas facilities in Darwin, Australia and considering bids on future gas projects in China.
Anadarko has been exploring for oil in New Zealand since 2008, and it holds permits for a block in the Taranaki Basin off the west coast of North Island and for two blocks off the east coast of New Zealand South Island. It expects to begin drilling in late 2013 or early 2014. ((Anadarko Petroleum: New Zealand Blocks Could Hold 150 Million Barrels of Oil, Fox Business))
We think that Anadarko is well-placed to exploit this opportunity by leveraging its expertise at deepwater exploration, production, and project-management. Anadarko ranks in the top five companies in the world for number of wells drilled in water depths greater than 1,500 meters, and is the second most active driller in water depths greater than 2,300 meters over the last 10 years, according to IHS Energy. It also operates the world’s deepest and largest natural gas processing facility at Independence Hub, Gulf of Mexico.
The company is becoming active in the natural gas business outside of the U.S. It has been involved in exploration in the Rovuma Basin off the coast of Mozambique and has tasted success. Mozambique is now all set to become a major exporter of LNG to world markets. 
We recently revised our price estimate for Anadarko to $88, which is about 20% ahead of its current market price.
It is considering adding another liquefied natural gas (LNG) processing train to its Wickham Point facility in Darwin, Australia. The new LNG train is expected to handle the output from the Browse basin, where Conoco has been drilling for gas. This would also require the construction of a new pipeline to the Darwin facility from the Browse basin because the latter is located offshore. Although Conoco did not comment on potential customers for the additional gas, we believe that that those customers would be Asian countries like China, Japan, and India. We have elaborated why we think so towards the end of this article. (ConocoPhillips Adds To LNG Facilities In Australia On Expected Asian Demand, Trefis)
Conoco is also considering expanding its China portfolio to include shale gas. China is expected to put up 17 shale gas blocks for auction in the coming weeks in a bid to develop a robust shale gas industry. It is hoping to attract American energy firms to invest in the industry and form partnerships with domestic companies. It wants to see the success of the American shale gas industry replicated in China.
China had no commercial shale gas production in 2011, but has set itself an ambitious target of producing 229.5 billion cubic feet of shale gas a year by 2015. However, it lacks the technological expertise to do so on its own. This presents an excellent opportunity for western companies like ConocoPhillips which have vast experience in this field. (Will ConocoPhillips Help China Tap Its Shale Gas Reserves?, Trefis)
We recently revised the Trefis price estimate for ConocoPhillips to $60 which is about 5% ahead of its market price.
The common thread connecting all of these announcements is natural gas meant for the international market. For both Anadarko and ConocoPhillips, we believe that the attraction of drilling for gas outside the U.S. comes from the fact that there is a huge difference between gas prices in the U.S. and those in international markets. ConocoPhillips reported that in Q2 2012, the average realized price for its natural gas in the international segment was $11.69/Mcf (1 Mcf = 1,000 cubic feet) while that for the North American market was $1.93/Mcf.
The U.S. is undergoing a gas revolution of sorts with shale gas flooding the market like never before, resulting in an abundance of supply but not enough takers. Internationally, however, gas prices remain robust due to demand from growing economies, particularly in Asia. Countries like China, Japan and India continue to place orders for humongous quantities of LNG. Japan is looking to move away from nuclear power as a policy decision in wake of the Fukushima disaster, while China and India have burgeoning economies which require vast quantities of gas.Notes: