Weekly Oil and Gas Notes: Petrobras, ConocoPhillips And Exxon

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PBR: Petroleo Brasileiro logo
PBR
Petroleo Brasileiro

Oil and gas stocks remained largely flat last week, as benchmark crude oil prices continued to remain week on concerns that the growth in global oil demand is insufficient to absorb rising supplies. Earlier last week, the U.S. Energy Information Administration (EIA) reported that crude oil inventories in the U.S. increased by 3.7 million barrels to 362.3 million barrels in the week ended September 12. [1] Last week, 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 more than 15% since June this year and is currently trading around $97.5/barrel. [2]

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

Petrobras Production Update

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Petroleo Brasileiro Petrobras (NYSE:PBR) announced its August 2014 hydrocarbon production figures. The company’s total oil and gas production in Brazil increased to 2,551 thousand barrels of oil equivalent per day (MBOED) from 2,479 MBOED in July. Its domestic crude oil production grew by 2.7% from 2,049 thousand barrels per day (MBD) in July to 2,105 MBD last month. The rise in Petrobras’ hydrocarbon production was primarily driven by the ramp up of P-55 and P-58 platforms at Roncador and Parque das Baleias (Whale Park) fields, respectively. Both the fields are located in the offshore Campos Basin that holds more than two-thirds of the company’s total proved hydrocarbon reserves in Brazil. [3]

During the first eight months of this year, Petrobras’ crude oil production from Brazil has grown by almost 3.5% y-o-y, primarily driven by the development of its hydrocarbon reserves in the Campos and Santos basins, located off the country’s southeast coast. The company recently announced that oil production from fields operated by it in the pre-salt areas of Campos and Santos Basins, which averaged just 302 MBD last year, hit a record level of 581 MBD on August 25. Petrobras plans to grow its average daily crude oil and natural gas liquids production by 6.5-8.5% y-o-y this year. However, given the progress made so far, we believe the target to be very ambitious and have factored in a 4% y-o-y increase in its total upstream production for the full year.

  • We currently have a $21/share price estimate for Petrobras, which is around 20% above its current market price. The company’s share price increased by 2.6% last week.
  • We currently estimate Petrobras’ 2014 diluted EPS to be at $2.1, compared to the consensus estimate of $1.63 reported by Reuters.

See Our Complete Analysis For Petroleo Brasileiro Petrobras


ConocoPhillips’ Bitumen Production

ConocoPhillips’ (NYSE:COP) joint venture partner in the FCCL Partnership, Cenovus Energy, announced first production from Phase F of the Foster Creek project. The company expects production from the new unit to reach 5 MBD by the end of this year and the peak of 30 MBD in the next 12 to 18 months. Apart from that, the two phases under construction (G and H) along with the planned optimization of the currently producing ones are expected to add approximately 95 MBD of gross production capacity at Foster Creek. Last year, the FCCL Partnership also applied for a regulatory approval of Phase J of the project. Currently, public consultation process is under way for the proposed expansion. [4]

As the FCCL Partnership successfully progresses with the ongoing expansion projects, we expect ConocoPhillips’ bitumen production to grow in the next few years. During the first two quarters of this year, ConocoPhillips derived almost 90% of its total bitumen production of around 126 MBD from the FCCL Partnership in Canada. We expect the company’s total bitumen production from FCCL to reach more than 350 MBD by 2019.

  • We currently have a $85/share price estimate for ConocoPhillips, which is around 5% above its current market price. The company’s share price increased by almost 3% last week.
  • We currently estimate ConocoPhillips’ 2014 adjusted diluted EPS to be at $6.62, compared to the consensus estimate of $6.52 reported by Reuters.

See Our Complete Analysis For ConocoPhillips


Exxon’s Expansion In The Permian

Exxon Mobil (NYSE:XOM) announced that it entered into a non-monetary exchange agreement with Linn Energy (NASDAQ: LINE) to increase its net acreage in the Permian Basin by 17,800 acres. Linn, in turn, is getting interest in about 500 net acres of Exxon Mobil’s South Belridge Field, which is near Bakersfield, California. This is Exxon’s second non-monetary exchange agreement with Linn this year. In May, Exxon added nearly 26,000 net acres to its Permian portfolio in exchange for its interest in the Hugoton gas field in Kansas and Oklahoma. The most recent deal extends Exxon’s leasehold position across the entire Permian basin to more than 1.5 million acres that are currently producing more than 95,000 barrels of oil equivalent per day, roughly 80% of which is crude oil and condensates. [5]

The Permian basin is one of the oldest and most prolific oil producing regions in the U.S. It accounts for about two-thirds of crude oil production in Texas and nearly 15% of the entire U.S. Although conventionals still account for a bulk of oil production in the Permian, it may be extremely rich in unconventional resources. For instance, in terms of thickness of the hydrocarbon producing zone, the Bakken Shale covers 10 to 120 feet in thickness, while formations in the Eagle Ford Shale are estimated to be between 150 and 300 feet in thickness. In contrast, some parts of the Permian offer shales spanning 1,300 to 1,800 feet, which is similar to having more than a dozen Bakken Shales stacked one-over the other. Exxon realizes the potential of horizontal drilling in the Permian and is hence investing in expanding its acreage in the region. [6]

  • We currently have a $107/share price estimate for Exxon Mobil, which is around 10% above its current market price. The company’s share price increased by around 1.5% last week.
  • We currently estimate Exxon’s 2014 GAAP diluted EPS to be at $7.96, compared to the consensus estimate of $7.7 reported by Reuters.

See Our Complete Analysis For Exxon Mobil

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Notes:
  1. Oil Prices Slip On Unexpected Supply Rise, wsj.com []
  2. Ice Brent Crude Oil Front Month, ft.com []
  3. Monthly crude oil and natural gas production in – Brazil and Abroad, investidorpetrobras.com []
  4. Cenovus Energy Says Foster Creek Oil Sands Expansion Complete, reuters.com []
  5. Exxon Mobil Continues To Increase Wolfcamp Position In Permian Basin, exxonmobil.com []
  6. Are Permian Shales the next big thing?, WellServicingMagazine []